Date: 20170419
Docket: CI 13-01-85581
(Winnipeg Centre)
Indexed as: Brooks Equipment Limited et al. v. La Salle Credit Union Ltd. et al.
Cited as: 2017 MBQB 73
COURT OF QUEEN'S BENCH OF MANITOBA
B E T W E E N:
BROOKS EQUIPMENT LIMITED and
CHUCK BAXTER,
)
)
)
plaintiffs, )
)
- and )
)
LA SALLE CREDIT UNION LTD. and
)
TRENTON PATRICK LAWRENCE,
)
)
defendants. )
)
)
Counsel:
DAVE G. HILL
for the plaintiffs
STUART J. BLAKE and
ANDREW P. LOEWEN
for the defendants
JUDGMENT DELIVERED:
APRIL 19, 2017
EDMOND J.
INTRODUCTION
[1]
The defendants seek summary judgment dismissing the claim of Brooks
Equipment Limited ("Brooks") against the defendants La Salle Credit Union Ltd.
("LSCU") and Trenton Patrick Lawrence ("Lawrence"). The claim of Chuck Baxter
("Baxter") was previously discontinued.
[2]
The defendants rely upon extensive affidavits sworn by Lawrence on
November 30, 2015 and September 12, 2016. The defendants also rely upon an
Page: 2
affidavit sworn by Daniel Dion ("Dion") on November 30, 2015. Dion is the Chief
Executive Officer of LSCU.
The plaintiff relies upon an affidavit of James
Clarence Fields ("Fields") sworn January 6, 2016 (the "Fields' affidavit"), which
contains numerous references to examination for discovery evidence. Fields is
the president and sole shareholder of Brooks.
[3]
The issues for determination on this motion relate to a transaction by a
company owned by Lawrence to purchase a MRS kiln and associated equipment
(the "Kiln") from the receiver appointed by LSCU to liquidate the assets of an
insolvent debtor, McGregor Hardwoods Ltd. ("MHL").
[4]
Brooks was a creditor of MHL. MHL operated a lumber business, including
kiln operations, in Winnipeg.
It had a sawmill operation in Saskatchewan
(Hudson Bay Hardwoods Ltd. ("HBH")) and an operation in Russia (conducted
through 3673040 Manitoba Ltd.).
[5]
Brooks held security interests in certain of MHL's investments, and Brooks
and Baxter were shareholders of MHL.
[6]
Lawrence was employed by LSCU from 2004 to 2013 as a commercial
loans manager and was the banker for MHL and James McGregor ("McGregor")
until May 5, 2006.
[7]
The LSCU was the banker for the accounts of MHL and held a general
security agreement over MHL's assets. LSCU held a first charge on MHL's assets,
ranking ahead of Brooks' security interests.
Page: 3
[8]
Brooks alleges that LSCU and Lawrence wrongfully and with intent to
injure Brooks by unlawful means, conspired, together with McGregor, MHL and
Delta Trading Inc. ("Delta"), a company incorporated by McGregor, to defraud
the plaintiffs and to conceal such fraud from the plaintiffs.
[9]
On February 6, 2006, LSCU appointed BDO Dunwoody Limited ("BDO") as
Receiver and Manager of the undertakings, property and assets of MHL, which
was insolvent.
In 2006, during the course of the receivership, the Kiln was
purchased by a company controlled by Lawrence, 5308471 Manitoba Ltd.
("530").
[10]
Brooks alleges that the defendants acted fraudulently and conspired to
refinance the hardwood business carried on by McGregor and MHL in a way that
would extinguish the debt owed by McGregor through MHL, without any actual
repayment to the plaintiffs.
The cause of action is grounded in fraud and
negligence.
[11]
The defendants submit that the claim has no merit in law or in fact. They
allege that LSCU held a first charge over the assets of MHL and acted in a
reasonable manner in liquidating the assets. Lawrence disclosed his interest in
530 to LSCU and on May 5, 2006 Lawrence stepped down as the commercial
loans manager responsible for handling MHL and Delta's banking. A new loans
officer was appointed to handle the accounts. The defendants deny the alleged
conspiracy, any wrongdoing or breach of duty and submit that the claim is
statute-barred.
Page: 4
FACTS
[12]
The facts of this case are summarized in my reasons for decision delivered
May 17, 2016 (2016 MBQB 98) and I do not intend to restate them in this
decision.
