Ezhkov v. Mashevich

2020 BCSC 733 Ezhkov v. Mashevich

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Ezhkov v. Mashevich, 2020 BCSC 733 Date: 20200515 Docket: S162952 Registry: Vancouver Between: Danila Ezhkov and Hilltop Training Systems Corp. Plaintiffs And Frank Mashevich, Rosanna Mashevich and Orca Training Group Ltd. doing business as Orca Institute Defendants Elena Kozieva and 528548 B.C. Ltd. Defendants by Counterclaim Before: The Honourable Justice Winteringham Reasons for Judgment Counsel for Plaintiffs: G. Forrester Counsel for Plaintiffs, excluding November 18-19, 2020 and February 12, 2020: M. Kalan O. Mohamed Counsel for Defendants: G. Allen Counsel for Defendants by Counterclaim: G. Forrester Place and Date of Hearing: Vancouver, B.C. November 19-23, 26-29, 2018 March 4-6 and 8 and November 18-19, 2019 February 12, 2020 Place and Date of Decision: Vancouver, B.C. May 15, 2020 Table of Contents I. OVERVIEW... 3 II. BACKGROUND.. 3 A. The Parties. 4 B. Mr. Ezhkov's purchase of Hilltop Academy. 4 C. Share Purchase and Management Agreements. 7 1. Share Purchase Agreement 7 2. Transitional Management Agreement 9 3. Second Management Agreement 10 D. Termination of Management Agreement 11 III. ISSUES.. 11 IV. evidence of agreements, orca and celtic.. 12 A. Orca Institute. 13 1. Initial meetings in 2012. 14 2. Events leading up to Share Purchase Agreement 16 B. Events surrounding the termination notice. 20 C. Celtic

Consultants. 24 D. CRA - personal/business expenses. 25 V. EXPERT EVIDENCE.. 26 VI. CREDIBILITY/BURDEN OF PROOF.. 29 A. Law - Credibility and Burden of Proof 29 B. Credibility Assessment 30 VII. ASSESSMENT OF PLAINTIFFS' CLAIM.. 47 A. Overdrawn profit/operating income. 47 B. Unearned Revenue. 49 C. Unrecorded Cash Payments for Tuition.. 50 D. Audit Expenses. 50 E. Summary. 51 VIII. ASSESSMENT OF COUNTERCLAIM.. 52 A. Unpaid capital expenses, unpaid management services and restitution for costs incurred after management period. 53 B. Defamation claim.. 54 IX. Summary of Findings.. 58 X. CONCLUSION AND ORDERS.. 59 I. OVERVIEW [1] In 2013, Danila Ezhkov purchased a fitness training school from the defendants. For two years thereafter, the defendants managed the fitness training school while Mr. Ezhkov arranged to move from Russia to Canada. Once he arrived in British Columbia, Mr. Ezhkov discovered irregularities with the business operations and terminated the defendants. Mr. Ezhkov seeks damages for the defendants' breach of the purchase and management agreements alleging they secretly operated a competitor business, overdrew their compensation and generally failed to account for revenue and expenses. The defendants counterclaim for breaches of the same agreements. In addition, the defendants allege defamation by their former employee, Elena Kozieva, stating that she made

defamatory statements about them to Mr. Ezhkov which caused him to terminate their management of the fitness training school. [2] The agreements were loosely drafted and lacked specificity in their terms. This did not serve the parties well when the dispute arose. [3] The parties testified as did Mr. Ezhkov's former spouse, a real estate broker and Hilltop Academy's bookkeeper and accountant. The parties each tendered forensic accounting evidence through accountants. In addition, the parties relied on an agreed statement of facts and over twenty exhibits. One exhibit was comprised of ten binders of documents including the agreements, correspondence, brochures and accounting documents. [4] There was a significant body of evidence presented some of which was unnecessary to a resolution of the issues. As such, I have not made specific reference to all of the evidence. I will first set out the background to the dispute then make findings regarding disputed evidence, including the expert evidence. Finally, I will assess the claims advanced by both sides. II. BACKGROUND [5] Mr. Ezhkov, a Russian citizen, sought to immigrate to Canada. Relying on advice from an immigration consultant, Mr. Ezhkov decided to purchase a small Canadian business to facilitate his application. The immigration consultant introduced him to a realtor, Valeria Lockwood, who in turn introduced him to the

defendants. A. The Parties [6] Mr. Ezhkov is currently the sole director of Hilltop Training Systems Corp. which carries on business as Hilltop Academy, a fitness training school ("Hilltop Academy"). 528548 B.C. Ltd., a defendant by counterclaim, owns all the shares of Hilltop Academy. Mr. Ezhkov is the owner of 528548 B.C. Ltd. ("052"). Elena Kozieva, the second defendant by counterclaim, has been an employee of Hilltop Academy since 2008. [7] Frank Mashevich and Rosanna Mashevich (now Rubin) sold 052 and Hilltop Academy to Mr. Ezhkov in October 2013. Mr. Mashevich and Ms. Rubin owned and operated the corporate defendant, Orca Training Group Ltd. doing business as Orca Institute ("Orca Institute"). They were still operating Orca Institute at the time of the trial. [8] Mr. Mashevich testified that he and Ms. Rubin began operating Hilltop Academy in the early 1990s and offered security programs until 2008 or 2009. They started offering the fitness leadership program in about 2009. He testified that he did not have a "hands-on" approach when it came to running the financial side of the business, leaving most financial tasks to Ms. Rubin. He testified that before Mr. Ezhkov purchased Hilltop Academy, he and Ms. Rubin would take draws from the company based on whether there was money in the account. He was not involved in calculating "profits", dealing with the accountants or

dealing with student financial aid issues important to running Hilltop Academy. He testified that they ran the business informally and that he left the financial matters to Ms. Rubin. B. Mr. Ezhkov's purchase of Hilltop Academy [9] The parties endorsed a joint statement of agreed facts, reproduced here. As such, the following facts were proven: 1. Valeria Lockwood, a realtor with Prudential Sussex Realty, introduced Mr. Ezhkov to Mr. Mashevich and Ms. Rubin.

2. On September 17, 2012, the defendants accepted the terms of a Letter of Intent from Mr. Ezhkov to purchase Hilltop Academy by way of a purchase of 052 ("Letter of Intent").

3. Prior to signing the Letter of Intent, the defendants advised Mr. Ezhkov that Hilltop Academy taught the Fitness Leadership Diploma Program, which was developed by Hilltop Academy.

4. Pursuant to the Letter of Intent, Mr. Ezhkov paid a deposit of $75,000 for the purchase of Hilltop Academy.

5. Before October 18, 2013, Hilltop Academy advertised on its website, www.hilltopacademy.ca that (1) it was unique because it was the only school in B.C. that offered a comprehensive 17-week (340 hours) diploma program and (2) Hilltop Academy is the only accredited school in B.C. that offers education in the field of personal training that leads students to a recognized and legitimate diploma.

6. On or about October 18, 2013, the defendants and Mr. Ezhkov entered into a share purchase agreement by which Mr. Ezhkov would purchase all of the issued and outstanding shares of 052 to effectively buy Hilltop Academy for the purchase price of $470,000 ("Share Purchase Agreement"). Pursuant to the Share Purchase Agreement, the parties agreed: i. The defendants would sell all of the issued and outstanding shares of 052 to Mr. Ezhkov ("Shares"); ii. The purchase price for the Shares would be $470,000 ("Purchase Price"); iii. Mr. Ezhkov had already made a deposit of $75,000 towards the Purchase Price; and iv. The closing of the transaction would take place after the remainder of the Purchase Price was paid and the funds had cleared at the defendants' bank.

7. Pursuant to the Share Purchase Agreement, the parties agreed the defendants would transfer the domain name www.hilltopacademy.ca to Mr. Ezhkov upon closing of the purchase of the Shares.

8. On or about October 18, 2013, the defendants and Mr. Ezhkov entered into a transitional management agreement ("Transitional Management Agreement"); 9. On October 10, 2013, Mr. Ezhkov paid $395,000 for the balance of the Purchase Price; 10. On October 23, 2013, Mr. Ezhkov paid an additional $14,065 to Ms. Rubin pursuant to the terms of the Share Purchase Agreement; 11. On February 13, 2014, the defendants and Mr. Ezhkov entered into a second management agreement ("Management Agreement"). After executing the Management Agreement, the defendants continued to manage Hilltop Academy and were entitled to 100% of the operating profits of the business for the duration of the agreement; Payments to Celtic Consultants LLC 12. Between October 18, 2013 and November 30, 2015, the defendants made payments from Hilltop Academy, through Hilltop Academy's bank account, to a company named Celtic Consultants LLC ("Celtic") totaling $161,400. Defendants' relationship with Orca Institute 13. In or about August 2015, the defendants made a request to Mr. Ezhkov to teach fitness courses with Orca Institute and Mr. Ezhkov refused.

14. Between October 18, 2013 and November 30, 2015, the defendants: i. instructed current Hilltop Academy employees to conduct work related to Orca Institute; ii. used Hilltop Academy computers to conduct business for Orca Institute; iii. paid expenses of Orca Institute from the bank account of Hilltop Academy; iv. were aware that Orca Institute was advertising the Fitness Leadership Diploma Course, the same course and curriculum as Hilltop Academy, on its website; v. assisted in registering courses with the Private Career Training Institutions Agency ("PCTIA") for Orca Institute; and vi. represented themselves in emails and other documents as directors of Orca Institute.

15. To date, Orca Institute has never registered any students to take the Fitness Leadership Diploma Program at Orca Institute.

16. Orca Institute is currently accredited by the Private Training Institutions Branch of B.C. ("PTIB") and has registered the Fitness Leadership Diploma Program with the PTIB.

17. On or about December 5, 2014, the defendants authorized the use of cross promotion banners on the Hilltop Academy website, www.hilltopacademy.ca, for Orca Institute's Nutrition Consultant Program.

18. Andrei Ouspenski was an instructor/consultant that did work with Orca Institute from October 18, 2013 to November 30, 2015. Registration and Ownership of Domain Name www.hilltopacademy.com 19. The defendants are the owners of and have control of the domain name www.hilltopacademy.com. At the time of the sale of Hilltop Academy to Mr. Ezhkov, the defendants were the owners of the domain name www.hilltopacademy.com.

20. In or about November 2015, Mr. Ezhkov asked Mr. Mashevich to transfer registration and ownership of the domain name www.hilltopacademy.com to Mr. Ezhkov. In or about November 2015, Mr. Mashevich refused to transfer the domain name www.hilltopacademy.com to Mr. Ezhkov.

21. Currently, the domain name www.hilltopacademy.com redirects to www.orcainstitute.com. Termination of Second Management Agreement 22. Between July - August 2014, the defendants made payments totaling $9,000 to Mr. Ezhkov pursuant to the terms of the Management Agreement.

23. In November 2014, the defendants asked Mr. Ezhkov to pay two expenses related to the accreditation for Hilltop Academy with the PCTIA, the precursor to the PTIB, in the amounts of $5,250 and $5,000, for an accreditation visit and an accreditation report. In or about this time, Mr. Ezhkov agreed that these amounts could be taken out of his monthly payments under the Management Agreement.

24. Prior to October 18, 2013, Hilltop Academy received its designation as an institution whose students could receive financial assistance from StudentAidBC.

25. On October 9, 2015, Hilltop Academy received a report from the Ministry of Advanced Education regarding the findings of its compliance review of Hilltop Academy and including recommendations for improvements and actions required ("Compliance Report").

26. On October 30, 2015, the defendants received a notice of termination of the Management Agreement from Mr. Ezhkov, with an effective date of November 30, 2015 ("Termination Notice"). Operating Profit Payments to the Defendants 27. All payments made between October 18, 2013 and November 30, 2015 from the bank account of Hilltop Academy, Account Number [omit bank account number] to Orca Institute comprise part of the defendants' operating profit. All payments made between October 18, 2013 and November 30, 2015 from the bank account of Hilltop Academy [omit bank account number] to Hilltop International Consultants Ltd. comprise part of Ms. Rubin's portion of the operating profit. C. Share Purchase and Management Agreements [10] I set out the relevant provisions of the Share Purchase and Management Agreements in the paragraphs that follow.

1. Share Purchase Agreement [11] In addition to the agreed terms, the parties rely on the following terms of the Share Purchase Agreement: Seller's Representations and Warranties 10. The Seller represents and warrants to the Purchaser that: . . . m. The Sellers agree that they will enter into a transitional management agreement and that they will provide for an orderly transition into the business. . . .

