Reger et al. v. Savage et al.

2007 BCSC 181 Reger et al v. Savage et al IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Reger et al. v. Savage et al., 2007 BCSC 181 Date: 20070207 Docket: S004161 Registry: Vancouver Between: Michael Reger, Hans Maier, Garth Friesen, Joe MacLean, Raymond Zeilstra, Mike Mendelman, Mark Maier, Peter Seidel Plaintiffs And Michael Savage, Dianne Oslund, Douglas Casey, Cameron Roberts, Savage Telecom (Canada) Ltd., Savage Capital Corporation, Brian Corkum, and Savage Communications Corporation Defendants Before: The Honourable Mr. Justice Rice Reasons for Judgment Counsel for the Plaintiffs: H.C. Ritchie Clark, Q.C. The Defendant Michael Savage: Appearing on his own behalf Date and Place of Hearing: January 8, 2007 Vancouver, B.C. [1] This is an application by the defendants Michael Savage and Savage Telecom (Canada) Ltd. to set aside a judgment of Madam Justice Koenigsberg pursuant to Rule 52 of the Rules of Court. The judgment was granted on May 31, 2004, after a summary trial pursuant to Rule 18A. THE FACTS [2] Mr. Savage was at all material times President, CEO and a Director of the defendant Savage Telecom (Canada) Ltd. Acting on his own behalf and on behalf of Savage Telecom (Canada) Ltd., he failed to attend the summary trial and judgment was rendered against him in his absence. [3] The plaintiffs commenced the action on August 1, 2000. Acting for the plaintiffs was Martin Palleson of Gowlings Lafleur Henderson LLP of Vancouver, B.C. ("Gowlings"). Acting for the defendants was James Carpick of Owen Bird, Barristers and Solicitors, of Vancouver, B.C. [4] Mr. Carpick continued as counsel for the defendants only until November 19, 2001, when he filed a Notice of Withdrawal of Solicitor. Gowlings objected to the Notice because it did not contain an address for delivery within British Columbia for Mr. Savage. Accordingly, after advising Gowlings that he was "seeking Mr. Savage's agreement to provide an address for delivery in British Columbia" Mr. Carpick filed an Amended Notice on May 13, 2002, and delivered a copy to Gowlings. It set out 204 - 3991 Henning Drive, Burnaby, B.C. (the "Henning Drive Address") as Mr. Savage's address for delivery in British Columbia. [5] On or about November 26, 2002, and again January 17, 2003, the plaintiffs purported to deliver a Notice of Motion and supporting affidavits for summary trial to Mr. Savage at the Henning Drive Address. [6] On November 27, 2002, the plaintiffs purported to send the same Notice of Motion and supporting affidavits by registered or express post mail to the earlier address for delivery given by Mr. Savage's counsel, being 209 - 711 Rossland Road, Whitby, Ontario (the "Rossland Road Address"). Those materials were initially returned to Gowlings as unclaimed, and Gowlings then sent them back to the Rossland Road Address by regular mail. [7] The plaintiffs similarly delivered materials for the summary trial to the other defendants, Brian Corkum, who retained counsel and began to defend the matter, Doug Casey, who responded himself by letter, Cameron Roberts, who retained counsel and responded, and Dianne Oslund, who did not retain counsel but corresponded with Gowlings. Gowlings received no response from Mr. Savage. [8] After carrying out examinations for discovery and obtaining further information and documents from Roberts, Corkum and other sources, including financial institutions, the plaintiffs instructed Gowlings to proceed with the summary trial, and Gowlings obtained a hearing date for May 31, 2004. Gowlings purported to send a Notice of Hearing for the summary trial to Mr. Savage and Savage Telecom at the Henning Drive Address. [9] The summary trial went ahead before Madam Justice Koenigsberg on May 31, 2004. Ms. Oslund appeared in person and the case was argued on its merits. Mr. Savage did not attend and gave Gowlings no prior notice that he would not attend. The trial judge specifically asked if counsel for the plaintiffs knew where Mr. Savage was. Mr. Palleson replied that he did not know, and that there were rumours that Mr. Savage may be in Toronto. Judgment was subsequently granted against Mr. Savage and Savage Telecom. [10] Mr. Savage swore that he received none of the notices regarding the application or trial date, nor any of the other materials. He also swore that he was unaware until the second week of October, 2005 that the trial had taken place and that judgment was granted against him. He did not explain how he became aware of this information. [11] On October 19, 2005, Mr. Savage filed an application to set aside the judgment, and he also applied for the application to be heard on an ex-parte basis. The ex-parte application was unsuccessful. Afterwards, Mr. Savage engaged a new lawyer, Wade Simpson, who notified the plaintiffs of his appointment around November 8, 2005. [12] According to Mr. Palleson, he spoke with Mr. Simpson on December 5, 2005, and Mr. Simpson advised that he was also acting for Mr. Savage in a proceeding before the British Columbia Securities Commission ("BCSC"). He said he was not certain whether Mr. Savage would pursue his motion to set the judgment aside. [13] In or about March 2006, Mr. Palleson alleges that Mr. Simpson's