SunOil Ltd. v. Big Snowy Resources, L.P.

2015 BCSC 167 SunOil Ltd. v. Big Snowy Resources, L.P.

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: SunOil Ltd. v. Big Snowy Resources, L.P., 2015 BCSC 167 Date: 20150206 Docket: S141392 Registry: Vancouver Between: SunOil Ltd. Plaintiff And Big Snowy Resources, L.P., Antelope Resources, Inc. Crazy Mountain Group LLC, Bouda LLC, 648564 B.C. Ltd., Western Sun Exploration Inc., Jake Oil & Gas Consultants LLC, John Campbell, Robert Gardner, Robert Stuart Angus, Brian Smith, Wayne Moorehouse and Michael Farley Defendants Before: Master Harper Reasons for Judgment Counsel for the Plaintiff: J.A. Legge G. Hoekstra Counsel for the Defendants, Robert Gardner, and Bouda LLC: J.D. Shields Place and Date of Hearing: Vancouver, B.C. January 14, 2015 Place and Date of Judgment: Vancouver, B.C. February 6, 2015 I. introduction [1] The plaintiff SunOil Ltd. (the "plaintiff") applies for orders adding as a plaintiff its wholly owned subsidiary Stealth Energy USA Inc. ("Stealth USA") and as a defendant Magna Management Ltd. ("Magna"), a company controlled by the defendant Robert Gardner ("Gardner"). The plaintiff also seeks an order amending the notice of civil claim as a consequence of the addition of the new parties. The proposed notice of civil claim is attached as Schedule "A" to these reasons. [2] The proposed plaintiff Stealth USA consents to being added as a plaintiff. [3] The defendants Gardner and Bouda LLC oppose the application. I

will refer to these defendants for convenience as "the defendants". No other defendants have responded to the application. II. Background [4] In 2008, the plaintiff acquired, through its subsidiary Stealth USA, an oilfield in Wyoming, referred to as the "East Teapot Property" from the defendant Crazy Mountain Group LLC ("Crazy Mountain"). Magna was a shareholder in Crazy Mountain and a director of the plaintiff at the material time (the material time being between January and March, 2008 according to the plaintiff). Gardner did not vote on the acquisition. The plaintiff alleges that it paid too much for the East Teapot Property based on an appraisal that Gardner (among others) urged upon the directors of the plaintiff. The plaintiff alleges Magna and, hence, Gardner improperly profited from the sale. [5] The defendants have applied for a summary trial which is set for hearing February 26 and 27, 2015. III. THE RULES REGARDING ADDITION OF PARTIES [6] A party can be added if that person ought to have been joined as a party; that person's participation is necessary to ensure that all matters in the proceeding may be effectively adjudicated on; or there may exist between the person and any party a question or issue relating to or connected with any relief claimed in the proceeding, or the subject matter of the proceeding that it would be just and convenient to determine in the

proceeding: Rule 6-2(7) of the Supreme Court Civil Rules. [7] The general principles that the court should apply when determining whether to grant an application to add parties are set out in Meade v. Armstrong (City), 2011 BCSC 1591 at para. 16: 1) A party should be added where that party's participation is necessary for the proper determination of the case: Van de Perre v. Edwards [2001] 2 S.C.R. 1014 at para. 48; 2) The discretion to add parties should be generously exercised so as to enable effective adjudication upon all matters: Northern Construction Co. v. British Columbia Hydro and Power Authority, [1970] B.C.J. No. 26 at para. 14; 3) In exercising the discretion to add a party, the court should not concern itself as to whether the action will be successful other than to be satisfied that there may exist an issue or question between the applicant and the party being joined: MacMillan Bloedel Ltd. v. Binstead, [1981] B.C.J. No. 1611 at para. 12; 4) Evidence is not required in support of a joinder application. The pleadings may be sufficient to establish that there is a question to be tried between the parties: Lasik Vision Canada Inc. v. TLC Vancouver Optometric Group Inc., [1999] B.C.J. No. 2796 at para. 15; 5) Where an applicant relies on pleadings alone, the facts alleged, which if assumed to be true, must disclose a cause of action: Harrington (Guardian ad litem) v.