11. The representations and warranties given in this Agreement are the only representations and warranties. No other representation or warranty, either expressed or implied, has been given by the Seller to the Purchaser. . . . Purchaser's Representations and Warranties 13. The Purchaser represents and warrants to the Seller the following: . . . d. Upon the closing date the Purchaser will reimburse Frank and Rosanna Mashevich for legal expenses in the amount of $11,065.00 in relation to the reinstatement of the Federal and Provincial student loans. . . . f. The Sellers had paid to PCTIA (accrediting agency) Change of Ownership fees for the approval of the new owner of the school. Upon the Closing Date the Purchaser will reimburse Hilltop Academy in the amount of $1,500.00, this amount must be in the form of the certified bank cheque. After the closing date this funds ($1,500.00) will be paid by Hilltop Academy to Frank and Rosanna Mashevich, this amount is for the sole benefit of Frank and Rosanna Mashevich and shall not be part of the profit sharing arrangement specified in the Transitional Management Agreement. . . . Non-solicitation . . .

17. The Seller agrees that during the term of this Agreement and for a period of two years after the Closing Date of this Agreement, within the Lower Mainland area of British Columbia, the Seller will not in any way directly or indirectly: a. Induce or attempt to induce any employee, director, agent, contractor or other service provider of the purchaser to quit employment or retainer with the Purchaser; b. Otherwise interfere with or disrupt the Purchaser's relationship with its employees, directors, agents, contractors or other service providers; c. Discuss employment opportunities or provide information about competitive employment to any of the Purchaser's employees, directors, agents, contractors, or other services providers; or d. Solicit, entice, or hire away any employee, director, agent, contractor or other service provider of the Purchaser. Non-competition 18. For a period of two years (the "Non-Competition Period") after the expiration of the Management Agreement, the Seller will not, either individually or in conjunction with any other person or business entity or in any other manner whatsoever, have interest in, enter employment with, lend money to, advise or permit its name to be associated with any business teaching Fitness Leadership Diploma program or other Fitness courses or in competition with the Purchaser in the geographical area known as the Great Vancouver

Regional District, British Columbia, This Non-Competition Period is valid only as long as the Purchaser continues to teach Fitness Leadership Diploma program. After the Closing Date, the Seller will transfer to the Purchaser School's Domain name hilltopacademy.ca, main email address and the business name "Hilltop Academy". The Seller promises to never use it in the future. . . . General Provisions 34. This Agreement contains all terms and conditions agreed to by the Parties. Statements or representations which may have been made by any Party to this Agreement in the negotiation stages of this Agreement may in some way be inconsistent with this final written Agreement. All such statements are declared to be of no value to either Party. Only the written terms of this Agreement will bind the Parties.

2. Transitional Management Agreement [12] The Transitional Management Agreement was signed on the same day as the Share Purchase Agreement and included the following terms that have been reproduced[1] from it: A. Day to Day Management and Duration 1) The Co-Managers will continue to manage the day-to-day operations of the Hilltop Academy on a best efforts basis for the Purchaser, including but not limited to: a. Collecting student fees, b. Making all administrative and employment related decisions, c. Banking activities 2) The Co-Managers will continue to retain 100% (one hundred) of the operating profit of Hilltop Academy for the duration of this agreement . . . 2.1 Co-managers will provide: . . . Record and control management of the financial accounting, including: money receipt and the current expenses payment.

3) Upon the Closing of the sale the Co-Managers will continue to manage the day-to-day operations of the School until the 28 of February 2014. If the Purchaser wishes to extend this Agreement than the Purchaser must provide the Co-Managers with the 30 days advance written notice before the end of this agreement. B. Record Keeping and Banking 4) The Co-Managers will keep accurate, and complete books and accounting records relating to the ongoing day-to-day operations of the Hilltop Academy . . . D. Training for Purchaser by Co-Managers 7) 14-days training period will start next business day after management period ends. During the training period the Co-Managers will provide the Purchaser or any other person appointed by the Purchaser with training, business orientation, general help, and the Co-managers will continue to work in the business for 8 hours a day at no charge for the duration of the Training Period.

8) Immediately after completion of the Training Period, at least one of the Vendors agree to work at the business for another 30 days for $40 per hour. After that one of the Vendors will stay at the business for period of 90 days or less for agreed compensation.

3. Second Management Agreement [13] On February 13, 2014, Mr. Ezhkov and the defendants entered into a second management agreement ("Management Agreement"). The Management Agreement replaced the Transitional Management Agreement and included the following terms: . . . b) The Co-Managers will continue to retain 100% (one hundred) of the operating profit of Hilltop Academy for the duration of this agreement. The Co-Managers will pay the School Owner $2,000 ... for the Month of March 2014 by the end of that month. The Co-Managers will pay to the School Owner $3,000 at the end of each month for the duration of this agreement starting April 1, 2014. . . . c) The Co-Managers will continue to manage the day-to-day operations of the School until the 30th of June 2014 than will continue for the same remuneration on the month to month basis until this agreement is cancelled by either party. The School Owner will continue to receive the same remuneration after the 30th of June 2014 until this agreement is canceled by either party. If the School Owner wishes to end this Agreement than the School Owner must provide the Co-Managers with the 30 days advance written notice any time after the 31st of May 2014. If the Co-Managers wishes to end this Agreement than the Co-Managers must provide the School Owner with the 30 days advance notice any time after the 31st of May 2014. [14] The Management

Agreement does not include a training clause authorizing the defendants to provide training to Mr. Ezhkov for a fee. D. Termination of Management Agreement [15] On October 30, 2015, Mr. Ezhkov delivered written notice to the defendants to terminate the Management Agreement effective November 30, 2015. The parties disagree about the events that occurred both immediately before and immediately after the termination notice was delivered. III. ISSUES [16] There was considerable disagreement about what occurred during negotiations and during the defendants' management of Hilltop Academy. Necessary to an assessment of the parties' claims, I am required to resolve the dispute relating to the following matters: a) The defendants' involvement with Orca Institute and the impact, if any, on the plaintiffs' claim for damages; b) Events surrounding the delivery of the termination notice; c) Payments made to Celtic Consultants LLC ("Celtic Consultants") during the Management Agreement; d) The plaintiffs' claims regarding the assessment and calculation of profits, unearned revenue and allocation of miscellaneous expenses incurred during the Management Agreement; e) The defendants' claims against the defendants by counterclaim including: i. Entitlement to unpaid capital expenses, including moving and furnishing expenses for Hilltop Academy's new location; ii. Entitlement to unpaid management

services including training fees; iii. Restitution for amounts paid by the defendants for courses which took place after the management period; and iv. Damages for any defamatory statements found to be made by Ms. Kozieva. [17] I turn now to the evidence relevant to the various issues raised by the parties. IV. evidence of agreements, orca and celtic [18] As a starting point, I note that the parties spent considerable time testifying about issues that arose surrounding their negotiations and the terms of the Share Purchase Agreement. However, both parties seek to rely on the contract and its terms. I do not therefore find it useful to examine the nuances of the evidence relating to negotiations. I appreciate the plaintiffs allege misrepresentation on the part of the defendants. However, the plaintiffs did not develop this part of their claim but rather, appropriately in my view, focused their claim on damages for any breaches found of the Share Purchase and Management Agreements. The pre-contractual evidence about Orca Institute stands apart because it impacts the assessment of the defendants' conduct under the Management Agreement. In that regard, the pre-contractual evidence regarding the disclosure of Orca Institute is relevant to my assessment of the claim for damages regarding the management of Hilltop Academy, including the relief sought regarding the domain

www.hilltopacademy.com and the counterclaim. A. Orca Institute [19] As stated previously, there was significant dispute between the parties about the defendants' relationship with Orca Institute and whether the defendants breached the Management Agreement and/or the Share Purchase Agreement because of their activities relating to Orca Institute operations. The defendants admit ongoing involvement with Orca Institute during the tenure of the Management Agreement but say they spent minimal time on Orca Institute's business - perhaps 5% of their time. [20] More importantly, the defendants deny they were competing with Hilltop Academy or attempting to procure prospective students away from Hilltop Academy. [21] Mr. Mashevich spent some time testifying about his initial involvement with Orca Institute before 2012. He explained that Hilltop Academy was at risk of losing their designation for financial aid because of the high student aid default rate. To get around the loss of designation, Mr. Mashevich received advice that he could do what he referred to as a "course swap." Orca Institute was registered to offer a hypnotherapy program and its designation with PCTIA was intact. With the course swap, Hilltop Academy adopted the hypnotherapy program and Orca Institute registered the fitness leadership diploma program. Mr. Mashevich explained that Hilltop Academy lost its financial aid

designation but recovered the designation in September 2013. He testified that Orca Institute had the same address as Hilltop Academy and that he believed the Orca Institute business license was displayed in the Hilltop Academy offices. He testified that the Hilltop Academy employees, including Ms. Kozieva, all had to sign employment agreements with Orca Institute. He maintained that Orca Institute never taught the fitness leadership program. [22] In essence, Mr. Mashevich presented Orca Institute as a company that could support Hilltop Academy. He also testified that he never hid Orca Institute from Mr. Ezhkov. [23] As for his introduction to Mr. Ezhkov, Mr. Mashevich testified that he was not looking to sell Hilltop Academy. Rather, he testified that he learned through Ms. Rubin that Ms. Lockwood had located a potential purchaser of Hilltop Academy. Mr. Mashevich had never met Ms. Lockwood before. He agreed to a meeting with Mr. Ezhkov.

1. Initial meetings in 2012 [24] The parties agreed there were two meeting in or about August/September 2012 but disagreed as to the nature of the discussion (if any) about Orca Institute. In particular, Mr. Ezhkov testified that he did not remember Orca Institute being mentioned during the 2012 meetings. In fact, Mr. Ezhkov testified that he first learned details about Orca Institute in an email dated March 5, 2014. [25] Mr. Ezhkov testified that in about August 2012, he and his (now) former spouse attended a meeting with Ms. Lockwood, Mr. Mashevich and Ms. Rubin at Ms. Lockwood's office. He testified there was discussion about the nature of Hilltop Academy's business and that they had the exclusive right to teach the fitness leadership program in Vancouver, BC. He said there was a brief discussion about profitability and the staff. He believed it was Mr. Mashevich who disclosed that Hilltop Academy had temporary problems with designation but that they were in the process of having the designation restored. Mr. Ezhkov was told that the designation allowed students to obtain student loans and that the defendants wanted him to pay for the legal costs to restore the designation. He testified that the defendants told him the company made a decent profit and that they would bring financial information to the next meeting. [26] Mr. Mashevich testified that at the first meeting, "we

told him about the school, its history and the present situation about the courses." He testified that the defendants told Mr. Ezhkov that they did not have the designation for financial aid but that they were working to get it back. When Mr. Ezhkov asked if they were profitable, the defendants told him that they were breaking even. Mr. Mashevich went on and said he explained the course-swap to Mr. Ezhkov and explained Orca Institute's involvement. His evidence on this point was that "We have plan B - there is [Orca Institute] - they have students registered for our course. We can swap courses and we can utilize this connection for subcontracting purposes." Mr. Mashevich also told Mr. Ezhkov that Orca Institute was an accredited college and had a registered office at the defendants' location. Mr. Mashevich went further and said that he disclosed the hypnotherapy program but that Mr. Ezhkov was more interested in an astrology program that he wanted to run. [27] Inna Ezhkova, Mr. Ezhkov's former spouse, testified about the two meetings. Her recollection was similar to Mr. Ezhkov's in that she recalled a friendly meeting and the defendants describing a profitable, strong business. She also recalled the discussion surrounding the problems with designation. Importantly, she was cross-examined about Orca Institute. She was adamant that Orca Institute was not mentioned during either