office called him and sought dates for a hearing of Mr. Savage's Notice of Motion dated October 19, 2005. On March 7, 2006, Mr. Palleson advised Mr. Simpson by letter of several potential dates. He alleges that he did not hear again from Mr. Simpson. [14] Meanwhile, Mr. Savage was actively engaged in the BCSC proceeding. He was represented by Mr. Simpson and obtained from the BCSC an adjournment of the BCSC proceeding. The grounds for seeking an adjournment were in part that Mr. Savage was having to deal with issues of fraud in the case at bar. [15] On March 13, 2006, the BCSC hearing recommenced. However, partway through, Mr. Savage discharged Mr. Simpson as his counsel (on the BCSC matter only) and retained another lawyer, Mr. Taylor. Mr. Taylor acted to obtain further adjournments of the BCSC proceeding which delayed the hearing through to October 23, 2006. [16] Also in mid-March 2006, although Mr. Simpson was still acting for him in the case at bar, Mr. Savage made a request on his own to the court that Madam Justice Koenigsberg be the judge to hear his application of October 19, 2005. The consent was not forthcoming, and according to him, court officials directed him to set a date for the hearing of his application through the court scheduling office and to notify the plaintiffs once a date was secured. The evidence does not indicate that he followed up on that direction by himself or through his lawyer. Why he did not deal with this issue through Mr. Simpson at the time was not explained. [17] On or about August 30, 2006, Mr. Simpson advised Mr. Palleson that he no longer acted for Mr. Savage in the matter of his application of October 19, 2005, and Mr. Taylor advised Mr. Palleson that he was acting for Mr. Savage, but on the BCSC proceeding only. [18] After that, and through the fall of 2006, the plaintiffs through their counsel Mr. Palleson, and Mr. Savage on his own, proceeded with arrangements for the hearing of Mr. Savage's application of October 19, 2005. There were applications for directions by both parties in October 2006, and an order for directions was made by Mr. Justice Tysoe on November 1, 2006. Among other things the Order set the trial date, finally, and the application came before me on January 8, 2007. THE LAW [19] The court has wide discretion to set aside orders granted on an application in the absence of a party. Rule 52 provides, in part, as follows: Failure of party to attend (4) If a party to an application fails to attend, whether on the return of the application or at the time appointed for the consideration of the matter, the court may proceed if, considering the nature of the case, it thinks it expedient to do so, and may require evidence of service it thinks necessary. Reconsiderations of proceeding (5) If the court has proceeded under subrule (4), the proceeding shall not be reconsidered unless the court is satisfied that the party failing to attend was not guilty of wilful delay or default. [emphasis added] [20] In order to warrant a reconsideration under Rule 52(5), the party seeking to set aside the order must show the following (see Sun Life Trust Co. v. Beach, [1992] B.C.J. No. 584 (S.C.) (Q.L.), and Schindler v. Johnstone (2005), 11 C.P.C. (6th) 143, 2005 BCSC 476 at para. 32): (a) the applicant must not be guilty of any wilful delay or default in respect to the non-appearance; (b) the application to set aside the order must be made as soon as reasonably possible; and (c) the applicant must show that there is a meritorious defence to the action or at least a defence worthy of investigation. [21] The onus of proof rests with the applicant. ANALYSIS (a) Wilful Delay or Default [22] Mr. Savage has raised the important question of whether he received notice of the summary trial. He maintains that proper notice of the application and date of hearing were not delivered to him at the Henning Drive Address or anywhere else. He says that he had no knowledge of the application otherwise until early October 2005, long after the May 31, 2004 trial. He submits that he moved with reasonable dispatch after that, and that he had good defences. [23] Regrettably, the only direct evidence of delivery of the notices and materials by the plaintiffs was in the 6th affidavit of Mr. Palleson, and it was sadly lacking. Mr. Palleson swore that he directed a copy of the Notice of Motion and supporting affidavits to be delivered to Mr. Savage at the Henning Drive Address. He swore that he later directed a copy of the Notice of Hearing to be "sent to the defendants at the addresses set out in Exhibit "J" and I understand that this was done". There is no affidavit of actual service first hand. Were there no other circumstances to consider, I would find myself unable to call Mr. Savage to account for any delay before October 2005. [24] As it is, however, there are other circumstances. There is no evidence of weakness or carelessness in the way that Gowlings administered its deliveries. Gowlings appeared to deliver the documents to Mr. Savage and his company in the same manner that they were delivered to the other defendants. According to Mr. Palleson, he directed that the notices and materials be sent to two locations provided by Mr. Savage's counsel, including