Pappachristos, [1992] B.C.J. No. 2600; 6) Unless there is prejudice, amendments should be granted liberally to enable the issues to be tried: Langret Investments S.A. v. McDonnell, [1996] B.C.J. No. 550 at para. 43. [8] As for adding a defendant, the Court of Appeal in The Owners, Strata Plan No. VIS3578 v. John A. Neilson Architects Inc., 2010 BCCA 329 described the general principles this way: [45] two requirements that an applicant must prove to succeed in joining a new defendant. First, it must show that there is a question or issue between the plaintiff and proposed defendant that relates to the relief, remedy, or subject matter of the proceeding. The threshold is low. If evidence is provided, the court is not to weigh it and assess whether the plaintiff could prove the allegations. [46] If this first requirement is met, the court must next determine whether it would be just and convenient to decide the issue between the parties ... IV. THE POSITION OF THE PARTIES [9] The plaintiff argues that Stealth USA should be added as a plaintiff pursuant to Rule 6-2(7)(b) for the following reasons: (a) Stealth USA is a wholly owned subsidiary of the plaintiff; (b) The East Teapot Property was registered in the name of the Stealth USA after it was acquired by the plaintiff pursuant to the East Teapot Agreement. All defendants were aware that this was going to occur; (c) One of the

remedies the plaintiff has requested is the East Teapot Agreement be rescinded. The result of this would be that the East Teapot Property would be returned by Crazy Mountain and Crazy Mountain would repay the US$6.5 million purchase price it was paid for the property; and (d) As Stealth USA is the registered owner of the East Teapot Property (and was since it was transferred to the Plaintiffs pursuant to the East Teapot Agreement) it ought to have been joined as a party (Rule 6-2(7)(b)) and its participation is necessary to ensure that all matters in the proceeding may be effectively adjudicated on (Rule 6-2(7)(c)). [10] Additionally, the plaintiff argues that Stealth USA should be added as a plaintiff and Magna as a defendant pursuant to Rule 6-2(7)(c) for the following reasons: (a) Stealth USA is a wholly owned subsidiary of the plaintiff; (b) The East Teapot Property was registered in the name of the Stealth USA after it was acquired by the plaintiff pursuant to the East Teapot Agreement. All Defendants were aware that this was going to occur; (c) Magna is a controlled by Gardner; (d) Magna is a shareholder in Crazy Mountain; (e) the plaintiff paid Crazy Mountain US$6.5 million for the East Teapot Property; (f) Magna received a portion of these proceeds; and (g) It is alleged by the plaintiff that as a result of various breaches (including Gardner's breach of his fiduciary

obligations to the company) it is entitled to trace any of the US$6.5 million which Magna received from the sale of the East Teapot Property; and (h) There exists between Stealth USA and Magna and the other parties to the proceedings questions or issues relating to our connected with the subjected matter or relief claimed in the proceedings; and (i) It is just and convenient to add Stealth USA as a plaintiff and Magna as a defendant to the proceedings. [11] The defendants oppose the application on the basis that the notice of civil claim is deficient; new parties should not be added to an action in which the pleadings fail to set out material facts in support of the claim and which fail to disclose a cause of action; the plaintiff has had time to amend its notice of civil claim since the filing of the response to civil claim in March, 2014; the plaintiff must be content with the notice of civil claim as it is and will have to take its chances at the summary trial without the addition of the new parties; and the court should not assist the plaintiff in further vexing the defendants. V. HAS THERE BEEN UNDUE DELAY IN BRINGING THIS APPLICATION? [12] The defendants also argue there has been undue delay on the part of the plaintiff in bringing this application. The application was filed in September 2014 but a court date was difficult to obtain. The plaintiff says the litigation is