[13]
Certain additional facts are relevant to the determination of the summary
judgment motion, which I will summarize below.
[14]
On or about March 22, 2006, Brooks and Baxter, through their legal
counsel, submitted an offer to BDO to purchase the kilns in Winnipeg, the assets
of MHL in Hudson Bay Saskatchewan and the HBH shares owned by MHL for
$20,000. That offer was not accepted by BDO, and Bruce Caplan ("Caplan")
advised that BDO had a conditional sale on certain of the HBH assets for
substantially more than was offered by them (see Exhibits 29 and 30 to the
November 30, 2015 affidavit of Lawrence).
[15]
On May 5, 2006, Lawrence sent a memo to Dion advising him of his
intention to make an offer to purchase the Kiln from BDO. The memo reads in
part, as follows:
The Kiln was part of the assets of McGregor Hardwoods Ltd. I will be
using the Kiln for its intended purpose which is to dry wood. It is likely
that in addition to various hardwood suppliers I will be providing direct
service to Flatland Forest Products (George Oughton) and Delta Trading
(Jim McGregor). This being the case it is best that I am not involved in
the day to day administration of these accounts. It is recommended that
these two accounts be transferred to Jill Koroscil.
I also will no longer be involved in the wind down of McGregor
Hardwoods Ltd. as that also would be a conflict in that I will be making
an offer to purchase some of those assets. This action is almost
completed. I will advise BDO that any further communication is to be
through you directly.
Page: 5
[16]
Dion stated in his affidavit that LSCU was, at the time, a small credit union
in a small town and that it was not unusual for LSCU employees to have outside
business interests. He did not consider it improper for Lawrence to make an
offer on the Kiln and did not object to his bid or the transfer of responsibility for
the accounts to another LSCU loans officer, Ms. Koroscil.
[17]
The bid of $45,000 plus tax for the Kiln by 530 was the best offer received
by BDO. In the letter from 530 to BDO dated July 9, 2006 (Exhibit 33 to the
November 30, 2015 affidavit of Lawrence), the funds were provided on the
condition that the assets were free and clear of any liens and that the
shareholders of MHL agreed to the sale of the assets. BDO refused to accept the
condition regarding the shareholders of MHL agreeing to the sale (see Exhibit 34
to the November 30, 2015 affidavit of Lawrence).
[18]
On May 9, 2006, Dion received an e-mail from BDO forwarding the offer
from Lawrence to purchase the Kiln for $45,000. Dion spoke to Caplan of BDO
and told him that he had no concerns.
[19]
Around June 2006, 530 and McGregor signed a "Business Agreement",
which contemplated that 530 would acquire the Kiln and it would stay at
Bayridge Lumber.
The business agreement contemplated McGregor investing
$10,000 and receiving a consulting fee. The business agreement also provided:
At some point in the future the Kiln could be sold. It could be sold to
James McGregor or to some other third party. Both the company and
James McGregor must agree to the sale and the sale price. Should the
sale proceed James McGregor will be paid 50% of the net sale proceeds
after payment of all taxes and sales commissions and appraisals.
Page: 6
[20]
The business agreement was witnessed by the new loans officer at LSCU,
Ms. Koroscil. Lawrence admitted that the parties did not carry on business under
the exact terms contemplated in the business agreement.
[21]
By the fall 2006, the receivership was nearing conclusion and LSCU
determined that the receipts would not be sufficient to entirely repay LSCU for
the indebtedness of MHL. On September 5, 2006, Dion, on behalf of LSCU, sent
a demand letter to McGregor pursuant to the personal guarantee and guarantee
mortgage demanding payment of the sum of $194,166.28 from him.
[22]
LSCU subsequently agreed to refinance certain of McGregor's personal
obligations to LSCU and his obligations to LSCU under the guarantee, through a
single loan security against the same real property which was already subject to
the guarantee mortgage. The purpose of the loan was to obtain repayment of
monies owed by McGregor to LSCU, including pursuant to the guarantee.
[23]
The receivership was concluded on December 19, 2006 and according to
the statement of receipts and disbursements of BDO, the receivership was able
to realize $153,015.67 from the sale of the assets of MHL.
[24]
The plaintiffs commenced legal proceedings against McGregor and other
defendants in February 2006, pursuant to certain personal guarantees.