meeting. When it was suggested to her that Mr. Ezhkov thought Orca Institute had been mentioned, she did not resile from her earlier testimony. In fact, she was certain that Orca Institute was not mentioned. [28] Ms. Ezhkova was a candid and matter-of-fact witness. Though married to Mr. Ezhkov at the time of the 2012 meetings, they had since separated. She did not exhibit any apparent animosity to the defendants and simply appeared to testify about the events to the best of her recollection. When she was asked about pre-trial discussions with Mr. Ezhkov, she said of course she had spoken to him. It did not appear to taint her evidence. In fact, her testimony about Orca Institute did not perfectly match that of Mr. Ezhkov's. [29] After the first meeting, Mr. Ezhkov wanted to see the financial information and so Ms. Lockwood organized a second meeting. [30] The second meeting occurred about one week later at Ms. Lockwood's office. The same people participated (though Mr. Ezhkov's two children were also present). At the second meeting, Mr. Ezhkov recalled that the defendants brought financial information and they repeated their assurance about the restoration of Hilltop Academy's designation. [31] Mr. Mashevich said that Ms. Ezhkova was in and out of the meeting room and did not really participate beyond that. Mr. Mashevich brought financial documents with him and they discussed

the operations. Specifically, Mr. Mashevich said, they again discussed Orca Institute. He testified that they talked about "plan B - if they cannot get financial aid back then they can use [Orca Institute] and subcontract [Hilltop Academy] to teach - to make it attractive." [32] Mr. Mashevich testified that he disclosed the entirety of the course-swap to Mr. Ezhkov during their August 2012 meetings. He said the relationship between Hilltop Academy and Orca Institute was not a secret. [33] Ms. Rubin's testimony about the disclosure of Orca Institute was the same as that of Mr. Mashevich. She testified that what was mainly discussed at the meeting was the fact the school did not have its designation but it did have its accreditation. She went on to explain that "Plan B was [Orca Institute] - if we don't receive designation - then we have a Plan B with [Orca Institute] - a joint venture." 2. Events leading up to Share Purchase Agreement [34] The Letter of Intent was signed and ultimately Mr. Mashevich arranged for the Share Purchase Agreement to be prepared. There were ongoing communications between the parties regarding the terms of the Share Purchase Agreement. The parties testified about three items in particular, relocation expenses, costs associated with regaining the financial aid designation and security deposit for the new location. Hilltop Academy moved locations in or

about 2013. Steps were taken and costs incurred to orchestrate this move. Mr. Mashevich testified that Mr. Ezhkov agreed to pay for all of these expenses including the moving expenses and costs associated with regaining the financial aid designation. The Share Purchase Agreement stipulated that Mr. Ezhkov would pay for the costs associated with regaining the financial aid designation and partial payment of the security deposit. However, the moving/relocation expenses were not included as a term of the Share Purchase Agreement. [35] Mr. Ezhkov testified about events that occurred between the August 2012 meetings and the signing of the Share Purchase Agreement in 2013. He testified that his purchase needed to be delayed somewhat because he did not have status to be working in Canada and wanted to ensure that he was complying with Canadian immigration requirements. That is why, he testified, he wanted the defendants to continue to manage Hilltop Academy. He testified that he knew he could not manage Hilltop Academy until he was able to obtain authorization to work in the country. He testified in the meantime that the defendants tried to increase the sale price of Hilltop Academy. In addition, the defendants wanted Mr. Ezhkov to pay the moving expenses. [36] The Share Purchase Agreement required Mr. Mashevich to transfer www.hilltopacademy.ca to Mr. Ezhkov. Mr. Ezhkov believed the

Share Purchase Agreement also entitled him to the domain www.hilltopacademy.com. He testified that he communicated this to Mr. Mashevich through Ms. Lockwood. He testified that Mr. Mashevich told him about both domain names before the Share Purchase Agreement was signed. [37] Mr. Ezhkov was in Russia when he signed the Share Purchase Agreement in October 2013. He testified that he was next in BC in about December 2013. When asked whether he had any concerns about the management of the school at that time, he testified that he did not although he had received a strange letter from PCTIA demanding that he stop teaching the hypnotherapy course. He stated that he did not know anything about this course. [38] According to Mr. Ezhkov, Mr. Mashevich approached him in February 2014 about extending the Management Agreement. He agreed because he did not see anything wrong with their management of Hilltop Academy. More importantly, he needed to wait for his work authorization before he could begin managing the business. Mr. Ezhkov testified that he returned to Russia on February 19, 2014. [39] In March 2014, Mr. Ezhkov testified about a Skype call he had with Mr. Mashevich which was followed up by an email dated March 5, 2014. In the Skype call, Mr. Mashevich stated that he wanted to speak about something and Mr. Ezhkov asked him to put it in an email. It was then, according to Mr. Ezhkov

that he first learned about the defendants' interest in Orca Institute and its connection to Hilltop Academy. [40] In his email, Mr. Mashevich described the benefits to Hilltop Academy of cooperation with Orca Institute. He then went on to provide a lengthy description of some of Orca Institute's history stating that "[Orca Institute has] different courses and for the last 2 or 3 years they offer Fitness Leadership program." In the email, he described how access to subcontracting between Hilltop and Orca could benefit both schools because if one lost StudentAidBC approval, then the other could subcontract. He ended the email with this: We believe that Hilltop would not be effected in any negative way, but only can benefit from it. We would be able to manage Hilltop with the high quality regardless of our involvement with Orca. Last but not least, when [Ms. Rubin] and I will start making money of Orca Fitness course (after few months I would say) then we would start paying you as well, $1,000 per month that is in addition to the $3,000 for managing Hilltop." [41] Mr. Ezhkov testified that he was upset about this request, in part because he had not previously heard about Orca Institute and its relationship to Hilltop Academy. He was concerned about the competition and the impact on his new business. He responded on March 19, 2014 with an email to Mr. Mashevich stating: . . . I

have studied the issue of Orca and unfortunately are not ready to endorse your work on the fitness course in Orca now because an objective conflict of interest looks very dangerous to me and to Hilltop Academy. I hope that your work for management Hilltop Academy will be successful and the issue of cancellation of the designation will not stand. [42] Mr. Mashevich responded by writing, "no problem, I understand your concerns." [43] Mr. Ezhkov testified that the defendants were asking, "quite persistently," to work with Orca Institute while still working for Hilltop Academy and before the non-competition clause had expired. In Mr. Ezhkov's view, this was a direct conflict of interest because his students could be lost to Orca Institute. Mr. Ezhkov maintained that he did not know about the defendants' involvement in Orca Institute although he agreed that they could have mentioned the name of the company as one of their companies at one of the August 2012 meetings. [44] Mr. Ezhkov was cross-examined about Orca Institute and his knowledge about whether the defendants ever taught the fitness leadership diploma program. Mr. Ezhkov agreed that: [he did not] have proof that they taught the program. But there is a lot of proof that they were doing everything in order to be able to teach that program. . . they registered it with PCTIA . . . they used our program for that . . . they put a

promotion on their website and from the outside it looked like this was the course they were offering to the student. Moreover, the link from hilltopacademy.com transfers to Orca. During cross examination about the non-solicitation clause, Mr. Ezhkov agreed that no Hilltop Academy employee left to work for Orca Institute after November 30, 2015. [45] Mr. Ezhkov was cross-examined about whether the defendants had told him about Orca Institute during the August 2012 meetings. On this point, the defendants suggest there was a material inconsistency in what Mr. Ezhkov said at trial and what was said at his examination for discovery. He was pressed about a statement he made at the examination for discovery that he did not remember what had been said about Orca Institute. I have reviewed the examination for discovery transcript, the edited discovery transcript[2] and the trial testimony, and I do not find that Mr. Ezhkov was inconsistent on this point. At trial, he explained his evidence in this way: Even right now, I cannot say for sure whether they said anything about Orca or not but if they did - it would have been a mere mention of it . . . I can assure you that if they said they sold the program and curriculum to Orca, I wouldn't be saying to you that they simply mentioned Orca. I accept Mr. Ezhkov's evidence on this point. Specifically, I find that the defendants did not tell

Mr. Ezhkov about Orca Institute's interest in offering a fitness training program similar to that of Hilltop Academy during the 2012 meetings. [46] For the reasons set out more fully below, I make that finding even in the face of Ms. Lockwood's testimony to the contrary. [47] Mr. Mashevich testified that he started to increase his involvement with Orca Institute in 2014. He testified that during the Management Agreement, he spent about 5% of his time on Orca Institute activities and 95% of his time managing Hilltop Academy. He believed that Orca Institute did not offer any other courses (besides the hypnotherapy) in 2013, 2014 or 2015. Additionally, he stated that he was never paid by Orca Institute, never received a salary or dividend from Orca Institute and never received any money through the management company. He testified that he became a shareholder of Orca Institute in 2017 because he was hoping to make Orca Institute "more active and successful and start some programs - make it profitable eventually." He testified that Orca Institute has not offered a fitness program. B. Events surrounding the termination notice [48] Mr. Ezhkov testified that he was becoming less pleased with the defendants and their management of Hilltop Academy after they entered into the Management Agreement. He was particularly troubled by the payment of management fees to him in a manner that he

believed contravened immigration rules. He was also concerned because the defendants told him there were no profits. He testified that he learned about an audit having been conducted and as a result, Mr. Ezhkov learned there was a risk Hilltop Academy could lose its designation. He was very concerned about the impact of attracting students if the school could not provide prospective students with access to student loans. [49] Mr. Ezhkov learned about the risk of losing the designation when he received a letter dated October 9, 2015 from the BC Ministry of Advanced Education ("Ministry"). Mr. Ezhkov testified about his reaction to this letter. The plaintiffs indicated that they were not tendering the letter for its truth but rather simply to demonstrate the basis of certain actions taken by Mr. Ezhkov.[3] I note this letter is also the subject of the admissions referred to earlier in these reasons. Whether or not the findings in the Ministry's letter are accurate, the letter stipulates areas where Hilltop Academy is alleged to be in noncompliance with the Ministry's requirements for StudentAidBC Policy. As a result of receiving this letter, Mr. Ezhkov believed that the Ministry could terminate the designation of Hilltop Academy and could refuse to provide financial assistance to students. [50] The parties all agree that this designation was important to the operation of Hilltop

Academy. [51] In response to receiving the Ministry's letter, Mr. Ezhkov spoke with the defendants. He testified that he was very disappointed and was unsure from the correspondence whether Hilltop Academy had already lost the designation. He testified that Ms. Rubin blamed Ms. Kozieva for incorrectly completing the necessary forms. [52] Mr. Ezhkov testified that he was very concerned about losing the business at this stage. He testified that "nothing was going well; there was no profit; bad management" and he was genuinely concerned about losing the business for good. He testified that the company was listed as part of his immigration application and he was worried that if he lost the company he would be unable to immigrate. As a result, he testified that he drafted a termination notice on October 30, 2015, with the assistance of Ms. Kozieva, hand delivered it to Ms. Rubin and mailed it to Mr. Mashevich (and perhaps emailed it to both). Despite his concerns about the defendants' management of Hilltop Academy, Mr. Ezhkov complied with the Management Agreement and provided 30 days' notice to them. [53] Thereafter, Mr. Ezhkov asked Ms. Kozieva whether she wished to maintain her employment at Hilltop Academy. She accepted the offer of employment. [54] After he delivered the termination notice, Mr. Ezhkov commenced his examination of Hilltop Academy's financial records. He came

across a letter that was addressed to Orca Institute but had the address of Hilltop Academy. After he found this letter, Mr. Ezhkov testified that he asked Ms. Kozieva how connected Orca Institute was to Hilltop Academy and she responded by stating, "Orca is part of Hilltop; Hilltop pays Orca's invoices; Hilltop's people work for Orca; and a telephone line for Orca was installed." [55] The defendants allege Ms. Kozieva defamed them when she told Mr. Ezhkov about their management of Hilltop Academy. Specifically, the defendants plead that in or around October 2015 (and before the delivery of the termination notice), Ms. Kozieva stated as follows to Mr. Ezhkov: 1. "Frank and Rosanna were not paying any attention to Hilltop"; 2. "Frank and Rosanna are only interesting [sic] in running Orca Institute"; 3. "Frank and Rosanna would like Hilltop to go under"; and 4. "I am the only one running Hilltop." [56] In his testimony, Mr. Ezhkov denied that Ms. Kozieva uttered these statements to him. He maintained that his substantive conversation with Ms. Kozieva about his concerns about the defendants' management of Hilltop Academy occurred after he had drafted the termination notice. [57] During cross-examination, Mr. Ezhkov was asked whether he was "deliberately misleading the court on this point" as to when Ms. Kozieva told him about the defendants and Orca Institute. It was suggested