less than a year old and has proceeded in a somewhat disjointed fashion. Some defendants have filed jurisdictional responses that have yet to be adjudicated upon and the plaintiff is waiting for further document production from Gardner and Bouda LLC. It is certainly awkward for this application to be heard so close to the date set for the summary trial, however, I do not fault the plaintiff for that timing problem. I find there has not been undue delay on the part of the plaintiff in bringing this application. VI. THE NOTICE OF CIVIL CLAIM - ADEQUATE OR DEFICIENT? [13] The proposed amendments to the notice of civil claim are straightforward consequential amendments setting out the facts of who the new parties are and their relationship to the existing action. The amendments themselves do not raise any concerns and therefore the application does not engage directly the principles concerning amendment of pleadings. [14] If the defendants were not relying on the argument that the notice of civil claim is so deficient that new parties should not be added, I would have no hesitation in granting the orders sought. The proposed parties are so closely connected to the existing claims that they ought to be added. Stealth USA is the owner of the East Teapot Property and Magna is the corporate vehicle through which Gardner received his profit from the sale. Both parties ought to have been

joined as parties, their participation is necessary to ensure that all matters in the proceeding may be effectively adjudicated on and there exists between the proposed parties and the existing parties a close connection to the relief claimed and the subject matter of the proceeding such that it would be convenient to add them. Convenience, however, is not enough. It must also be just to add the parties. [15] The opposition to the application is that the notice of civil claim would not withstand an application to strike, therefore, the orders should not be granted. The defendants emphasize in particular the claims based on fraud which require pleading full particulars. Essentially, the defendants argue that in all the circumstances it would not be just to add the new parties. The difficulty with the defendants' position is that if the new parties are not added, the action will go to trial (either a summary trial or conventional trial) without the participation of proper and necessary parties. The notice of civil claim in its present form, therefore, would have to be so inadequate as to counter the otherwise compelling reasons to add the new parties. The adequacy of the notice of civil claim, therefore, is the central issue in this application. [16] A notice of civil claim must do the following in accordance with Rule 3-1(1): a) set out a concise statement of the material facts

giving rise to the claim; b) set out the relief sought by the plaintiff against each named defendant; c) set out a concise summary of the legal basis for the relief sought; g) otherwise comply with Rule 3-7. [17] For the purposes of this application, the relevant provisions of Rule 3-7 are that the notice of civil claim must not contain the evidence by which the facts alleged are to be proved (Rule 3-7(1)); conclusions of law must not be pleaded unless the material facts supporting them are pleaded (Rule 3-7(9)); and if a party relies on misrepresentation or fraud full particulars, with dates and times if applicable, must be pleaded (Rule 3-7(18)). [18] In Sahyoun v. Ho, 2013 BCSC 1143, Mr. Justice Voith set out the requirements of a notice of civil claim as serving two foundational purposes: efficiency and fairness (para. 17). A proper notice of civil claim enables a defendant to identify the claim he or she must address and meet and will confine the ambit of examinations for discovery and of the issues addressed at the trial itself (para. 18). A defendant should not have to guess what it is they are alleged to have done (para. 19). [19] Pleadings can be amended, and often are, by using the "free" amendment pursuant to Rule 6-1(1) which does not require a court order or, when that option is used up, on an application to court. As a case evolves, documents are produced,

examinations for discovery are conducted, counsel and their clients consider the case in more depth and the claims evolve and gel. Counsel for the plaintiff concedes that the notice of civil claim is not perfect, but he intends to amend it "later" using the "free" amendment available pursuant to Rule 6-1(1). He says the plaintiff intends to "clean up the pleadings". The difficulty with the plaintiff's position is that the defendants are entitled to know they case they have to meet before examinations for discovery and before the exchange of lists of documents. They are entitled to know the case they have to meet when they first read the pleadings. As the Supreme Court of Canada put it in R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42 at para. 22: [22] A claimant is not entitled to rely on the possibility that new facts may turn up as the case progresses. The claimant may not be in a position to prove the facts pleaded at the time of the motion [to strike]. It may only hope to be able to prove them. But plead them it must. The facts pleaded are the firm basis upon which the possibility of success of the claim must be evaluated. If they are not pleaded, the exercise cannot be properly conducted. [20] The defendants strenuously argue that the notice of civil claim in its current form is insufficient to support the addition of new parties. The response to civil claim does address

