National Bank Financial Ltd. v. Potter

National Bank Financial Ltd. v. Potter Court Supreme Court Date 2006-02-14 Citation 2006 NSSC 48 Docket SH 206439 Judge/Registrar/Adjudicator Scanlan, J. Edward (Honourable Justice) (SC) Document Type Decision Decision Content IN THE SUPREME COURT OF NOVA SCOTIA Citation: National Bank Financial Ltd. v. Potter, 2006 NSSC 48 Date: 20060214 Docket: S. H. No. 206439 Registry: Halifax BETWEEN: NATIONAL BANK FINANCIAL LTD. PLAINTIFF - and - DANIEL POTTER, START’S POINT CAPITAL INCORPORATED, FIONA IMRIE, GRAMM & COMPANY INCORPORATED, 2532230 NOVA SCOTIA LIMITED, 3020828 NOVA SCOTIA LIMITED, RONALD RICHTER, KENNETH MACLEOD, FUTUREED.COM LTD., DONALD SNOW, MEG RESEARCH.COM LIMITED, 3027748 NOVA SCOTIA LIMITED, CALVIN WADDEN, RAYMOND COURTNEY, BERNARD SCHELEW, BLOIS COLPITTS, STEWART MCKELVEY STIRLING SCALES, BRUCE CLARKE, 2317540 NOVA SCOTIA LIMITED and KNOWLEDGE HOUSE INC. DEFENDANTS AND BETWEEN: DANIEL POTTER, KNOWLEDGE HOUSE INC., and STARR’S POINT CAPITAL INCORPORATED PLAINTIFF’S BY COUNTERCLAIM - and - NATIONAL BANK FINANCIAL LTD., REAL RAYMOND, JEAN TURMEL, MICHEL LABONTE, LORIE HABER, GUY ROBY, ERIC HICKS, BARRY MORSE, DAVID MACK, BRUCE CLARKE, JOEL WIESENFELD, ALAN V. PARISH, BRIAN K. AWAD and DONALD WINCHELL DEFENDANTS BY COUNTERCLAIM Judge: The Honourable Justice J. E. Scanlan Heard: March 23, 24, 2004 , in Halifax, Nova Scotia Counsel: James Hodgson Counsel for National Bank Financial Ltd., Real Raymond, Jean Turmel, Michel Labonte, Lorie Haber, Guy Roby, Joel Wiesenfeld, Alan V. Parish, Brian K. Awad and Donald Winchell Mr. David Coles Counsel for National Bank Financial Ltd. Daniel Potter, self-represented Doug Caldwell, Q.C. Counsel to Fiona Imrie, Gramm & Co, 2532230 NSL And 3020828 NSL Peter Nathanson Counsel to Ronald Richter Dale Dunlop Counsel to Kenneth MacLeod, FutureEd.com, Calvin Wadden, 3027748 NSL Dwight Rudderham Counsel to Donald Snow and Meg Research Tim Hill Counsel to Raymond Courtney Robert Belliveau, Q.C. Counsel to Bernard Schelew James Douglas Counsel to Blois Colpitts John Rook, Q.C. Counsel to Stewart McKelvey Stirling Scales Philip Chapman Counsel to Bruce Clarke and 2317540 NSL By the Court: [1] This is an application by National Bank Financial Limited (“NBFL”) asking for an order striking out certain portions of the claims and relief as set out in the counterclaim of Daniel Potter, Knowledge House Inc., and Starr’s Point Capital pursuant to Nova Scotia Civil Procedure Rules 14.25 and Rule 5.03. In addition the applicants ask for an order pursuant to Rule 9.08 declaring that Daniel Potter has not been duly authorized by Knowledge House Inc. (“KHI”) to defend or carry the action in the counterclaims purportedly brought on behalf of Knowledge House Inc. NBFL also asks for an order striking out portions of the counterclaims purportedly brought on behalf of KHI by Daniel Potter. [2] This matter was originally argued in March of 2004. It was agreed by all parties that, prior to the determination of the above-noted issues, the Court should first deal with other substantial applications arising in this litigation. These other applications have resulted in NBFL counsel being removed from the file. Now that new counsel have taken carriage of the file the parties ask the Court to rule on these outstanding applications. [3] The facts of this case have been set out in numerous decisions and perhaps have been most thoroughly reported in National Bank Financial Ltd. et. al. v. Knowledge House et. al., 2005 NSSC 264. I will not repeat those facts. [4] The application now before the Court is in reference to the defence, cross-claim and counter-claim as filed on November 19th, 2003 by Potter, KHI and Starr’s Point. The counter-claim contains nine separate claims for relief against NBFL and also joins 13 different individuals to the action. This application is brought by NBFL and nine of the individual defendants by counterclaim. The individuals include Messrs. Raymond, Turmel and LaBonte who are or were senior officers with National Bank Corporation. Mr. Turmel is also the chairman of the board of directors of NBFL. Mr. Haber was the Executive Vice-President of Corporate Development and Governance of NBFL. Mr. Roby is a Senior Vice-President of NBFL. Messrs. Wisenfled, Paris and Awad were lawyers representing NBFL and they have now been ordered removed from the file pursuant to an earlier decision of this Court. Mr. Winchell is a computer consultant who was retained by NBFL counsel as an expert to access and copy e-mails from the KHI server. [5] Rule 14.25 of the Nova Scotia Civil Procedure Rules provides authority to the Court to strike pleadings. It provides as follows: (1) The court may at any stage of a proceeding order any pleading, affidavit or statement of facts, or anything therein, to be struck out or amended on the ground that, (a) it discloses no reasonable cause of action or defence; (b) it is false, scandalous, frivolous or vexatious; (c) it may prejudice, embarrass