The
plaintiffs obtained a substantial judgment against McGregor in 2009 relating to
the debts of MHL. McGregor made an assignment in bankruptcy and on January
18, 2013, McGregor was examined for discovery in the bankruptcy proceedings.
Page: 7
An excerpt of that examination for discovery was incorporated in Fields’ affidavit
at pp. 21-31.
[25]
On August 19, 2015, Fields was examined for discovery in this action as a
representative of Brooks and he gave certain undertakings. Undertaking #26
was:
Advise of new information learned from the transcript for grounds for a
lawsuit against La Salle that weren't already known.
In response, Fields answered as follows:
Mr. Fields did not know of the complicity or of its extent between Trent
Lawrence and Jim McGregor until he read the transcript of the
examination for discovery of Jim McGregor by David Kroft (dated January
18, 2013). He had NO idea that they were in bed together and was
shocked by what he read and found it difficult to believe.
In a normal financier (banker) and customer relationship, he would
expect an arm's-length relationship so he had no reason to expect
anything other than an arm's-length relationship under any
circumstances. He did not know or understand there was an incestuous
financial or business relationship between Trent Lawrence and Jim
McGregor. They did not tell him of their extremely improper conduct.
Why would they? Obviously, Jim McGregor did not want him to know
about the Trent Lawrence/Jim McGregor scheme.
Remember, he did not have status with the La Salle Credit Union (LSCU)
so no official would have told him about any of the dealings with Jim
McGregor in any event. Even Daniel Dion, Chief Executive Officer (CEO)
of the LSCU testified that he did not know about the Trent Lawrence/Jim
McGregor scheme. Their scheme was kept a secret from Mr. Dion.
Perhaps as the CEO Mr. Dion "ought to or should have known" about this
scheme which presumably occurred within the walls of the LSCU building
in La Salle.
Mr. Fields was completely blindsided by the Jim McGregor/Trent
Lawrence scheme he read about in the January 18, 2013 transcript of the
examination for discovery of Jim McGregor.
[Emphasis in original]
Page: 8
[26]
Documents produced in these proceedings include reports prepared by
Mr. Doug Broeska ("Broeska"), who met with McGregor from time to time under
the guise of doing business with him. It is undisputed that Broeska provided
information to Fields in a series of memos, telephone calls and meetings. The
documents establish that Broeska sent Fields a copy of McGregor's business card
for his new company, Delta, on or about October 4, 2006.
[27]
Numerous e-mails have been produced and included in the evidence filed
on this motion.
Some of the e-mails were exchanged between Mr. Donald
Douglas ("Douglas") of Thompson Dorfman Sweatman LLP (the law firm acting
for Brooks and Baxter), the plaintiff and others, including Caplan of BDO. The emails establish that in early September 2006, Douglas inquired of Caplan who
purchased the Kiln. Caplan informed Douglas who then informed his clients that
530 was the buyer. Douglas reported to Brooks and Baxter that Lawrence was
the principal of 530 and Caplan advised Douglas that 530 had made the best
offer and that it was commercially reasonable, so it had been accepted.
[28]
In September 2006, Douglas reported to his clients that it was Caplan's
belief that Lawrence had acted independently of LSCU and in speculation of a
profit in owning the Kiln.
[29]
On September 17, 2006, Baxter e-mailed Douglas and Brooks (Exhibit "F"
– xvi, Lawrence affidavit sworn September 12, 2016), which states:
Frankly, this process of liquidation in which McGregor has been allowed to
restructure an operating business with assets previously owned by
McGregor Hardwoods and McGregor Hardwoods Trading with the
oversight of the LaSalle Credit Union seems too slippery to be legal.
Page: 9
[30]
In February 2006, the plaintiffs commenced proceedings against
McGregor, HBH and 3673040 Manitoba Ltd., trading as McGregor Hardwoods
Trading. Examinations for discovery in that action were conducted on July 26,
2007. Documents that were produced pursuant to my previous decision (2016
MBQB 98) show that Fields and Baxter discussed in advance that their counsel
should ask questions of McGregor about his connections with Lawrence and
LSCU.
[31]
The plaintiffs obtained judgment against McGregor and other entities, and
their legal counsel conducted judgment debtor examinations of McGregor in
November 2009 and January 2011.