the claims directly, but also objects to the notice of civil claim as failing to disclose causes of action and failing to state material facts. The defendants, however, have not applied to strike any portions of the notice of civil claim and have chosen instead to pursue a summary trial. The plaintiff has not filed a Reply to the response to civil claim so its position on the defendants' defences is unknown except to the extent that the issues are joined. [21] In response to the defendants' argument that this application should be considered in the same way as an application to strike pleadings, the plaintiff says that the court should give a generous interpretation to the pleadings and consider whether if the pleadings are deficient, they can be cured by an amendment. If so, then the pleadings should not be struck. They say further that if the defendants thought the pleadings (or any portion of them) should be struck, then they should have made an application to strike. [22] The defendants make the following complaints about the notice of civil claim: a) Bouda LLC was not incorporated until 2010, therefore cannot be implicated in the timeframe of the action; b) Western Sun Exploration Inc. ("Western Sun") was not incorporated until April, 2008, therefore cannot be implicated; c) the limitation period has expired; d) there is no legal basis for a claim by a corporation for

aggravated damages; e) the plaintiff does not allege any conduct that is described as high-handed, malicious, arbitrary or highly reprehensible, therefore the claim for punitive damages cannot succeed; f) the plaintiff has failed to particularize the allegations of fraud and misrepresentation as required by Rule 3-7(18); g) the plaintiff has failed to plead material facts to support a claim of unilateral mistake, breach of fiduciary duty, conspiracy, knowing assistance and knowing receipt or negligence, punitive damages and has failed to claim any loss or damage except in the claim for negligence; [23] I will address the first three complaints as a group. For the purposes of this application, the facts set out in the notice of civil claim are assumed to be true. Therefore, even if the defendants are correct that Bouda LLC and Western Sun were incorporated outside the material timeframe of the allegations, that is an issue that will be decided on the evidence at trial. As for the limitation defence, I am unable to determine in this application whether or not the limitation period has expired. Therefore, I do not give effect to the defendants' arguments on the first three complaints. [24] As for the claim for aggravated damages, the defendants provided case authority in support of the proposition that a company, not being a person with feelings, cannot recover aggravated damages.

The plaintiff did not refute this argument. If the defendants' position is correct, the claim for aggravated damages should be struck. However, since the application before me was not an application to strike, this deficiency in and of itself is not sufficient to tip the balance against the plaintiff in this application. [25] In argument, the plaintiff did not specifically refute the defendants' position that in failing to allege conduct that is high-handed, malicious, arbitrary or highly reprehensible, the claim for punitive damages cannot succeed. However, and again interpreting generously, I take the claim for punitive damages to flow from the facts pleaded which describe the defendants' conduct generally. The complaints that are of more concern are the ones based on failure to particularize the claims in fraud and misrepresentation and failure to plead material facts. [26] A material fact is one that is essential in order to formulate a complete cause of action. If a material fact is omitted, a cause of action is not effectively pled (Sahyoun, para. 25). [27] Evidence should not be pleaded. As an example, I note that the defendants have pleaded evidence which I doubt is correct. For instance, in para. 23 of the response to civil claim, the defendants quote a news release of the plaintiff which states, in part, "the negotiation and approval of the transaction has been

carried out by the independent directors of the Company." The material fact is contained within the news release, however, the news release is evidence and in my view, should not be referred to in the response to civil claim. [28] The plaintiff says that the facts supporting the claim of fraud against Gardner are concisely set out in the facts section of the notice of civil claim as follows (and I paraphrase): that Gardner was a director of the plaintiff, he obtained a false valuation report, he gave that report to the plaintiff to induce it to buy the East Teapot Property and he profited from the sale. [29] The format of a notice of civil claim is prescribed. Part 1 contains a concise statement of the material facts giving rise to the plaintiff's claim. Part 2 is the relief sought. Part 3 is the legal basis which is to set out a concise summary of the legal bases on which the plaintiff intends to rely in support of the relief sought and specify any rule or other enactment relied on. The structure of a notice of civil claim requires a separation between the statement of material facts and the summary of the legal bases. There does need to be a connection drawn between the facts pleaded and the legal bases relied up to support the relief sought. Whether the connections are clear enough for the purposes of this application is an issue. [30] Here is an example of the dispute