that Mr. Ezhkov tailored his evidence to help her defend against the defamation claim that had been brought against her. He was also taken to his discovery evidence and it was suggested that his evidence on this point was inconsistent with what he stated at discovery. I have reviewed the discovery transcript and Mr. Ezhkov's trial testimony regarding whether Ms. Kozieva made negative comments about the defendants before he delivered the termination notice to them. I find that his evidence is not inconsistent on this point. [58] Ms. Kozieva denied making the above statements. She admitted she had a conversation with Mr. Ezhkov about his concerns regarding the defendants but that occurred a few days after the termination notice was drafted. She testified she thought Mr. Ezhkov could be wrong that the conversation occurred on October 31, 2015 because she believed it occurred a few days later. [59] She denied any suggestion that she defamed the defendants in exchange for a promotion or otherwise. [60] The defendants say they learned about Ms. Kozieva's defamatory statements through Ms. Lockwood. Ms. Lockwood testified that Mr. Ezhkov had dinner at her place towards the end of October and that he disclosed things to her, particularly things he was hearing about the defendants. She testified that she pressed Mr. Ezhkov into disclosing the source of these negative comments and he told

her that it was Ms. Kozieva. [61] As set out more fully later in these reasons, I reject Ms. Lockwood's evidence that Mr. Ezhkov told her, in October, that Ms. Kozieva was critical of the defendants. [62] Relatedly, Mr. Ezhkov testified about a meeting with Mr. Mashevich, Ms. Rubin and Ms. Lockwood on December 5, 2015 at Ms. Lockwood's office where Ms. Lockwood attempted to mediate a resolution between the parties. At the meeting, Mr. Ezhkov was asked who had "foul-mouthed" the defendants. He was specifically asked whether it was Ms. Kozieva. Mr. Ezhkov denied that he had said (at this meeting or otherwise) it was her. He said he simply told the defendants about his complaints regarding their operation of Hilltop Academy. He testified that Ms. Lockwood asked about whether Ms. Kozieva or another mutual acquaintance had been critical of the defendants. [63] Also at the December 5th meeting, the defendants allege Mr. Ezhkov accepted cash from Mr. Mashevich, in partial payment of management fees owing. Contrary to the testimony of the defendants and Ms. Lockwood, Mr. Ezhkov denied receiving a cash payment at this meeting. He was cross-examined about whether he had asked the defendants to make a cash payment to him at the meeting. Mr. Ezhkov responded with "I want to say that it is a lie." It was then suggested to him that the defendants gave him $12,500 at the meeting and he flatly

rejected the notion he received any cash from the defendants at this meeting. [64] As set out in more detail later in these reasons, I have rejected both Ms. Rubin and Ms. Lockwood's evidence on this point where they said they witnessed the cash transfer. [65] Mr. Ezhkov testified that November 30, 2015 was the last day for the defendants at Hilltop Academy. He began analysing the business records because the company had almost collapsed and he needed to start "restoring" it. He testified that there was "not one cent" in the bank account and the prepaid tuition had been completely wiped out. There were also unpaid invoices dating back to July 2015. [66] Ms. Rubin explained the basis for her decision to transfer just over $55,000 out of Hilltop Academy's bank account as the Management Agreement came to an end stating this money had been earned by the defendants and they were thus entitled to it. The defendants also disagree that they failed to pay the invoices alleging that the subject invoices were not their responsibility. C. Celtic Consultants [67] After the termination of the Management Agreement, Mr. Ezhkov discovered financial transactions involving Celtic Consultants. I will deal with this in greater detail when I address damages. I touch briefly on the Celtic Consultants documents now. [68] During his preliminary review of Hilltop Academy's records, Mr. Ezhkov testified

that he found substantial payments to Celtic Consultants ($161,400 during 2014 and 2015). He also testified that he found what appeared to be a template for an invoice for Celtic Consultants on the Hilltop Academy computer. It seemed to him that the Celtic Consultants template was created on the Hilltop Academy computer. It also had similarities to other invoices used by Mr. Mashevich. Mr. Ezhkov became very concerned that the invoices were manufactured by the defendants and were illegitimate. Despite efforts to find the business of Celtic Consultants, he was unable to do so. Mr. Ezhkov has never found any of the "work product" of Celtic Consultants. [69] Ms. Kozieva testified that she had never heard of Celtic Consultants prior to Mr. Ezhkov's discovery of the invoice. She testified that she had never heard of any mail-out campaign by Celtic Consultants or otherwise. She testified that Hilltop Academy had printed their own prospectus and placed advertisements in local newspapers. After Mr. Ezhkov took over the management of Hilltop Academy, Ms. Kozieva testified about her efforts to learn more about Celtic Consultants. She said the telephone number on the invoice was disconnected. Despite her efforts (online corporate searches, including a search of a company in Delaware), she was never able to locate anyone from Celtic Consultants but eventually found the name "Courtney

Kelln" associated with Celtic Consultants in Delaware. Banking documents were produced pursuant to a court order and the account holder was "Courtney Kelln". All efforts to locate Celtic Consultants or Courtney Kelln failed. [70] I will say more about Celtic Consultants payments during the analysis. At this point, I simply note that the invoice is strikingly similar to an invoice for Finika Ventures Ltd., one of Mr. Mashevich's closely-held companies. D. CRA - personal/business expenses [71] I wish to address an issue that consumed quite a bit of time during the trial. That is the evidence surrounding a CRA audit that the defendants allege was caused by the plaintiffs and Patricia Carniato, Hilltop Academy's bookkeeper. After the Management Agreement ended and while they were trying to reconcile the bookkeeping, the plaintiffs filed T4s representing earnings for Mr. Mashevich and Ms. Rubin that were greater than each had reported. The increased earnings were based on items that the plaintiffs deemed to be personal expenses and which they thought should have been recorded as income. The expenses related to items that the plaintiffs believed were personal expenses and not properly claimed as business expenses. Both Mr. Mashevich and Ms. Rubin were required to pay additional income tax. Ultimately, CRA conducted an audit and decreased the amount of tax owing for each. Ms. Rubin

was very angry that this had occurred and she stated as much during her testimony. [72] The parties made little mention of this evidence during closing submissions. As such, I will not comment further on this aspect of the evidentiary record relating to the CRA audit. V. EXPERT EVIDENCE [73] The parties tendered forensic accounting evidence. The accountants were instructed to provide opinion evidence on a number of topics including whether the defendants had overdrawn their operating profits. The plaintiffs retained Stephen Graff and he prepared a number of reports, including a critique of the defendants' expert report. The defendants retained Antonio Volpe. Mr. Volpe also prepared reports, including a critique of Mr. Graff's opinion [74] I note that the accounting evidence, from both experts, was unclear in some regards. The accounting evidence was complicated by the fact that the underlying assumptions changed. That is, as the plaintiffs discovered new information, the basis for some of the accountant's conclusions changed. It seemed to me that Mr. Graff was dealing with a moving target because the plaintiffs delivered further accounting information as they discovered it. [75] In my view, the accountants were both trying to do their best with a somewhat haphazard set of books. Their evidence was useful in assessing some of the evidence material to my determination of the

issues, including: (1) operating profit; (2) unearned revenue; and (3) miscellaneous book-keeping entries. [76] All agree that the use of the term "operating profits" has been the cause of much of the dispute between the parties. Mr. Graff and Mr. Volpe agreed that the term "operating profit" can be defined differently and accountants may not necessarily agree on how one calculates "operating profit" for a particular business. Mr. Graff was cross-examined about this and agreed that operating profit is typically a metric used to evaluate the health of a company and that there is no real standard in the industry about what is to be included in calculating operating profit. Importantly, Mr. Graff testified that "a person who is not an accountant may not have the knowledge to say specifically what [operating profit] may mean." [77] On the issue of unearned revenue, Mr. Graff was cross-examined about consistency and the importance of maintaining a consistent approach to the preparation of corporate financial statements. As a part of this cross-examination, Mr. Graff was asked about the breadth of his assessment, including the fact that he had not examined financial statements predating 2014. Mr. Graff agreed that it would have been useful to have had a broader record. However, he testified that he took into account 2013 in his overall assessment. [78] I pause to address Ms. Rubin's

testimony about unearned revenue, Hilltop Academy's book-keeping practices and why it was that she felt entitled to remove almost $56,000 from Hilltop Academy after the defendants received the termination notice. Ms. Rubin was cross-examined about her understanding of the meaning of retained and earned revenue. She stated, a few times, that "retained means earned -- that is how it is always treated." She stated in her testimony that the plaintiffs were "playing with words" and that she was simply doing what she always did - with approval from the accountant. This evidence is contrary to much of her testimony where she professes to know very little about book-keeping or accounting methods. I have not accepted this self-serving testimony about Ms. Rubin's attempt to justify the transfer of $56,000 out of Hilltop Academy's account. [79] The defendants also called Andrew Schroeder, once an accountant for Hilltop Academy. He testified that he relied fully on Ms. Rubin for the calculations of earned and unearned revenue agreeing that the financial statements he prepared were in the form of a Notice to Reader. In other words, the accountant relied wholly on the information provided by Ms. Rubin and did not check the numbers for accuracy. [80] For the most part and where necessary to a determination of some of the financial issues, I have preferred the evidence of Mr. Graff. I made

that finding on the basis that some of the assumptions on which Mr. Volpe was asked to rely are different than the factual findings I have made. For instance, I have not accepted the testimony regarding the cash payment to Mr. Ezhkov on December 5, 2015 nor have I accepted that the defendants were entitled to transfer the student fees when they did. [81] I agree with Mr. Graff that some of the assumptions on which Mr. Volpe has based his opinion have not been established on the evidentiary record before me. As such, I prefer the evidence of Mr. Graff on the figures he provides. I also accept the basis for which he has made his calculations, including his evidence that he adhered to the principle of consistency in so doing. [82] Mr. Graff's calculation summary of net operating income is as set out below. I have not included his figures regarding the CRA audit because I am not satisfied on the evidence before me that the plaintiffs have proven this aspect of their claim. Fiscal Year Sept 30 October and November 2015 Total 2014 2015 Net income (loss) before taxes $29,183 ($32,086) $8,003 $5,100 Adjustments: ($20,000) ($36,000) ($6,000) ($62,000) Reimbursement for legal fees $10,881 $10,881` Reimbursement for PCTIA Fees $10,250 $10,250 Accrued expenses paid post-Nov 2015 ($11,008) ($16,564) ($27,572) Operating income $63,341 VI. CREDIBILITY/BURDEN OF PROOF [83] Before I examine the

specific legal issues raised in this litigation, I address my findings regarding the credibility and reliability of the parties. As set out above, there was some common ground in their evidence. However, there were many disputes. A. Law - Credibility and Burden of Proof [84] In my view, it is useful in a case such as this to set out the often-cited principles governing credibility determinations. When assessing the truthfulness of the testimony of any interested witness, I am guided by the words articulated many years ago in Faryna v. Chorny (1951), [1952] 2 D.L.R. 354 (BCCA), at 357: In short, the real test of the truth of the story of a witness in such a case must be its harmony with the preponderance of the probabilities which a practical and informed person would readily recognize as reasonable in that place and in those conditions. [85] I also remind myself of Justice Dillon's recitation of the factors to be considered when assessing credibility in Bradshaw v. Stenner, 2010 BCSC 1398 at para. 186, aff'd 2012 BCCA 296, as follows: Credibility involves an assessment of the trustworthiness of a witness' testimony based upon the veracity or sincerity of a witness and the accuracy of the evidence that the witness provides (Raymond v. Bosanquet (Township) (1919), 59 S.C.R. 452, 50 D.L.R. 560 (S.C.C.)). The art of assessment involves examination of various factors such as the

ability and opportunity to observe events, the firmness of his memory, the ability to resist the influence of interest to modify his recollection, whether the witness' evidence harmonizes with independent evidence that has been accepted, whether the witness changes his testimony during direct and cross-examination, whether the witness' testimony seems unreasonable, impossible, or unlikely, whether a witness has a motive to lie, and the demeanour of a witness generally (Wallace v. Davis, [1926] 31 O.W.N. 202 (Ont. H.C.); Faryna v. Chorny, [1952] 2 D.L.R. 152 (B.C.C.A.) [Faryna]; R. v. S.(R.D.), [1997] 3 S.C.R. 484 at para.128 (S.C.C.)). Ultimately, the validity of the evidence depends on whether the evidence is consistent with the probabilities affecting the case as a whole and shown to be in existence at the time (Faryna at para. 356). [86] Also from Bradshaw, I have considered Dillon J.'s statement (at para. 188) about the impact of the failure to produce relevant documents to support one's case: . . .The inability to produce relevant documents to support one's case is also a relevant factor that negatively affects credibility. . . . [87] I remind myself about the burden of proof in a dispute such as this. In civil matters, credibility assessment is described in the Supreme Court of Canada's decision in F.H. v. McDougall, 2008 SCC 53. In that decision, the Court concluded with