Transcripts of those examinations are
attached as Exhibits 46 and 47 to Lawrence's November 30, 2015 affidavit.
[32]
There is evidence that as early as 2006, Brooks and Baxter contemplated
an action against LSCU and Lawrence. In particular:
(i)
a telephone call on November 21, 2006 involving Fields and a
number of others regarding waiting for the appropriate time and
being patient in commencing proceedings (Lawrence November 30,
2015 affidavit, paragraph 68, and Exhibit 45, Notes from November
21, 2006);
(ii)
on November 21, 2006, Fields participated in a telephone call with
Douglas. Notes of the call reveal that there was a discussion as to
whether LSCU was responsible for any loss incurred by Brooks (see
Lawrence September affidavit, Exhibit "D");
Page: 10
(iii)
on November 22, 2006, Baxter sent an e-mail to Brooks and
Douglas which stated in part:
Also we are understanding that we should be watchful for
an action on the part of LaSalle Credit [U]nion which might
implicate it in the collaboration with Mr. McGregor which
might defraud us as debtors or shareholders of either
McGregor Hardwoods Trading or McGregor [H]ardwoods.
[See Lawrence September affidavit, Exhibit "F", xviii]
(iv)
on March 26, 2007, Baxter e-mailed Douglas and copied Brooks
stating:
I think o[u]r primary objective should be to get a
[judgment] against Jim and not spend money now trying
to dig up more dirt on him. The process of depositions will
likely open enough doors which we can go with to find
errors or fraud [among] the McGregor group including the
credit union.
[see Lawrence September affidavit, Exhibit “F”, xxii]
[33]
On May 31, 2009, 530 sold the Kiln and a pickup truck to Delta (see
Exhibit 38, November 30, 2015 affidavit of Lawrence). The Kiln had generated
considerably less income than Lawrence had hoped and he concluded it was not
worth his while to continue owning the Kiln.
ISSUES
[34]
The issues are:
1.
Is the claim statute-barred?
2.
Is Lawrence's conduct actionable or does his conduct raise a
genuine issue for trial?
Page: 11
3.
Is LSCU's conduct actionable or does it raise a genuine issue for
trial?
ANALYSIS AN DECISION
[35]
There is no dispute on the test to be applied on summary judgment
motions. I refer to the decision of my colleague in Green v. Tram, 2014 MBQB
118, 307 Man.R. (2d) 82 (QL), which is an excellent summary of the law
applicable to summary judgment motions:
8
The Manitoba Court of Appeal has dealt with summary judgment
on many occasions. A particularly helpful summary is set out in Blanco
v. Canada Trust Co., 2003 MBCA 64, 173 Man.R. (2d) 247 at paras. 1824. To paraphrase:
(1)
a motion for summary judgment is not decided on the assumption
that the facts alleged in the pleadings are true. The motion is
decided on evidence;
(2)
the moving party in a summary judgment application must begin
by establishing with evidence a prima facie case for the entering
of summary judgment, i.e. that the responding party's case must
fail;
(3)
if the moving party meets this onus of proof, then the responding
party has the burden of showing there is a genuine issue for trial;
(4)
the motions judge must take a "hard look at the merits of an
action" and decide whether there is a "real chance" that the action
will be successful, but before doing so, he or she must first be
satisfied that the moving party has met the burden upon it;
(5)
the "real" chance of success means there is a triable issue which
realistically could result in a judgment. The claim must have an
"air of reality" to it and there must be, on the evidence, more than
a theoretical possibility of success.
9
Of similar effect are Freedman J.A.'s comments at paras. 14-17 of
Homestead Properties (Canada) Ltd. v. Robert, 2007 MBCA 61, 214
Man.R. (2d) 148. More recently, see also Bodnarchuk v. RBC Life
Insurance Corp., 2011 MBCA 18, 262 Man.R. 92d) 225.