between the parties on this point. Paragraph 56(b) of the response to civil claim is in response to para. 47(a) of the notice of civil claim in which the plaintiff alleges a misrepresentation. The defendants say that the plaintiff does not plead what the alleged misrepresentation was or to whom it was made. However, para. 47(a) of the notice of civil claim is in the legal basis section, not the statement of facts section. The facts underpinning the claim of misrepresentation are found in the factual basis section of the notice of civil claim. The facts do not need to be repeated in the legal basis section and, in fact, probably should not be. [31] I agree with the plaintiff's position that the "legal basis" in a notice of civil claim is not required to set out a detailed legal argument. Nor should the "legal basis" plead evidence. In fact, Rule 3-7(1) states that a pleading must not contain the evidence by which the facts alleged in it are to be proved. However, because the plaintiff in this case alleges misrepresentation and fraud, full particulars must be stated in the pleading, including dates and times if applicable (Rule 3-7(10)). [32] The distinctions between material facts, evidentiary facts and particulars guide my interpretation of the pleadings. The distinctions can be difficult to apply. [33] In British Columbia Teachers' Federation v. British Columbia, 2012 BCSC

1722, paras. 16-17, Madam Justice Griffin reviewed the distinction between a material fact and evidentiary fact citing Jones v. Donaghey, 2011 BCCA 6 in which Mr. Justice K.C. Smith described "material fact" as one that, when resolved, will have legal consequence as between the parties to the dispute. Facts that tend to prove the fact in issue, or to prove another fact that tends to prove the fact is issue are evidentiary or "relevant" facts. [34] Does the requirement to plead full particulars of the claim of fraud require the drafter to plead evidentiary facts? Particulars are not material facts. Particulars are provided to disclose what the pleader intends to prove (Sahyoun, para. 27 citing McLachlin and Taylor, British Columbia Practice, 3d ed., vol. 1). Stripped to the most simplistic level, particulars are details facts which might come close to, but not cross, the line into evidence. The requirement in Rule 3-7(18) for dates and times if applicable illustrates the point. [35] The alleged misrepresentations are about the value of the East Teapot Property. The misrepresentations were made to the directors of the plaintiff between February 1 and 28, 2008 and the loss claimed is rescission and damages for the loss it suffered. Admittedly, reliance by the plaintiff on the misrepresentations appears missing from the pleading. The plaintiff does allege that the appraisal was

prepared to induce the Outside Director Defendants to purchase the property. Interpreting the pleading generously, I take the plaintiff's assertion to its logical next step which is that the Outside Director Defendants were in fact induced to approve the purchase. What loss the plaintiff sustained is not entirely clear, but a generous interpretation for the purposes of this application points to a claim for lost profits and the inflated purchase price. [36] In summary, a generous reading of the claim in fraud and misrepresentation set out in the proposed notice of civil claim, including the particulars provided by the plaintiff pursuant to the demand, supports those claims. It is not plain and obvious that the notice of civil claim discloses no reasonable cause of action. [37] The defendants' complaint that material facts are not pleaded to support the claims of unilateral mistake, breach of fiduciary duty, conspiracy, knowing assistance and knowing receipt and negligence is met by interpreting the notice of civil claim as a whole. Again, I read the notice of civil claim generously and conclude that the facts pleaded in the notice of civil claim support more than one outcome as set out in the "legal basis" section of the notice of civil claim. The material facts are not repeated in the "legal basis" section of the notice of civil claim, nor should they be. [38] It is my