this important point: [49] In the result, I would reaffirm that in civil cases there is only one standard of proof and that is proof on a balance of probabilities. In all civil cases, the trial judge must scrutinize the relevant evidence with care to determine whether it is more likely than not that an alleged event occurred. . . . [86] However, in civil cases in which there is conflicting testimony, the judge is deciding whether a fact occurred on a balance of probabilities. In such cases, provided the judge has not ignored evidence, finding the evidence of one party credible may well be conclusive of the result because that evidence is inconsistent with that of the other party. In such cases, believing one party will mean explicitly or implicitly that the other party was not believed on the important issue in the case. That may be especially true where a plaintiff makes allegations that are altogether denied by the defendant as in this case... [Underlining added.] B. Credibility Assessment [88] I turn then to the credibility assessment in this case. The parties accuse each other of dishonesty and ask the court to make adverse credibility findings accordingly. [89] This trial was scheduled in a manner that required a careful review of the witness' testimony, in part because of the lengthy intervals between sittings. Much of the parties' testimony was provided over a year

ago. [90] I start with Mr. Ezhkov. [91] Mr. Ezhkov testified in Russian through an interpreter. In these circumstances, I "am aware that nuances might by lost in translation, both in terms of the translation of the question to the witness and in the answer."[4] With that in mind, I found Mr. Ezhkov to be a most candid witness. He was forthright in acknowledging where his memory failed him, and responded carefully and fully to the questions asked. One example of this candour was with respect to whether the defendants disclosed Orca Institute during the 2012 meetings. He did not deny that the defendants could have mentioned Orca Institute, at least in passing - he could not remember whether they had. He testified, "I do not remember them mentioning [Orca Institute] in any other form." [92] He seemed careful not to overstate his claim. An example of this occurred during his direct examination when he conceded: I do not have proof that they were actually teaching the [fitness leadership] course. . . but there is a lot of proof that they were doing everything in order to be able to teach that program. They registered it with PCTIA. They put a promotion on the website. From the outside it looked like this was the course they were offering to the students. Moreover, the link from hilltopacademy.com transfers to orca. I have found that Mr. Ezhkov did not embellish as he tried to

explain aspects of his dealings with the defendants. [93] He struck me as someone who was carefully trying to explain his understanding of the business as he came to learn about certain aspects of it. He was careful to not suggest that the defendants were engaged in wrongdoing when he first learned about some of the problems, for example learning that the academy's designation was in jeopardy. He did not jump to conclusions. Rather, his approach was one of relative calm. That much was clear in his testimony as he dispassionately described learning about some of the problems and his reaction to those problems. His calm approach is corroborated, to a certain extent, by both the unfolding of the chronology (which is really not in dispute) and the tone of the communications between the parties as they addressed certain problems. [94] A common theme in his testimony was the focus on his immigration plans and his understanding of what was permissible. He appeared to be someone who was very much trying to adhere to the rules, as he understood them, for his immigration. I accept his testimony as he described his state of mind in late October 2015 when he decided to terminate the defendants. He testified that he was very worried that the loss of designation could destroy his new business and perhaps destroy his dream of coming to Canada. The decision to terminate was not one he came to

lightly. [95] I find that he was forthright in describing the various meeting he had with Mr. Mashevich and Ms. Rubin. He conceded certain facts and "resisted the influence to modify his recollection", such as his memory regarding the disclosure of Orca Institute at the August 2012 meetings. He said he simply could not remember whether Orca Institute was raised, albeit in passing. [96] As stated earlier, Mr. Ezhkov's testimony harmonizes with independent evidence such as the flow of communications between the parties once the Management Agreement was in place. [97] The defendants submit that Mr. Ezhkov provided "unreliable, incredible evidence." Several times during his cross-examination, Mr. Ezhkov was taken to passages from his examination for discovery transcript. During these exchanges, he carefully answered the questions that were put to him. On occasion, a concern was raised about the accuracy of the translation and at that time, Mr. Allen fairly incorporated any revisions made to the translation. I have reviewed the aspects of Mr. Ezhkov's testimony and whether he was inconsistent with his prior testimony. For the most part, I have found that he was not materially inconsistent. There was an apparent inconsistency between his trial testimony and examination for discovery evidence on the issue of deductions and whether he permitted the defendants to make certain deductions

during the Management Agreement. However, after Mr. Ezhkov was taken to his prior testimony he explained this apparent inconsistency on the basis it was answering a discovery question that was different than that asked at the trial. More specifically, he testified that in one answer he was asked about expenses and deductions and that was the basis for any apparent inconsistency in his answer. When I look at the whole of his evidence on this point, I do not find that Mr. Ezhkov was materially inconsistent. [98] Additionally, I have found that aspects of Mr. Ezhkov's evidence was corroborated, at least in part, by other witnesses or by the documents presented. This was particularly evident in the email exchange between Mr. Ezhkov and Mr. Mashevich about Orca Institute. The tenor of this exchange is very much consistent with Mr. Ezhkov's version of events. [99] In response to the suggestion that Mr. Ezhkov and Ms. Kozieva discussed their evidence in advance, I note that they had differences in their testimony that is to be expected. For instance, they differed about the timing of their conversation about the defendants. This was a significant point of contention between the parties. If Mr. Ezhkov and Ms. Kozieva had rehearsed their evidence, one would have expected this evidence to be more strikingly similar than it was. [100] I was similarly impressed by Ms. Ezhkova and have

found her to be a credible and reliable witness. She was thoughtful in her responses to questions. Her evidence about Orca Institute was particularly compelling. She testified that Orca Institute was not raised during the August 2012 meeting. This is somewhat different than Mr. Ezhkov's testimony that Orca Institute may have been raised - but he could not say for certain. Rather, Ms. Ezhkova testified that Orca Institute was never raised during their meetings. She added that it was particularly important to them that a non-competition clause was included in any purchase agreement. Ms. Ezhkova put it this way: "And moreover, [Ms. Lockwood] said several times it was necessary for the closing of the deal that the ex owners would be banned from having a similar business - absolutely mandatory term of the deal." [101] She testified that she first learned about Orca Institute in March 2014 after a discussion with Mr. Ezhkov. She understood that he was upset about an email that he had received from Mr. Mashevich about Orca Institute. [102] Regarding the 2012 meetings, Ms. Lockwood attempted to portray Ms. Ezhkova as distracted because she was caring for her children during the meeting and was going in and out of the meeting room. Ms. Ezhkova rejected this suggestion. I pause to note that the children would have been 12 and 13 years old at the time. [103] During cross-examination, she

was candid when asked whether she had spoken to Mr. Ezhkov about the proceedings and she said she had. She also agreed that she had been copied on some of the emails. She was not shaken however, on her assertion that Orca Institute was not mentioned in the 2012 meetings. Taking into account the email of March 2014 and Mr. Ezhkov's testimony about his surprise when he received Mr. Mashevich's request to include Orca Institute with Hilltop Academy, I accept Ms. Ezhkova's testimony. [104] I turn to my credibility assessment of Ms. Kozieva. Her circumstances were unusual in that she had been with Hilltop Academy since 2008, was a friend of Ms. Rubin's daughter and was familiar with the business before it was sold to Mr. Ezhkov. As an interested party however, I must assess her credibility as such. [105] I found her to be detailed oriented and straightforward in her testimony. Aspects of her testimony were particularly compelling. For instance, she came across as very professional and dedicated to Hilltop Academy. However, when she was presented with correspondence from Ms. Rubin accusing her of betrayal, Ms. Kozieva was visibly upset. She was clearly still experiencing the effects of a lost relationship with her former mentor. I appreciate the limitations of assessing credibility purely by one's demeanour. However, this aspect of Ms. Kozieva's testimony struck me as someone who was

describing carefully (and honestly) events that had significantly impacted her. In short, I believe her testimony. [106] She testified that she had very few interactions with Mr. Ezhkov prior to November 2015 and that her first substantive conversation with him about Hilltop Academy was in the days following the preparation of the termination notice. [107] She was taken through the daily operations of Hilltop Academy before it was sold. She described the nuances of the course swap with Orca Institute, the interconnectedness between Orca Institute and Hilltop Academy and the day-to-day operations of Hilltop Academy. She provided great detail about how the students were registered, the importance of access to student aid, payment of tuition fees, and marketing matters generally. Her involvement with the business continued after the sale and during the time the defendants were operating the business under the Management Agreement. [108] Of interest, she had never heard about the marketing mail-out described by the defendants and said to justify the $160,000 expenditure to Celtic Consultants. Based on her understanding, Hilltop Academy had printed their own marketing material historically. This was a small operation and I accept the suggestion that Ms. Kozieva would have known about this marketing campaign if it had occurred as alleged by the defendants. [109] The defendants

contend that Ms. Kozieva was not credible and should be disbelieved. They say she had a motive to lie because she achieved a significant promotion and increase in salary when she accepted the position offered by Mr. Ezhkov. It benefited her to make up stories about the defendants so she could secure a future with Hilltop Academy under her new boss. In my view, this theory does not hold muster. Ms. Kozieva was cross-examined about her promotion and raise and admitted she had received both. However, she flatly rejected the suggestion that she defamed the defendants in order to take over the management of the company. She said she was still on friendly terms with them until she received the email from Ms. Rubin on December 15, 2015. The timing of this email is consistent with Ms. Kozieva's description about the fact she was on good terms with the defendants even after the delivery of the termination notice. [110] Further, the suggestion that Ms. Kozieva was the cause of the termination notice ignores all of the evidence about existing problems with Hilltop Academy's operations including tenuous access to student aid, the noncompliance letter Mr. Ezhkov received in mid-October 2015, Mr. Ezhkov's growing frustration with their management and the failure to pay him his management fees. The defendants suggest a rather unlikely theory about an ambitious young woman seeking a promotion.

I reject that theory. [111] In my view, it is significant that the termination notice was prepared very shortly after Mr. Ezhkov received the noncompliance letter from the Ministry. [112] I wish to address the defendants' submission about the timing of the termination notice, Mr. Ezhkov's testimony on this point and the plaintiffs' pleading that: [i]n October 2015, [he] learned through an employee of Hilltop Academy that the Defendants had been working with Orca Institute for over a year" and "[i]n or about October 2015, [he] learned through employees of Hilltop Academy that the Defendants had been in breach of the Purchase Agreement? [Emphasis added.] [113] On this point, Mr. Ezhkov agreed Ms. Kozieva was the only Hilltop Academy employee that he spoke to about the operations of Hilltop Academy. He testified this conversation occurred on October 31, 2015. He was cross-examined about the pleading and specifically that his evidence was inconsistent with it. In response to the question "you maintain that your first conversation with Ms. Kozieva was on October 31, 2015," Mr. Ezhkov said this: "I think so - yes though the majority of the conversations occurred in November and December. The entire picture was formed for me in the beginning of December when the defendants left and I received the financial documents." [114] Mr. Allen is correct about the apparent inconsistency between

the pleading and Mr. Ezhkov's evidence about timing. However, having considered the whole of the evidence on this point, including the date of the termination notice, I am satisfied with Mr. Ezhkov's clarification about when he discovered certain matters relating to the defendants' management of Hilltop Academy. More importantly on this point, I accept his evidence that he prepared the termination notice before he had any substantive conversation with Ms. Kozieva. [115] I turn to the defendants' testimony and the witness called on their behalf, Ms. Lockwood. In some regards, it appeared to me that their evidence was rehearsed because their oral testimony about critical events was strikingly similar. [116] I deal first with Mr. Mashevich. I have found that his testimony did not harmonize with some of the evidence I have accepted, including the communications between he and Mr. Ezhkov. There were aspects of his testimony that were inconsistent with some of the documents that were presented, including the March 2014 email. [117] I give three examples. [118] First, he testified that he disclosed in detail Orca Institute's connection to Hilltop Academy at the first and second meeting in August 2012. I noted that Mr. Mashevich appeared nervous during this part of his testimony. He testified that at the first meeting he may have just referenced in passing Orca Institute. He said he