twice to one of those locations. [25] It can hardly be said that Mr. Savage was not made aware of the fact that he could expect to receive documents at the Henning Drive Address. This is confirmed by Mr. Carpick who said that he sought specific instructions from Mr. Savage on the point. It could be, however, that Mr. Savage neglected to check for deliveries of documents at the Henning Drive Address. Mr. Savage was apparently living in Toronto at the time. [26] I find Mr. Savage's submission that he thought the matter had gone dormant very difficult to accept. At the time that Mr. Carpick withdrew, all parties were busy with this action. Numerous applications were being brought, and it follows that Mr. Savage should have expected receiving further communications, and potentially future applications. He was a person with plenty of experience in litigation and he knew that the proceeding was active. Complete silence from the other side ought to have made him concerned enough to make enquiries. [27] There is no assertion by Mr. Savage in his materials that he was not advised of or consulted about the May 31, 2004 trial by any of his co-defendants, or others who had worked on the financing project in question. He knew them all very well, particularly the defendant Ms. Oslund. It is surprising to think that none of them would have said or written something to him about the case. Furthermore, he had a motive to not attend the hearing, that being the strong case against him. [28] Mr. Savage sought to explain his delay in making this application by blaming the plaintiffs for not bringing the trial and judgment to his attention. Further, he complained that Madam Justice Koenigsberg was not informed of the fact, as he put it, that he had not received any of the documents or notices. He attacked Mr. Palleson for misrepresenting to the court that he did not know where to locate him. He argued that he could have been found and notified, and had the court been aware of Mr. Palleson's lack of diligence, the decision would not have been the same. I disagree. [29] In the first place, I do not accept that there was a duty cast upon the plaintiffs or their solicitors to notify Mr. Savage of the proceeding and of the trial except as stipulated in the Rules of Court. Mr. Palleson was bound only to deliver the documents to the Henning Drive Address. Nor do I accept that the plaintiffs had a duty to notify Mr. Savage of the judgment after the fact. [30] Furthermore, the evidence does not show that Mr. Palleson was aware or suspected that Mr. Savage had not received notice of the application, or that he knew precisely where Mr. Savage was. Gowlings may have had some information or means of knowing how to actually locate Mr. Savage, but nothing on the record persuades me that Mr. Palleson was anything but honest in his representations to the court. The one criticism perhaps due to Gowlings was the apparent failure to provide first-hand affidavit evidence that is normally required after delivery of documents. [31] The court may set aside an order, even where non-attendance by a party was deliberate, if there would otherwise be a miscarriage of justice: Lin v. Tang (1997), 37 B.C.L.R. (3d) 325, 147 D.L.R. (4th) 577 (C.A.). In light of what I have mentioned with respect to Mr. Savage's likely knowledge of the judgment, and my comments below with respect to the two other factors to consider, I do not believe that a miscarriage of justice would result in this case. (b) Making Application as soon as Reasonably Possible [32] It is noteworthy that both Mr. Simpson and Mr. Taylor, at the outset of their respective retainers, could not confirm that they would be acting for Mr. Savage on his application to set aside the May 31, 2004 judgment. It seems that their primary instruction was to represent Mr. Savage in the BCSC proceedings. The plaintiffs strenuously argue that Mr. Savage deliberately delayed the hearing of this application to facilitate adjournments of the BCSC action, and therefore avoid the consequences in both proceedings. [33] The plaintiffs submit that no concrete steps were taken by Mr. Savage for another year after he says that he first found out about the May 31, 2004 judgment -- early October 2005. That is not quite the case. Mr. Savage attempted to bring an ex-parte application on October 19, 2005. There was also the occasion in March 2006 when he sought Madam Justice Koenigsberg's consent to hear this application. [34] On the other hand, the lack of action from Mr. Simpson's office suggests that Mr. Savage did not wish to proceed as quickly as possible. It was not until the fall of 2006 that Mr. Savage, having ceased to retain counsel, arranged a date for the hearing of his application. [35] In March 2006, when Mr. Simpson's office contacted Mr. Palleson's office for dates for hearing of the application, Mr. Palleson wrote him back immediately. However, he never received a response from Mr. Simpson. I can see no reason why Mr. Simpson would do nothing more to set down the date for the hearing over the next several months while he acted for Mr. Savage. There is no explanation why he did not get on with it, unless he was instructed not to do so by Mr. Savage. (c) Meritorious Defence [36] In her reasons for judgment, Madam Justice Koenigsberg stated the following: You have judgment against Michael Savage and the company for $765,000 U.S., plus interest, that is, court order interest. The plaintiffs are entitled to a declaration that the subscription agreements signed by the plaintiffs with "Savage Tele.com Corporation" are void on the basis that the corporate party and the basis of the subscription agreement at the time they were signed did not exist. I would note further, in relation to the basis for such a declaration, the fact is that when the defendants, or some of them, purported to have or asked the plaintiffs to sign new subscription agreements with a different corporate entity which did, in fact, then exist, the plaintiffs refused to do so. The plaintiffs have sought this declaration on several grounds in addition to the fact that the corporate entity, which was the other contracting party to the subscription agreement, did not exist. The plaintiffs say that there was a total failure of consideration, misrepresentation and a breach of the Securities Act, specifically s. 61 and s. 50 and s. 135 and s. 83. All are further bases for a finding that the subscription agreements are void. I decline to find them void for any reason other than that the corporate entity did not exist at the time, or the shares of the subscription agreement on which it was based. I make no finding in regard to the other grounds. [37] The trial judge was presented with, and she accepted as undisputable, many facts which supported her decision, including: a) In mid-1997, Mr. Savage conceived a telecommunication project and under his direction, a business plan was created and sent to various investors, including the plaintiffs. Corkum Affidavit, paras. 3 and 4 (Chambers Record, Tab 16.9-16). b) Mr. Savage and Ms. Oslund made all the decisions with respect to corporate and financial matters and directed where money went. Corkum Affidavit, paras. 5 and 9 (Chambers Record, Tab 16.9-16). c) When Mr. Savage first began to receive the funds in January 1999, he directed that a US-dollar account be opened at the Toronto Dominion Bank in Willingdon branch, in the name of a non existent company. Mr. Savage and Ms. Oslund made all significant decisions with respect to the account. Corkum Affidavit, paras. 10, 12 and 14 (Chambers Record, Tab 16.9-16). d) In early 2000, the plaintiff, Mark Maier, became aware of Mr. Savage's investment opportunity, namely shares in the non-existent company having alleged shares in a telecommunications project. Mr. Savage told Mr. Maier that he was the president of this non-existent company. Maier Affidavit #1, paras. 2 and 3 (Chambers Record, Tab 16.9-7). e) In order to carry out the purported purchase of the shares in the non-existent company, the plaintiffs were directed by the defendants and in March 2000 they deposited money into the account totalling $765,000 US. They also signed and delivered purported share subscription agreements. f) Subsequently, the defendants provided the plaintiffs with different subscription agreements for shares in a different company, namely Savage Telecom, and asked the plaintiffs to sign new agreements. None of the plaintiffs ever signed such agreements or otherwise agreed to purchase shares in Savage Telecom or any other existing company. g) None of the plaintiffs ever received any share certificates. h) On June 6, 2000, Mark Maier and Joe MacLean met with Mr. Savage and Ms. Oslund in Atlanta, Georgia. Mark Maier and Joe MacLean demanded the return of the plaintiff's funds. i)In mid-April 2000, the project funds were moved from the TD Bank to the Canadian Imperial Bank of Commerce, East Hastings Branch ("CIBC"). A debit memo from the CIBC U.S.-dollar bank account statements shows on June 7, 2000 an amount of $530,000 (U.S.) paid to "Michael" referring to Mr. Savage. The effect of this debit memo was to transfer most of the project funds to Mr. Savage. j)During submissions before the Court on May 31, 2004, Ms. Oslund admitted that the purpose in moving the project funds was to frustrate the plaintiffs' recovery efforts. Mr. Savage confirmed the same in his submissions at the hearing of this application. k) By way of letter dated June 8, 2000 from counsel for the plaintiffs to Owen Bird, then counsel for the defendants, the plaintiffs again demanded the return of the funds and threatened, should the funds not be returned, an action against the defendants. The funds were never returned and it is not known what Mr. Savage has done with them. l)Mr. Savage has now deposed that, prior to retaining Owen Bird, he had retained Andrew Walker of Boughton Peterson Yang Anderson with respect to this project. In his affidavit, he accused Mr. Walker of failing to incorporate Savage Telecom in a timely way, and for failing to advise Mr. Savage that he must not obtain funds from investors or represent that a company was incorporated before it was actually incorporated. He admitted he did so. m) Mr. Savage commenced an action against Mr. Walker alleging breach of fiduciary duty and negligence. [38] To blame one's solicitor for one's wrongdoing does not create a meritorious defence to claims such as the plaintiffs' against the