conclusion that the notice of civil claim in its present form is flawed, but not fatally so. Read generously and as a whole, the notice of civil claim adequately sets out the case the defendants have to meet. The claims made by the plaintiff are not certain to fail (see Horton Bay Holdings Ltd. v. Wilks, 1991CanLII 1156 (BCCA)), with one exception which is the claim for aggravated damages. [39] Returning to the "convenience" factor, there are practical reasons to grant the application. If a plaintiff is unsuccessful in applying to join parties to an existing action, the doctrine of abuse of process does not preclude it from commencing a separate action against those parties that claims the same relief (see The Owners, Strata Plan VIS3578 at para. 29). If the two new parties were not added, Stealth USA could start its own action against the existing parties and Magna. A parallel action arising out of the same subject matter would not be an economical use of court proceedings and would offend the rule against multiplicity of proceedings. [40] There is no prejudice to Gardner if Magna is added as a defendant. Gardner solely controls Magna and he will be in no worse position than he is now if Magna is added or if Magna had been named at the outset. [41] Turning to the upcoming summary trial application, it is not desirable to leave the summary trial to proceed in the absence of

proper and necessary parties. As the court put it in Northern Construction Co. v. British Columbia Hydro and Power Authority, 12 D.L.R. (3d) 730 at 738: "One does not like to contemplate the situation of this application being refused and the trial Judge or an appellate Court finally concluding that [the proposed new party] should have been a party." I have contemplated that same situation in this case and I do not like it either. Further, if I did not make the order adding Stealth USA as a plaintiff and if the defendants argued at trial that the court should not grant judgment in favour of the plaintiff because Stealth USA is the correct plaintiff, that would be unfair to Stealth USA. Similarly, if I did not make the order adding Magna as a defendant and if the defendants argued at trial that the court should not grant judgment against the defendants or either or them because Magna was the correct defendant, that would be unfair to the plaintiff and to Stealth USA. The material facts set out in the notice of civil claim establish that there are real issues, not frivolous ones, between the proposed parties. The new parties should be added to enable the issues to be tried. [42] On the hearing of a summary trial application, the court may grant judgment in favour of any party, either on an issue or generally (Rule 9-7(15)). "All parties to an action must come to a summary trial

hearing prepared to prove their claim, or defence, as judgment may be granted in favour of any party, regardless of which party has brought the application, unless the judge concludes that he or she is unable to find the facts necessary to decide the issues or is of the view that it would be unjust to decide the issues in this manner" (Gichuru v. Pallai 2013 BCCA 60, para. 32). [43] The judge presiding at the summary trial may decide that the action is suitable for determination at a summary trial or, alternatively, that a conventional trial is required. The plaintiff will have to come to the summary trial hearing prepared to prove its case against the defendants or risk having it dismissed. By the same token, since the defendants are pursuing a summary trial (thus, obviously not arguing that the action is not suitable for determination at a summary trial), they run the risk of the court finding liability against them at the summary trial. [44] The plaintiff seems to be assuming that it can wait to improve the notice of civil claim by amending it after the summary trial when further information will be obtained by way of discovery and further fact-gathering. The plaintiffs (and I include Stealth USA) may decide that the time to amend the notice of civil claim is now, rather than later. I have read the notice of civil claim for the purposes of this application generously, but

there is certainly room for improvement. Thus far, the plaintiff appears content with the notice of civil claim in its present form. That form, including the amendments sought in this application, unless further amended, will go before the judge presiding at the summary trial. VIII. THE LIMITATION DEFENCE [45] There is insufficient evidence before me to determine whether Magna has a limitation defence which would be extinguished if Magna is added as a defendant. Counsel for the plaintiff says that it agrees that if Magna is added, it should be without prejudice to Magna's right to claim a limitation defence. I adopt the approach of the court in The Owners, Strata Plan VIS3578 (see para. 48) and permit joinder on terms that any limitation defence is preserved and determined at trial. iX. Disposition [46] I make the following orders: a) Stealth Energy USA, Inc. is added as a plaintiff in this proceeding; b) Magna Management Ltd. is added as a defendant in this proceeding; c) The plaintiff is granted leave to amend the notice of civil claim as set out in its Notice of Application as Schedule "A"; d) Any limitation defence claimed by Magna is preserved; and e) Costs will be in the cause. ___ "Master Harper"___ Master Harper