spent quite a bit of time addressing Orca Institute at the second meeting, including providing details about the hypnotherapy course, the course swap and that Orca had a fitness training program registered (his Plan B, he explained). He was cross-examined about the October 21, 2013 email and how it appeared from Mr. Ezhkov's email that he did not know about the hypnotherapy course. Mr. Mashevich testified as follows: "He (Mr. Ezhkov) forgot - because it was almost a year since we talked about Orca and the hypnotherapy program." [119] I note that Mr. Mashevich's wording was almost identical to Ms. Lockwood's on this point - that being Mr. Ezhkov simply forgot. Mr. Mashevich gave this evidence without any context. He did not testify about the basis for his belief that Mr. Ezhkov had forgotten about these important details. Mr. Mashevich's testimony on this point is inconsistent with Mr. Ezhkov's testimony and, importantly, the October 21, 2013 email. I also find Mr. Mashevich's response to Mr. Ezhkov to be inconsistent with his attempt to explain away the email (that he wrote). In the email, he wrote "I will be canceling those two programs with PCTIA." That statement is inconsistent with the suggestion that Orca Institute would serve as a useful back up plan should Hilltop Academy lose its designation. In fact, there is no mention of Orca Institute at all in his message. To be

clear, the inconsistencies between the email chain and Mr. Mashevich's testimony were far more important to my credibility assessment than his apparent nervousness. [120] The second problematic aspect of Mr. Mashevich's testimony relates to the website. The Share Purchase Agreement specifically identified www.hilltopacademy.ca as the website to be transferred to the plaintiffs. Mr. Mashevich testified that www.hilltopacademy.com was not part of the deal and as such the plaintiffs have no entitlement to it. [121] Contrary to Mr. Ezhkov's testimony (that there was an oral agreement whereby Mr. Mashevich agreed to transfer both domain names), Mr. Mashevich denied there was an oral agreement. In his direct examination, Mr. Mashevich testified that he refused to transfer www.hilltopacademy.com to Mr. Ezhkov because it was not a part of the Share Purchase Agreement. He testified that Mr. Ezhkov did not know about www.hilltopacademy.com. When he learned of it in November 2015, Mr. Mashevich testified that Mr. Ezhkov demanded that it be given to him. Mr. Mashevich testified that he offered to sell it to him for a price but that Mr. Ezhkov wanted it for free and Mr. Mashevich was unprepared to just give it up for nothing. [122] In my view, Mr. Mashevich's version is inconsistent with the whole of the evidence and was simply an attempt to gain an unfair advantage after the dispute

arose. [123] In his testimony, he tried to justify this unfairness by suggesting that Orca Institute had not gained anything by maintaining the domain name. He testified that after the dispute arose, he redirected inquiries from www.hilltopacademy.com to www.orcainstitute.com. However, he said, he did not have one redirection to the www.orcainstitute.com website from the www.hilltopacademy.com website. That meant, in his view, his conduct had not caused any redirection of web traffic away (and potential students) from www.hilltopacademy.ca. [124] I found this evidence disingenuous. It was an attempt to justify conduct that on its face was unfair, if not unlawful: Law Society of British Columbia v. Canada Domain Name Exchange Corporation, 2004 BCSC 1102, aff'd 2005 BCCA 535. [125] Lastly regarding Mr. Mashevich's testimony is the issue relating to Celtic Consultants. The defendants submit that this is a matter that the court need not determine because funds that went to Celtic Consultants could be classified as part of the operating profit and the defendants were thus entitled to it. I will address that submission more fully later in these reasons. At this point, the evidence regarding Celtic Consultants is relevant to my credibility assessment of the defendants. [126] Mr. Ezhkov testified that he learned about Celtic Consultants when he came across an invoice on the Hilltop

Academy computer. He discovered the invoice shortly after he delivered the termination notice. As he started to examine the operating expenses and financial records, Mr. Ezhkov learned that Hilltop Academy had been invoiced approximately $161,000 from Celtic Consultants. Despite their efforts to locate this company, the plaintiffs were never able to do so. More importantly, the plaintiffs never located the product said to have been provided by Celtic Consultants - the mail-out campaign. [127] Mr. Mashevich testified in some detail about Celtic Consultants and the work the company performed for Hilltop Academy in 2014 and 2015. Mr. Mashevich testified that he wanted to try and market Hilltop Academy to a broader array of potential students. He decided he would try direct mail marketing because no other schools were doing it. He testified that he contacted Michael (with a last name he could not recall) from Celtic Consultants. They entered into an agreement, either in late 2013 or early 2014, whereby Celtic Consultants undertook to direct mail market potential students. Mr. Mashevich testified that student enrollment went up by 40% after they embarked on this campaign. I note Mr. Mashevich did not point to any evidence supporting this assertion. At trial, the parties tendered Celtic Consultants invoices as follows: Date of Invoice Invoice Amount: May 14, 2014 $11,500 May 14,

2014 $25,000 June 5, 2014 $29,850 October 15, 2014 $25,000 January 31, 2015 $21,500 May 15, 2015 $6,120 May 15, 2015 $6,120 July 3, 2015 $11,220 October 1, 2015 $25,500 Total $161,400 [128] Needless to say, these were substantial invoices for this small business. [129] Mr. Mashevich did not produce any contract or agreement between Hilltop Academy and Celtic Consultants. He did not produce any of the marketing material that was purchased by Hilltop Academy. Indeed, he did not provide the contact information for Michael (last name unknown) to corroborate his testimony about Celtic Consultants. Despite testifying about email communications between himself and Celtic Consultants, he did not produce any of that email communication. Mr. Mashevich explained that his computer was in need of repair and he asked his brother to repair it. Unfortunately, he said, his brother ended up destroying the computer so he was unable to access his old emails. [130] Ms. Kozieva had no knowledge about this direct marketing mail out. She was someone who had been working at Hilltop Academy full time in 2013, 2014 and 2015. It seems implausible that she would have no knowledge whatsoever about Celtic Consultants or, at the very least, the marketing material they were producing. [131] I do not believe Mr. Mashevich regarding his lost emails. At the very least, had he lost the emails as stated, one would

have expected he could have obtained some information from Celtic Consultants itself. He appears to have had regular invoices and indeed he admitted to ongoing communication with Celtic Consultants during the marketing campaign. [132] For Hilltop Academy's operating budget, this was a significant expenditure. It is inexplicable to understand how a business with a relatively small operating budget would embark on such an expensive marketing scheme. I find that Celtic Consultants did not provide Hilltop Academy with any benefit (such as marketing material). As to the legitimacy of the invoices, and based on the position taken by the plaintiffs, I will not speculate about Celtic Consultants and the connection to the defendants except to say this. I reject Mr. Mashevich's testimony that Celtic Consultants provided any product or service to Hilltop Academy. In my view, had this company performed in the manner described, the defendants would have produced some evidence to confirm their assertions. The defendants chose not to produce anything on this controversial point. [133] I turn to Ms. Rubin. [134] Ms. Rubin attempted to corroborate most of Mr. Mashevich's evidence including what he said about the Orca Institute disclosure in 2012, the Celtic Consultants invoices and the payment of cash to Mr. Ezhkov on December 5, 2015. [135] In her testimony, Ms. Rubin described her

responsibilities while managing Hilltop Academy. In particular, she was responsible for dealing with the financial operations including the payment of invoices, banking and payroll. [136] I identify areas of her testimony that I found problematic. [137] First, her evidence about Celtic Consultants did not make sense considering her self-described role and responsibilities at Hilltop Academy. Despite her evidence that she was responsible for managing most of the accounts, she provided little insight into Hilltop Academy's arrangement with Celtic Consultants. She testified that Mr. Mashevich was the one dealing directly with Celtic Consultants and that she only processed the invoices. She was asked whether she had created the Celtic Consultants invoice on her Hilltop Academy computer and she denied that she had done so stating that she is not a computer person and did not know how to create such invoices. She testified that it was Ms. Kozieva who typically created the invoices during Ms. Rubin's time at Hilltop Academy. She also accused Ms. Kozieva (and/or others) of destroying documents. With respect to Celtic Consultants, she testified about a red folder that contained the Celtic Consultants information and that it had gone missing, along with other documents such as American Express statements. [138] I do not believe her evidence on this point. Based on the evidence presented,

I am unable to determine whether she created the Celtic Consultants invoices. However, these transactions are incredibly suspicious. The absence of documents on this point has not assisted the defendants in my assessment of their credibility. I should say that I have accepted Ms. Kozieva's evidence about the efforts she took to try to locate Celtic Consultants. I find that Ms. Kozieva did not conceal any documents (such as the red folder) as alleged by Ms. Rubin. [139] Also on the topic of Celtic Consultants, Ms. Rubin was cross-examined about the accounting codes she used for general advertising expenses while she was managing Hilltop Academy. She was taken to bookkeeping entries that coded advertisement in a particular way. As I understood her evidence initially, she testified that she was responsible for categorizing (coding) the various vendors used by Hilltop Academy. When she was cross-examined as to why Celtic Consultants was not coded in the advertising category of Hilltop Academy's accounting software, she blamed Patricia Carniato for making a coding error. The gist of the exchange was that there may have been confusion between herself and Ms. Carniato and, as she explained, "I am not a book-keeper." When counsel persisted with this line of cross-examination, Ms. Rubin avoided answering the questions directly and proceeded with a long explanation about other expenses

that had also been coded incorrectly. At the end of this exchange, counsel suggested to her that Celtic Consultants invoices never appear in the advertising category. Ms. Rubin's response was "that would be a mistake of Ms. Carniato." [140] Again, this was a substantial expenditure for Hilltop Academy and I do not believe Ms. Rubin's testimony that she knew so little about the circumstances surrounding this expenditure. [141] The second aspect of Ms. Rubin's testimony that caused me concern related to her taking cash that had been secured in Ms. Kozieva's desk. The defendants explained that they had been collecting cash from students in November 2015 because their payment machine was broken. The cash received was secured in a drawer in Ms. Kozieva's desk. The plaintiffs suggested that there was approximately $16,000 in cash but Ms. Rubin disputed this amount stating it was something less than $16,000. In any event, Ms. Rubin agreed that she took the cash (although disagreeing about the amount) because she was still working at Hilltop Academy at that time. She stated as much in an email to Ms. Kozieva dated November 8, 2015 when she wrote "I took the money and the check out of you[r] desk. So do not panic." [142] In her direct examination, Ms. Rubin was asked about the missing cash and if she knew where it went. She said she did not but then added she assumed it had something to

do with the $12,500 that Mr. Mashevich said he gave to Mr. Ezhkov at the meeting on December 5, 2015. In direct, she said this: We were in Lockwood's office. Trying to mediate. To make peace. And at that time Frank gave Danila $12,500 to finish it all and settle [the dispute]. [143] When she was asked during direct examination where the balance of the cash had gone, she said she did not have an explanation. She stated, "I know I didn't take it. The rest is a mystery." She appeared nervous as she testified about the cash. [144] During cross-examination, her evidence changed in this way. She had initially tried to connect the cash she admittedly took and the cash payment to Mr. Ezhkov. [145] However, her evidence on this point started to fall apart during cross-examination when she tried to explain the details about the cash payment. Again, Ms. Rubin testified, in her direct examination, that Mr. Mashevich offered the money to make peace with Mr. Ezhkov. During cross-examination, when she was asked about the level of dispute at that time, she denied that there was one. She stated there was absolutely not a dispute - it was "still peaceful." When her earlier direct testimony was put to her - that Mr. Mashevich gave the money to Mr. Ezhkov to make peace - she retreated somewhat stating that there were little issues but they were not numerous. Really, the only outstanding issue was

the payment of management fees. [146] Her evidence on this point from direct examination to cross examination was incompatible and I do not believe it. [147] Finally, I comment on hostility exhibited by Ms. Rubin that was observed from the very beginning of her cross-examination. A few questions into her cross-examination, she was asked about the student refund policy and the PCTIA bylaws. Her response was combative. I attributed that first example of hostility to allow for nervousness. However, I found that she maintained that level of combativeness throughout. Although I wish to make clear that my adverse credibility assessment of Ms. Rubin's testimony is not based on her demeanour. [148] Overall, I am unable to accept much of what Mr. Mashevich and Ms. Rubin have stated during the trial. [149] I turn to deal with Ms. Lockwood. She was, the defendants submit, an independent witness and thus her testimony should be afforded significant weight. I say at the outset that I did not find Ms. Lockwood to be unbiased or independent. I have reviewed her evidence as it relates to the whole of the evidence presented in this case. Frankly, her testimony was for the most part, unbelievable. I give the following example. [150] The first problem regarding her evidence arose out of the meetings she organized between the parties in August 2012. During her direct examination, she provided

remarkable detail about the defendants' disclosure of Orca Institute. At the second meeting, Ms. Lockwood claimed to recall two aspects of the meeting and testified as follows: The second meeting was quite long and detailed. I recall two major discussions. One was financial. [The defendants] were telling [Mr. Ezhkov] about the school's designation and explaining why the financials weren't very good - the school was breaking even but the financials were negative. But they said they were breaking even and fighting to get the designation back. [Mr. Ezhkov] asked if it was possible that the designation would not be returned and [the defendants] said that it was possible because of high default rate. Also big discussion was about Orca. Because of the loss of designation, they swapped the programs . . . they gave them the fitness course and Orca gave them the hypnotherapy course. Orca Institute was some other school and it had zero default rate. They could subcontract Orca at Hilltop to teach the course. [151] In her direct examination, Ms. Lockwood continued and testified that she asked the defendants if the course swap was legal and they told her it was. Ms. Lockwood testified that they had protected themselves because if they don't get the designation then they can use the other school. She described this as a big discussion - it was an important point. She mentioned that Mr.