defendants. [39] Furthermore, a contract with a non-existent party, such as the non-existent company in this case, is void and monies paid pursuant to that contract are returnable in any event: Rover International Ltd. and Others v. Cannon Film Sales Ltd., [1987] B.C.L.C. 540, and Heck v. 288196 Ontario Ltd., [1981] O.J. No. 636 (S.C.) (Q.L.). [40] The plaintiffs also argue that they, having received no consideration for the monies paid, are entitled to the recovery of such money. I agree with this argument. [41] In M.F.C. Bankcorp Ltd. v. Aqua Plan Inc. (1999), 2 B.C.L.R. (3d) 87, [1999] B.C. J. No. 2907 at para. 13 (S.C.), Bauman J. quoted from Halsbury's Laws of England, 4th ed. (London: Butterworths, 1998), as follows: Both parties rely upon various statements from Halsbury's Law of England, 4th ed. (London: Butterworths, 1998). For the defendant, this statement, in particular, is stressed: (i) In general When money is recoverable. Where the plaintiff pays money to the defendant under an ineffective contract, he may be able to recover that money in restitution. This is the case not only in respect of contracts which are void or ineffective ab initio, because the parties never reached agreement, or by reason of initial impossibility of performance or mistake, or on some other ground, but also to contracts which are valid when made, but which are later avoided for breach or misrepresentation, or by reason of subsequent impossibility or frustration. The cases will be considered in two groups: (1) where there is a claim of total failure of consideration; and (2) where the contract is illegal or void. (ii) Total failure of consideration Effective total failure. A complete failure of consideration in a contract occurs when one of the contracting parties fails to receive the benefit or valuable consideration which springs from the root, and is the essence, of the contract. The test is whether or not the party claiming total failure of consideration has in fact received any part of the benefit bargained for under the contract or purported contract. Where the plaintiff has paid money in pursuance of a contract but becomes entitled to rescind that contract on the ground of total failure of consideration, he may recover the money. [42] Mr. Savage swore that there was evidence to support his defence and counterclaims, as well as third-party claims in the action. In a number of these cases, there may have been some merit, but not, as Madam Justice Koenigsberg clearly indicated, in the plaintiffs' straightforward claim for return of monies had and received. [43] I agree with the trial judge and counsel for the plaintiffs that the facts alleged against Mr. Savage along with his own admissions, are virtually incontrovertible. He obtained subscription agreements and funds for the purchase of shares that did not exist. As such, the agreements were void and the money which belonged to the plaintiffs is returnable to them. Mr. Savage had the funds and he has not returned them. He admits to this fact. Whether there may be third-party claims against his professional advisors and others does not alter the fact that there is a very strong case against him. CONCLUSION [44] On the evidence before me, the defendants Savage and Savage Telecom (Canada) Ltd. have not satisfied me that their application to set aside the May 31, 2004 judgment was not due to any wilful delay or default on their part, or failure to apply to set aside the judgment as soon as reasonably possible. [45] On a balance of probabilities. I find that the relevant notices were duly delivered pursuant to the Rules of Court, but if I am wrong in that respect, I find at least that Mr. Savage was aware of the plaintiffs' Rule 18A application and subsequent default judgment on or shortly after May 31, 2004. I infer from the facts and circumstances that he deliberately took no steps to challenge the outcome, instead hoping that the plaintiffs would not execute on the judgment as time went on. [46] In October 2005, when he says he first became aware of the judgment, it seems to me more than a coincidence that Mr. Savage was also engaged in the BCSC proceeding with respect to which it became convenient to use his application in this action as a means of obtaining adjournments in the BCSC proceeding. [47] If Mr. Savage did indeed first learn of the judgment in October 2005, I accept the submission of the plaintiffs that he did not make the application or take serious steps to bring it to a hearing until approximately another year. That is not a reasonable delay in my view, considering Mr. Savage's sophistication and experience and the fact that he had a lawyer retained to deal with the matter who did nothing much with respect to this action. [48] The most important reason for declining to reconsider the judgment lies in the merits of Mr. Savage's defence. In my view, Mr. Savage has not shown that there is a meritorious defence to the action against him insofar as the judgment of May 31, 2004 is concerned, or even a defence worthy of investigation. [49] The application to set aside the judgment of Madam Justice Koenigsberg of May 31, 2004 is dismissed, with costs awarded to the plaintiffs. "E. Rice, J." The Honourable Mr. Justice E. Rice