or delay the fair trial of the proceeding; (d) it is otherwise an abuse of the process of the court; and may order the proceeding to be stayed or dismissed or judgment to be entered accordingly. (2) Unless the court otherwise orders, no evidence shall be admissible by affidavit or otherwise on an application under paragraph (1)(a). [6] In C.G.U. Insurance Company of Canada v. Noval [2003] N.S.J. No. 32, para 7 and 13, the Nova Scotia Court of Appeal has confirmed, in dealing with a motion to strike under Rule 14.25(1)(a) or Rule 25.01; 1) The Court must proceed on the assumption that the facts as alleged in the statement of claim are true when considering whether a claim is made out. 2) An order to strike will be granted only where, on the facts pleaded, the action is “obviously unsustainable”. 3) A question of law may be properly determined on Rule 14.25 or a Rule 14.25 application but that should only occur where the law is so clear that it is “plain and obvious”. It has often been noted that deciding a claim without trial is a serious matter which should occur only if the claim, on its face, is absolutely unsustainable. [7] In determining whether an action is frivolous or vexatious, in Sherman v. Giles [1994] N.S.J. 572, the Nova Scotia Court of Appeal adopted seven characteristics of vexatious proceedings, two of the characteristics were set out as follows (para 15): (b) where it’s obvious that an action cannot succeed or if the action would lead to no possible good, or if no reasonable person can reasonably expect to obtain relief, the action is vexatious; (d) it is a general characteristic of vexatious proceedings that grounds and issues raised tend to be rolled forward into subsequent actions and repeated and supplemented, often with actions brought against the lawyers who have acted for or against the litigant in earlier proceedings. [8] Courts have, in decisions such as Currie v. Halton (Regional) Police Services Board [2003] O.J.N. 4516, allowed evidence with respect to the issue as to whether it’s obvious that an action cannot succeed or to demonstrate that the action “had no chance of success”. [9] In Currie at paragraph 14 and 16 the the Court discussed the meaning of the terms “frivolous” and “abuse of process”: “Frivolous”, lacking a legal basis or legal merit; not serious, not reasonably purposeful. Abuse of process was noted as a discretionary principle not limited by any set number of principles. “Abuse of Process” is an inherent principle that is used to bar proceedings that are inconsistent with the objectives of public policy. Engages the inherent power of the Court to prevent the misuse of its procedure, in a way that would be manifestly unfair to a party to the litigation or would in some other way bring the administration of justice into disrepute. [10] NBFL asks for an order striking out the fourth, fifth, sixth, seventh and eighth claims for relief . The Respondents have withdrawn the sixth and seventh claim for relief. The remainng claims as challenged by the Applicants can be summarized as follows: Conspiracy to injure allegedly committed by NBFL, Messrs. Raymond, Turmel, Labonte, Haber, Roby, Wisenfeld, Parish and Awad, as set out in paragraphs 1 through 192, more specifically 189 through 192 of the statement of claim. The unlawful means are alleged to be that they acted contrary to sections 122(1) and 126.2 of the Securities Act (Ontario); The conversion of KHI computer data files committed by NBFL, Parish, Awad, Haber, Wisenfeld and Winchell, as set out in paragraphs 1 through 196, more specifically 193 through 196; A tort of abuse of process committed by NBFL at paragraphs 1 through 210, more specifically 203 through 210. NBFL LEGAL COUNSEL SUED IN THEIR PERSONAL CAPACITY [11] I start by dealing with the issue of the NBFL counsel and expert witness having been named personally as defendants in a number of the claims. They fall into a special category of defendants which are, at law, to be treated differently than other defendants by counterclaim They include the defendants Wisenfeld, Parish and Awad. All of the allegations made against them in the counterclaim are in respect of statements and conduct of those named defendants while acting in their capacity as NBFL’s counsel in the outstanding litigation. A lawyer cannot be sued for conspiring with his or her client so long as the lawyer acts in the capacity of a lawyer. The doctrine of absolute privilege was discussed in Dooly v. C. N. Weber Limited [1994] O.J. 2328, wherein Justice Reilly stated: ...an absolute privilege attaches to the pleadings and they may not form the basis for a cause of action, even for abuse of process. The development of this privilege has been consistent and without exception, applying in England, Canada and other common law jurisdictions to judges, witnesses, counsel and litigants. The privilege extends to statements made in Court, the evidence of witnesses, to submissions, to addresses, to statements in