Ezhkov seemed disinterested in this discussion because he was focused on setting up an astrology school. [152] During cross-examination, Ms. Lockwood testified that Mr. Mashevich had raised the topic of Orca Institute and that Mr. Ezhkov "was happy that Orca and Hilltop exchanged the program - because business could continue - and generate the program." She was then cross-examined about an email chain starting with an email from PCTIA about Hilltop Academy's hypnotherapy program. Ms. Lockwood's evidence was odd and I set it out in some detail. [153] Dated October 21, 2013, Mr. Ezhkov received an email from PCTIA inquiring about two programs that Hilltop Academy was registered to teach: basic hypnotherapy and counseling hypnotherapy. PCTIA was requesting additional information about the "work experience components of these registered programs." In response, Mr. Ezhkov sent an email to Ms. Lockwood forwarding the PCTIA correspondence and asking: I received a PCTIA letter, I did not know that we are engaged in such programs. Can anyone (Rosanna or Frank) tell me or answer them? [154] On the same day, Ms. Lockwood appears to have forwarded the email to Mr. Mashevich. I say appears because the email addresses are not displayed on the exhibit filed during the trial. What can be seen is an email from Mr. Mashevich, also dated October 21, 2013, to Ms. Lockwood, Mr. Ezhkov and copied to

Ms. Rubin stating: Hi Valeria and Danila, please do not reply, I will reply to them regarding it. Those programs we registered in the past, but never had any students for it. I will be canceling those two programs with PCTIA. [155] When cross-examined about this exchange (and about the fact Mr. Ezhkov did not seem to know about the hypnotherapy course), Ms. Lockwood initially seemed somewhat taken aback by it. After she reviewed the email, she testified that Mr. Ezhkov "forgot about the discussion but he was aware." As the cross-examination continued, she introduced, for the first time, a conversation she said she had with Mr. Ezhkov on this very topic. When pressed for details about this conversation, she said that she talked to Mr. Ezhkov about this although she could not remember how they discussed it or any other circumstance relating to this conversation. Again, for the first time, she introduced this conversation stating that she reminded him that the hypnotherapy course was discussed during the second meeting [in August 2012] and he told her he forgot. She then went on and said he only ever wanted to do astrology as if to suggest that is why he forgot about the hypnotherapy discussion. [156] Her testimony was contradictory on this point. More significantly, her testimony was inconsistent with the email chain and Mr. Ezhkov's testimony. [157] I will say more about this

when I address the defamation claim but say now that I am particularly troubled by Ms. Lockwood's evidence regarding Ms. Kozieva which forms the basis for the defendants' defamation claim. I reject Ms. Lockwood's evidence about the conversation she said she had with Mr. Ezhkov about the defamatory statements she says he repeated to her. [158] The defendants submit her testimony should carry considerable weight because she is not an interested party. Of course, a party need not prove that a witness has a motive to lie. This witness was paid a significant commission for her involvement in the transaction ($65,000 including taxes). Although the extent of her continued association with the defendants is unclear, she admitted she had one. Whatever her motivation, Ms. Lockwood's evidence, though consistent on some points with the defendants' testimony, was contrary to that of the evidence I have accepted and, more significantly on this point, it was contrary to the documents tendered. VII. ASSESSMENT OF PLAINTIFFS' CLAIM [159] Having concluded my credibility assessment, I turn to an analysis of the claims advanced by the parties. [160] The plaintiffs rely on the Share Purchase Agreement and the Management Agreements. In so doing, the plaintiffs claim the defendants breached the agreements because they overdrew their entitlement to compensation. The plaintiffs claim the

following: Overdrawn profit/operating income $84,889.00 Unearned revenue $55,357.76 Audit expenses $18,564.00 Unrecorded cash payments for tuition $16,607.00 Total $175,417.76 [161] I address each item. A. Overdrawn profit/operating income [162] The plaintiffs claim the defendants owe them $84,889 because they took more as operating expenses than they were entitled to pursuant to the Management Agreements. In their written submission, the plaintiffs included a claim for $33,750.44 for 2014/2015 unpaid operating expenses. During oral submissions, the plaintiffs agreed with the defendants' submission that this claim was duplicated and captured in the category "overdrawn profit/operating income" and as such reduced the amount accordingly. [163] With that concession, the plaintiffs have broken down this part of their claim as follows: Fees owed to Mr. Ezhkov under the Management Agreement: $62,000 Less expenses where Mr. Ezhkov agreed to pay (legal fees at $10,881 and PCTIA at $10,250): $21,131 Unpaid operating expenses post November 2015: $27,572 CRA audit: $21,548 Less net income before taxes: $5,100 [164] The plaintiffs frame their claim in terms of contractual damages. They state that the failure to make proper payment of the current expenses of Hilltop Academy before removing operating profits, the failure to keep accurate and complete accounting records of the business, and

the failure to manage the business on a best effort basis constitute breaches of the Management Agreement. [165] Having reviewed the accounting evidence tendered and Mr. Ezhkov's testimony regarding the defendants' failure to record expenses incurred during the management period, I am satisfied that the plaintiffs have proven on a balance of probabilities that the defendants breached the Management Agreement by failing to make proper payment of the current expenses of Hilltop Academy before removing operating profits. I am also satisfied that the plaintiffs have proven that the defendants breached the Management Agreement by failing to account for fees due and owing to Mr. Ezhkov before removing operating profits. [166] Further, the plaintiffs have established, on a balance of probabilities, that they are entitled to damages as a result of the breaches of the Management Agreement. I note that neither party addressed mitigation. I would have not found a failure to mitigate in any event. [167] I am satisfied that the plaintiffs have demonstrated, on a balance of probabilities, that there is money owing to them on account of the defendants' breach of the Management Agreement regarding the overdrawn profit. However, based on the accountants' testimony and expert reports filed, I am not satisfied about the accuracy of the plaintiffs' calculations in their written submission. I note

that the arithmetic was different on page 7 and again on page 31. I am not able to reconcile the plaintiffs' different figures. Subject to the removal of the audit expense, I have relied on Mr. Graff's calculations and have found that the plaintiffs have established the following: a) For management fees, Mr. Ezhkov's entitlement to $62,000 less $9,000 that was paid and less the amounts he agreed to pay for legal and PCTIA fees totaling $31,869.00. I have accepted Mr. Ezhkov's evidence that he did not receive $12,500 cash on December 5, 2015 towards this amount; b) Some of the expenses incurred before the end of the Management Agreement should have been deducted from the defendants' operating profit and adjusted by $27,572; and c) Based on the accounting evidence before me and the plaintiffs' submission, I am not satisfied that the plaintiffs have proven the CRA audit cost. [168] The plaintiffs are therefore entitled to $59,441 on account of the defendants overdrawing their profit. If there are arithmetic errors, the parties can reappear to address those. B. Unearned Revenue [169] Similarly, I am satisfied that the plaintiffs have established on a balance of probabilities that the defendants breached the Management Agreement by failing to make proper payments of the current expenses of Hilltop Academy before removing operating profits, the failure to keep accurate and complete

accounting records of the business, and failure to manage the business on a best effort basis. [170] With respect to unearned revenue, I am satisfied that the plaintiffs have proven the defendants breached the Management Agreement by transferring $55,357.76 in circumstances where they were not entitled to do so because it was not yet earned. This money related to one course that was only partially completed and a second course that was just underway. [171] I am satisfied that the defendants' contractual breach caused damages to the plaintiffs by removing these funds from Hilltop Academy. Ms. Rubin testified that she transferred this money because the defendants were entitled to it as earned revenue. Mr. Graff's explanation stands in contrast to Ms. Rubin and Mr. Volpe's on this point. I accept Mr. Graff's evidence that this money was unearned at the time Ms. Rubin transferred it. In part, that is because when the money was transferred, the November courses had not begun and the September courses were only partly underway. I am not persuaded that Mr. Graff failed to take into account the consistency principle as suggested by the defendants. C. Unrecorded Cash Payments for Tuition [172] I agree with counsel for the defendants that the claim for $16,607 has already been accounted for in the unearned revenue claim and I will not duplicate it here. D. Audit Expenses [173] The

plaintiffs characterize the breach giving rise to this claim as the failure of the defendants to "perform and pay for the 2015 financial audit for Hilltop Academy, which should have been initiated and paid for during their time as management for the school." As a result of the defendants' failure to initiate and pay for the audit, the plaintiffs say, Hilltop Academy suffered damages in the amount of $18,564 to cover the expense of the 2015 financial audit. [174] I have found that the audit was necessary in the circumstances presented and that this was an obligation of the defendants pursuant to their contractual obligations. In other words, the defendants breached the contract because the audit was a contractual obligation responsibility of which lay with the defendants. [175] In light of the evidence surrounding whether the audit was necessary (because revenue was only slightly over $500,000 triggering the necessity of an audit), I have considered whether the expense of undertaking an audit was reasonable in the circumstances. In my view, it was. There was no suggestion that the auditors' fees were unreasonable[5] or that the audit was overly broad such that certain of the fees were unnecessary. [176] I am satisfied that the defendants' breach caused damage to the plaintiffs because they were required to incur the cost of the audit. I am thus allowing the audit expense of

$18,564. On March 11, 2016, the accountant sent an invoice to Hilltop Academy for their audit expenses. Mr. Ezhkov requested the audit for the year ended September 30, 2015 because revenues appeared to exceed $500,000 and he had been told that the PCTIA required an audit when that occurred. At the end of November 2015, Ms. Rubin told Mr. Ezhkov that an audit was required and thus he requested it. This is properly recorded as a 2015 expense and thus the defendants are liable to pay it. E. Summary [177] In total, I am satisfied that the plaintiffs have proven their claim in the amount of $133,362.76. Either party is at liberty to apply if there are errors in the calculation. [178] The plaintiffs also seek damages for breaches of the non-solicit and non-compete clauses of the Share Purchase Agreement. In their closing submissions, the plaintiffs said very little about this aspect of their claim writing: "the extent of the breaches and the timeline for how long ago the breaches began to occur is within the knowledge of the defendants." I cannot speculate for the plaintiffs and refuse to do so. I also note that all parties agreed that the defendants were prohibited from competing against the plaintiffs for two years after the Management Agreement ended. That would be November 30, 2017. From the evidence tendered, I am not satisfied that the evidence establishes, to the extent

necessary, this breach. [179] Although I am satisfied that the defendants were working at Orca Institute at the time they were managing Hilltop Academy, I am unable to determine, based on the evidence before me, the extent and nature of their work in that regard. I am dismissing the claim for damages for breaches of the non-solicit and non-compete clauses of the Share Purchase Agreement and for the final injunction seeking the return of the Fitness Diploma Court Materials. Again, I do so on the basis of the burden of proof required and the plaintiffs' failure to meet it. [180] In their written submission, the plaintiffs did not advance a separate claim for the return of the Celtic Consultants expenses. I have used this evidence in my credibility assessment. However, the accounting evidence tendered does not assist the court in assessing further this aspect of the claim and I decline to do so. [181] Finally, the plaintiffs are entitled to an order requiring the Defendants to transfer the domain name www.hilltopacademy.com to the plaintiffs. The parties can speak to the appropriate form of this order. VIII. ASSESSMENT OF COUNTERCLAIM [182] In their counterclaim, the defendants seek: a) Damages for unpaid capital expenses (including moving and furnishing expenses for Hilltop Academy's new location); b) Damages for unpaid management services; c) Restitution of amounts paid by the