Court by counsel, to pleadings (as in this case) and perhaps even to statements made to investigators in the preparation of a prosecution. [12] This was confirmed in Martini v. Wrathall [1999] N.S.J. No. 306 (C.A.) While NBFL may be held liable for actions of its solicitors there is nothing in the pleadings or at law which would allow the respondents to sue NBFL’s counsel in their personal capacity. This protection extends to include Mr Winchell who was a technician hired by NBFL counsel to access the computer data. Any claims against Mr Winchell in his personal capacity shall be dismissed as well. CONSPIRACY TO INJURE [13] I now turn to the issue as to whether the various claims for relief should be dismissed starting with the fourth claim for relief, conspiracy to injure. The counterclaim alleges that some or all of NBFL, Messrs. Raymond, Turmel, Labonte, Haber, Roby, Wisenfeld, Parish and Awad conspired with each other for the predominant purpose of injuring Potter, KHI, Starr’s Point and others. In assessing the merits of NBFL’s application to strike I adopt the comments of Wilson J. in Hunt v. Carry Canada Inc. [1990] 2 S.C.R. 959 at p. 981 where the Court said dealing with the equivalent to Rule 14.25: ...the test in Canada governing the application provisions like Rule 19(24)(a) of the British Columbia Rules of Court is the same as the one that governs an application under Rule R.S.C. O. 18, r.19; assuming that the facts as stated in the statement of claim can be proved, is it “plain and obvious” that the plaintiff’s statement of claim discloses no reasonable cause of action? As in England, if there’s a chance that the plaintiff might succeed, then the plaintiff should not be “driven from the judgment seat”. Neither the length and complexity of the issues, the nullity of the cause of action, nor the potential for the defendant to prevent a strong defence should prevent the plaintiff from proceeding with his or her case. Only if the action is certain to fail because it contains a radical defect ranking with the others listed in Rule 19(24)... should the relevant portions of a plaintiff’s statement of claim be struck out... [14] The Supreme Court of Canada described the scope of the tort of conspiracy in Canada Cement LaFarge Limited v. B.C. Light Weight Aggregate Limited [1983] 1S.C.R. 452 setting out the requirement that the predominant purpose of the defendants conduct must be to cause injury to the plaintiff or where the conduct of the defendant is unlawful the conduct must be directed towards the plaintiff knowing that, in the circumstances, injury to the plaintiff is likely. [15] In the respondent’s pleadings KHI, Potter and Starr’s Point plead a number of facts which the Court must assume are true. They suggest the claims made by NBFL against them are an attempt by NBFL to cover up and divert attention away from NBFL operational failings. The pleadings also suggest the predominant purpose is to injure Potter, KHI, Starr’s Point and others, and that NBFL and other alleged persons conspired by unlawful means. [16] The unlawful means suggested in the counterclaim is that they acted contrary to s. 122(1)(b) and 126.2 of the Ontario Securities Act. It is obvious from the lengthy proceedings that have been heard to-date that there are substantial disputes on the merits in this case which may or may not be borne out after trial. It is not for the Court at this stage to weigh the evidence as put forth by NBFL or the other named parties so as to determine which version of the facts are proven or provable. As I have already noted I must proceed on the assumption that allegations in the claim are true. [17] NBFL asserts at paragraph 39 of its brief that the named defendants, Raymond, Turmel, Lebonte, Haber and Roby, were acting in their capacity as officers and directing minds of National Bank Corporation (“NBC”) and NBFL rather than in their personal capacity or for their own benefits. They submit that as a matter of law they cannot be sued for conspiring with the corporation which employed them. In this regard I refer to Coughlan v. Westminer Canada Ltd. (1993), 120 NSR (2d) 91 wherein the named defendants included officers and directors of the plaintiff company, were sued in their personal capacity. The Court allowed the plaintiff’s action against the corporate defendants. [18] I do not accept the position as put forth by NBFL or NBC that, at law, the named individuals could not be held liable, if tortious acts were committed by the individuals for a purpose other than furtherance of the corporate interest. The pleadings and arguments in this case suggest the individuals had reason to act independent of the corporate interests. At this point I am not about to drive the Defendants from the seat of judgment on that issue. At the pleadings stage a party is not required to present all the evidence in support of an assertion or claim. In many cases the party may not have all the facts which may be disclosed during the pretrial