defendant for courses which took place after the management period; and d) Damages for defamatory statements made by Ms. Kozieva. [183] The defendants similarly rely on the Share Purchase and Management Agreements and claim they are entitled to the following: Relocation and renovation expenses $24,280 Training invoice $30,880 Direct mail marketing $25,500 Total $80,660 [184] Regarding the defamation claim, the defendants seek damages in the amount of $50,000. [185] As stated previously, the defendants have not proven that Ms. Kozieva uttered the statements attributed to her. As such, I am dismissing the claim for defamation. [186] I also dismiss the balance of the counterclaim. I am not satisfied that the defendants have proven the plaintiffs breached the agreements and/or that they are entitled to damages for the items claimed, particularly taking into account my credibility assessment. A. Unpaid capital expenses, unpaid management services and restitution for costs incurred after management period [187] The parties agree that early drafts of the Share Purchase Agreement required Mr. Ezhkov to pay Hilltop Academy's moving and relocation expenses. Mr. Ezhkov testified that this obligation was removed because the defendants kept asking for more money and because they wanted to keep all of the operating profits during the management period. Mr. Mashevich testified that there was

an oral agreement that this obligation was removed from the Share Purchase Agreement at Mr. Ezhkov's request so that he could simply pay these expenses out of Hilltop Academy rather than personally. To a certain extent, Ms. Lockwood's evidence was similar to that of Mr. Mashevich on this point. [188] I prefer Mr. Ezhkov's evidence on this point. He described in considerable detail his frustration with the defendants' repeated demands for more money. I accept that Mr. Ezhkov negotiated the removal of this obligation in the manner he described and this is corroborated in the documentary evidence; including in an email exchange between Mr. Ezhkov and Ms. Lockwood. In the email exchange, Ms. Lockwood suggested that the "expenses for renovating of the new space can be written out to the business" and this "needs to be changed in the contract", which she promises to "do. . . and sent to [Mr. Ezhkov]". Mr. Ezhkov wrote there is "a good alternative - they take 100% of profit, pay everything and everywhere they want, however, they are liable for all the expenses for the new office." Ms. Lockwood later wrote, "they agreed." [189] I dismiss the defendants' counterclaim for unpaid capital expenses. [190] Second, the defendants claim that they are entitled to be paid for their management services for work they provided after the expiry of the Transitional Management Agreement. To that end,

they rendered an invoice to the plaintiffs for $30,880. Mr. Ezhkov testified that before the Transitional Management Agreement expired, the parties entered into the Management Agreement. As he put it, "there was no point in training and Ms. Rubin was not agreeable to providing the training." I accept Mr. Ezhkov's testimony that he did not receive any training from the defendants and, in any event, the Management Agreement superseded any obligation to pay for training because it did not contain a training clause. [191] Finally, the defendants seek $25,500 for reimbursement of an expenditure regarding the direct mail marketing campaign that they say they incurred in October 2015. The defendants go further and allege Mr. Ezhkov received the benefit of their efforts related to this expenditure. Based on my earlier findings, the defendants have not proven this expenditure nor the benefit said to have accrued to Mr. Ezhkov. The defendants' claim for repayment of $25,500 for direct mail marketing services, is dismissed. B. Defamation claim [192] The basis for the defendants' defamation claim comes from a conversation the defendants had with Ms. Lockwood. Ms. Lockwood told them that Mr. Ezhkov told her that Ms. Kozieva had made defamatory statements about their management of Hilltop Academy (as particularized above). [193] Ms. Kozieva denies making the statements. Of note, she

testified that the first substantive conversation she had with Mr. Ezhkov was after he asked her to help him prepare the termination notice. During that conversation, Mr. Ezhkov asked her if she would prepare the termination notice to the defendants. She testified that before that discussion, she had only exchanged greetings with him when he came into the office. [194] Ms. Lockwood testified that she learned about the defamatory statements from Mr. Ezhkov directly while Mr. Ezhkov was having dinner at her place and she was certain about the timing of this conversation with Mr. Ezhkov. During her direct examination, Ms. Lockwood testified about the following details of her conversation with Mr. Ezhkov: I recall it very well because Danila phoned me - he was on the way from Hilltop to home - he phoned me and he said that there is a problem - that he is going to terminate Frank and Rosanna - that they are not working for Hilltop. . . They are running Hilltop down to the ground . . .They are working for Orca not Hilltop. So he stopped by our place. I remember it very well because I had gone shopping for a Hallowe'en costume -- So maybe 20th or 21st of [October]. I was home and my husband was home -- my husband was cooking. I was making tea. He looked awful -- really pale. I said who told you? He told me an employee told him. Within a few minutes he told me it was Ms. Kozieva. I

said impossible. [195] In her direct examination, Ms. Lockwood added that Mr. Ezhkov was going to give them a notice of termination at the end of the month and he asked her not to tell them. [196] As noted earlier in these reasons, Mr. Ezhkov was cross-examined about whether he had a conversation with Ms. Lockwood in November about terminating the defendants. He was not cross-examined about the specifics of Ms. Lockwood's version of this conversation. Ms. Lockwood's version contains specific details including a request from Mr. Ezhkov that she not disclose to the defendants his intention to terminate. Mr. Ezhkov's testimony on this point is materially different from Ms. Lockwood. Mr. Ezhkov was not cross-examined about the nuances (for instance, that there was a phone call where Mr. Ezhkov supposedly provided details of some of the negative comments) of Mr. Lockwood's testimony. Also of note, Mr. Ezhkov was asked about any conversation he had with Ms. Lockwood in November 2015 and he denied that there had been a conversation with Ms. Lockwood. The timing of any such conversation was material because the defendants allege Ms. Kozieva's statements caused Mr. Ezhkov to terminate them. [197] Indeed, it is this conversation between Ms. Lockwood and Mr. Ezhkov that would have been the primary piece of evidence proving the defamation claim. I accept Mr. Ezhkov's testimony that he did

not have this conversation with Ms. Lockwood. [198] Mr. Ezhkov's denial on this point (that he said nothing to Ms. Lockwood about Ms. Kozieva) is significant. In his testimony, he stated it this way: Q: Did [Ms. Kozieva] ever state to you: [Mr. Mashevich and Ms. Rubin] are not paying any attention to Hilltop? A: No. Q: Did [Ms. Kozieva] say - [Mr. Mashevich and Ms. Rubin] are only interesting in running Orca Institute? A: No. Q: Did [Ms. Kozieva] say: [Mr. Mashevich and Ms. Rubin] would like Hilltop to go under? A: No. Q: Did [Ms. Kozieva] say: I am the only one running Hilltop? A: No. But I saw often she was the only one there. [199] Mr. Ezhkov agreed that he did not have a conversation with anyone else during October or November 2015 about the defendants' operation of the business. Mr. Ezhkov testified that Ms. Lockwood offered to mediate between the parties and a meeting took place on December 5, 2015. Mr. Ezhkov testified that Ms. Lockwood offered to set up this meeting to see if she could help resolve the dispute. Mr. Ezhkov was specifically asked about conversations he had with Ms. Lockwood before the December 5, 2015 meeting. He testified that he did not speak with Ms. Lockwood about Ms. Kozieva. He testified that he had a meeting with Ms. Lockwood prior to the December 5, 2015 meeting but he did not discuss Ms. Kozieva with her - even though, he testified, Ms. Lockwood

was very persistent. He testified that it appeared to him that "she wanted to find someone to blame." To that end, he testified that Ms. Lockwood also asked whether a mutual acquaintance, Tatiana [no last name provided] was the source of the negative comments. [200] At the December 5, 2015 meeting, Mr. Ezhkov testified that the defendants began to criticize Ms. Kozieva and blamed her for their termination notice. On December 15, 2015, Ms. Rubin sent an email to Ms. Kozieva accusing her of betraying them and that she was the cause of their problems with Mr. Ezhkov. [201] I touch only briefly on the defendants' evidence regarding the defamation claim. As I understand their evidence, they were not clear about the circumstances of how they learned of the alleged statements. What was clear is that Ms. Lockwood is the person who told them Ms. Kozieva had uttered these statements - that she had learned as much from Mr. Ezhkov. Mr. Mashevich testified that the issue came up during the December 5, 2015 meeting and that Mr. Ezhkov made certain admissions. I am unable to decipher from Mr. Mashevich's testimony the nature of the admissions and the context within which they were made. In any event, I have concluded that the totality of the evidence presented is insufficient to prove defamation and specifically, that the evidence fails to establish that Ms. Kozieva uttered the statements

attributed to her. [202] As I have stated, this alleged conversation, between Mr. Ezhkov and Ms. Lockwood, forms the basis for the defamation claim. Ms. Lockwood's version stands alone. Her version also stands in contrast to the preponderance of the evidence that I do accept. I have little hesitation in rejecting Ms. Lockwood's testimony on this point (and others) and I do so. [203] Ms. Kozieva described the events of late October and early November and her limited interaction with Mr. Ezhkov before he asked her to prepare the termination notice. She testified that she did not say the things of which she is accused. I believe her. [204] I dismiss the defendants' claim of defamation against Ms. Kozieva. IX. Summary of Findings [205] I summarize the pertinent findings here. As mentioned previously, there was significant evidence tendered regarding certain matters with limited or no relevance to the claims as advanced. I have not recited all of that evidence nor have I attempted to resolve it all. Again, I have carefully reviewed the testimony of the witnesses as I worked through the totality of the material presented. Based on my assessment of credibility and relevant to the resolution of the claims advanced, I summarize my findings as follows: a) Regarding the August 2012 meetings, I do not accept that the defendants disclosed the relationship between Orca Institute and Hilltop

Academy in the manner suggested by the defendants. If Orca Institute was mentioned, I accept that it was raised only in passing; b) The defendants breached the Management Agreement by: i. Failing to make proper payment of the current expenses of Hilltop Academy before removing operating profits; ii. Failing to keep accurate and complete accounting records of Hilltop Academy; and iii. Failing to manage Hilltop Academy on a best effort basis. c) Mr. Mashevich agreed to transfer the domain www.hilltopacademy.com to Mr. Ezhkov; d) Mr. Ezhkov agreed to pay the costs associated with reclaiming Hilltop Academy's designation; e) Mr. Ezhkov did not agree to pay the moving/relocation expenses for Hilltop Academy; f) Mr. Ezhkov did not receive cash, in the amount of $12,500 or otherwise, at the December 5, 2015 meeting; g) The plaintiffs incurred the cost of the audit because PCTIA's figure of $500,000 was exceeded and thus the audit requirement was triggered and the amount, as reduced, was reasonable in the circumstances; h) Mr. Ezhkov did not make any admissions as alleged at the December 5, 2015 regarding Ms. Kozieva's statements about the defendants; i) Ms. Kozieva did not utter the defamatory statements, in the form attributed to her in October 2015 or otherwise; j) The defendants have not established that the plaintiffs breached the Management Agreement by failing to pay them for

management services; and k) The defendants have not established that the plaintiffs breached the Management Agreement by failing to reimburse the defendants for the benefits relating to direct mail marketing campaign as I am not satisfied that the defendants incurred this expenditure. X. CONCLUSION AND ORDERS [206] In summary, I award damages to the plaintiffs arising from the defendants' breach of their contractual agreements in the amount of $133,362.76. The plaintiffs are entitled to an order requiring the defendants to transfer the domain name www.hilltopacademy.com to the plaintiffs. [207] I dismiss the counterclaim. [208] The plaintiffs are entitled to interest in accordance with the Court Order Interest Act, R.S.B.C. 1996, c 79. [209] Unless there are additional factors of which I am not aware, the plaintiffs are entitled to their costs. "Winteringham J." [1] This reproduction has not been corrected for grammar or spelling. [2] At trial, the parties tendered a "corrected" transcript indicating there were concerns regarding the accuracy of an earlier translation. [3] The letter contained a number of allegations regarding Hilltop Academy's noncompliance with some of the governing rules and regulations. [4] As stated by Griffin J. (as she then was) in Fu v Zhu, 2018 BCSC 9 (at para 40). [5] Initially, the plaintiffs sought just over $24,000 for the audit but reduced this amount when they realized the invoice contained fees for a matter unrelated to the audit.