discovery process. It is enough that the claim is sustainable at law with evidence to be adduced later. [19] I am satisfied that the pleadings sufficiently detail the rational connection between the objective of injury and the acts which are alleged to have been done in furtherance of the conspiracy. At trial the Court will no doubt be alive to the concern about piercing the corporate veil for NBFL or NBC. The respondent shall have their day in Court on these issues. CONVERSION [20] The fifth claim for relief, conversion. I am satisfied based on the pleadings and affidavits before the Court that this cause of action rests solely with KHI in relation to the KHI servers and the contents of the servers. The pleadings and materials before the Court would suggest that in relation to the claim against Mr. Winchell, Mr. Winchell was acting only as an agent or employee of NBFL or their solicitors and could not be said to be a party in any way to a conversion. As I have already noted, according to the pleadings and evidence Messrs. Parish, Awad and Wisenfeld were acting in their capacity as counsel for NBFL and as such they enjoy absolute immunity from any lawsuit based on their activities as lawyers in gathering evidence for use in Court. That immunity extends to Mr Winchell who acted as an expert on their behalf. He admitted the physical operations in accessing the servers but this was in his capacity as an employee or agent of NBFL. As an expert witness Mr. Winchell enjoys the protection of witness immunity, which has been recognized by the Nova Scotia Court of Appeal (see Horne v. Abbott Limited v. Reeves [2000] N.S.J. 225. [21] As regards the other named defendants a broader consideration of the law of conversion is necessary. Conversion consists of the wrongful dealing with a chattel in a manner inconsistent with another persons right to its use and possession. There are many complex aspects to this case in terms of ownership of both the server and data contained therein. Much of the issue of whether there has been a wrongful conversion will turn on how those issues are resolved. I am reluctant to dismiss the KHI counterclaim until those issues are sorted out. Keeping in mind that I must assume the pleadings are true, I am not prepared to dismiss the claim for conversion as against NBFL. If the action for conversion is to succeed it will be as against NBFL only. The claim for conversion will be struck insofar as it relates to the Respondents, Potter and Starr’s Point Capital because as I have indicated the property interest in the server and data is in KHI. ABUSE OF PROCESS [22] The four constitutional elements of the tort of abuse of process were described by J. Irvine in an article entitled “The Resurrection of Tortious Abuse of Process” (1989) 47 C.C.L.T. 217 at pp. 219 and 220. The elements are as follows: (a) The defendant must have used the legal process (whether with or without reasonable and probable cause, the viability of his case being irrelevant); (b) He must have done so for a purpose other than that which the process in question was designed to serve, that is, for a collateral and illicit. (c) He must have done some definite act or made some definite threat in furtherance of that purpose; and, (d) Some measure of special damage must be shown. [23] As noted in Scintilore Explorations Ltd. v. Larche [1999] O.J. No. 2847 referring to Poulos v Matovic (1989), 47 C.C.L.T. 207 (Ont. H.C. ): ...the mere existence of a “bad” or vindictive mode of prompting legal proceedings will not in itself engender a cause of action for abuse of process, however devastating the effects of those proceedings may be upon their “victim”. There must be a collateral purpose entirely discrete from any which the impugned proceedings were designed to serve within the legal system; financial loss or humiliation which naturally tend to result from the action in question just will not do. [24] The respondent in pleadings submits that the purpose of the actions of NBFL were to divert detention or suspicion away from NBFL and its failure to properly supervise one of its employees. Assuming, as I must, that this can be proven and that there was no other proper basis for NBFL making the claims, it is possible that at the end of the day the claims in relation to the tort of abuse of process may be made out. [25] On the issue of whether the named individual employees, directors or officers, other than legal counsel, can be joined personally in this litigation I note the court said in Scotia MacLeod Inc. v. People’s Jewellery Ltd. (1995) 2 O.R. (3d) 41: It is well established that the directing minds of corporations cannot be held civilly liable for actions of the corporation they control and direct unless there is some conduct on the part of those directing minds that is either tortuous in itself or exhibits a separate identity or interest other than that of the corporation such as to make the acts or conduct complained of those of the directing minds. [26] I refer again to the Coughlan v. Westminer case wherein the personal defendants had, as one of their objectives, withholding from the Board of Directors of Westminer the true situation as regards the gold content in the ore body. The reasons for withholding were related more to the interest of the personal defendants themselves than they were to Westminer. In fact it could be said they acted contrary to the interests of Westminer by withholding this information. In that sense it could be said that they were on something of a frolic of their own. Only a full trial in this matter will determine whether the named defendants were acting outside their capacity as directors and officers of the corporation (NBFL). At this stage I am not prepared to dismiss the actions against Messrs. Haber, Raymond, Turmel, Labonte or Roby. DOES MR. POTTER HAVE THE RIGHT TO ASSERT A CLAIM FOR KHI? [27] Nova Scotia Civil Procedure Rule 9.08 states that: (2) A body corporate may commence, carry on or defend a proceeding by a duly authorized officer resident in the Province. Mr. Potter is the President, CEO and Chairman of the Board of KHI. He is resident within the Province of Nova Scotia. He is also a recognized agent of KHI. At this time KHI does not carry on day to day operations, but it has never been bankrupt. It is clear that, since the various claims and counterclaims have started, Mr. Potter has been and continues to be responsible for all aspects of maintaining KHI corporate status and for preserving and realizing the value for its property. There is no evidence before the Court suggesting Mr. Potter’s authority to act is disputed by a majority of directors, shareholders or officers of the company. If there were any such dispute it would be an internal corporate matter. There is no requirement for a written resolution or written proof of authority to show in each case that a person is duly authorized to act for a corporation. All of the materials before the Court suggest that KHI has maintained its corporate status and that Mr. Potter is a director and officer of that corporation. Absent an application by the shareholders, officers or directors of the company to remove Mr. Potter I am not prepared to interfere with Mr. Potter’s assertion that he is entitled to represent KHI. Should the counterclaim be tried separate from the main NBFL claim? [28] NBFL asks that the issues as raised in the counterclaim to be tried separately from the main proceedings. The applicant relies on Rule 5.03 of the Nova Scotia Civil Procedure Rules which provides: (1) Where a joinder of causes of actions or parties in a proceeding may embarrass or delay the trial or hearing of the proceeding or is otherwise inconvenient, the Court may order separate trials or hearings, or make such other order as is just. (2) Where a counterclaim or a third party proceeding ought to be disposed of by a separate proceeding, the Court may order the counterclaim or third party proceeding to be struck out or tried separately, or it may make such other order as is just. In addition the applicant relies upon Rule 16.03 which provides in part: A counterclaim is a separate proceeding and the court may, (d) where a counterclaim cannot be conveniently disposed of with the original proceeding, order the counterclaim to be excluded or tried separately, or make such other order as is just; (f) make such other order as is just. [29] In the present case I am satisfied that the claim and counterclaim are inextricably bound. This is especially so when it comes to issues of credibility. I am convinced that in assessing credibility of the various witnesses it will be necessary to determine whether the individuals involved had alternative motives which might explain their conduct at various stages in the proceedings. [30] I again refer to the Westminer case wherein Justice Nunn was convinced that the officers and directors involved had reasons not to advise the parent company of the poor content of the ore. That explained the reasons for not giving all relevant information to the parent company. No doubt it had a bearing on issues such as motive and credibility. I am satisfied that for this reason alone the claim and counterclaim are inextricably linked. [31] If the issues were tried separately there would be a strong possibility of inconsistent findings and a duplication of evidence. One of the arguments made at the time of the earlier submissions was that if the matters were tried together NBFL said they would be deprived of their choice of counsel. This is because Messrs. Wisenfeld, Parish and Awad were both counsel and parties. I have already indicated that the claim as against Messrs. Wisenfeld, Parish and Awad should be struck due to the absolute immunity that they enjoyed. In addition, because of my earlier ruling in National Bank Financial Ltd. et. al. v. Knowledge House et. al., 2005 NSSC 264, all of those individuals have been removed as counsel for NBFL in any event. J. 02/13/06