Page: 12
I also note Manitoba (Hydro Electric Board) v. John Inglis
Co., 2000 MBQB 218, 101 A.C.W.S. (3d) 1103, for the proposition that a
judge on a summary judgment motion is entitled to make credibility
findings on affidavit evidence. MacInnes J. (as he then was) in Manitoba
(Hydro Electric Board), quoted Monnin J.A., in an earlier case, Caisse
10
Populaire de La Salle Credit Union Ltd. v. River Ridge Properties
Ltd. et al (1997), 115 Man.R. (2d) 115 (C.A.) at para. 17, that:
... the matter of the conflicts in the affidavit materials and
therefore the issue of credibility findings are but one of the
matters that a motions court judge must address on a motion for
summary judgment. I concede that a finding of credibility may
be hard to arrive at on the basis of contrary affidavits alone, but
in this case the motions court judge had more than contrary
affidavits. He also had the benefit of the transcripts of the crossexamination, and it is when these transcripts are reviewed in
conjunction with the affidavits themselves that the defendants'
defences start falling apart and come to be seen for what they
are, figments of one's imagination or simple stalling tactics. ...
11
MacInnes J. also considered two other principles: (1) that it is not
sufficient for the responding plaintiff on a summary judgment application
to say that more and better evidence will or may be available at trial
because "the time is now" to lead it; and (2) the summary judgment rule
is not intended to terminate actions and deprive litigants of the right to
trial where there is a claim or defence which has some realistic prospect
of success. He concluded, at para. 20, that he was to review all of the
evidence before him, and:
... That includes considering credibility, where possible, not
for the purpose of weighing the evidence to determine
whether the plaintiff will or will not succeed in its litigation,
that is, whether its case passes muster on a balance of
probabilities, but rather to determine whether the case has
a realistic chance of success. And, in this context, "real" is
not intended to establish a level of probability. Rather, it is
to denote a realistic rather than theoretical prospect of
success; in other words, the plaintiff's case, when held up
to scrutiny in light of all of the evidence available for
consideration on the motion, must have an air of reality to
it and not be merely the product of wishful, fanciful or
imaginative thinking on the part of the plaintiff.
(Emphasis added)
[36]
In applying the law in Manitoba, I am also guided by the decision of
Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87 (QL). Karakatsanis J.,
Page: 13
writing on behalf of a unanimous court in Hryniak had this to say regarding
summary judgment motions:
1
Ensuring access to justice is the greatest challenge to the rule of
law in Canada today. Trials have become increasingly expensive and
protracted. Most Canadians cannot afford to sue when they are wronged
or defend themselves when they are sued, and cannot afford to go to
trial. Without an effective and accessible means of enforcing rights, the
rule of law is threatened. Without public adjudication of civil cases, the
development of the common law is stunted.
2
Increasingly, there is recognition that a culture shift is required in
order to create an environment promoting timely and affordable access to
the civil justice system. This shift entails simplifying pre-trial procedures
and moving the emphasis away from the conventional trial in favour of
proportional procedures tailored to the needs of the particular case. The
balance between procedure and access struck by our justice system must
come to reflect modern reality and recognize that new models of
adjudication can be fair and just.
.....
4
In interpreting these provisions, the Ontario Court of Appeal
placed too high a premium on the "full appreciation" of evidence that can
be gained at a conventional trial, given that such a trial is not a realistic
alternative for most litigants. In my view, a trial is not required if a
summary judgment motion can achieve a fair and just adjudication, if it
provides a process that allows the judge to make the necessary findings
of fact, apply the law to those facts, and is a proportionate, more
expeditious and less expensive means to achieve a just result than going
to trial.
5
To that end, I conclude that summary judgment rules must be
interpreted broadly, favouring proportionality and fair access to the
affordable, timely and just adjudication of claims.
.....
47 Summary judgment motions must be granted whenever there is no
genuine issue requiring a trial (Rule 20.04(2) (a)). In outlining how to
determine whether there is such an issue, I focus on the goals and
principles that underlie whether to grant motions for summary judgment.
Such an approach allows the application of the rule to evolve organically,
lest categories of cases be taken as rules or preconditions which may
hinder the system's transformation by discouraging the use of summary
judgment.
Page: 14
.....
49 There will be no genuine issue requiring a trial when the judge is able
to reach a fair and just determination on the merits on a motion for
summary judgment. This will be the case when the process (1) allows the
judge to make the necessary findings of fact, (2) allows the judge to
apply the law to the facts, and (3) is a proportionate, more expeditious
and less expensive means to achieve a just result.
50 These principles are interconnected and all speak to whether
summary judgment will provide a fair and just adjudication. When a
summary judgment motion allows the judge to find the necessary facts
and resolve the dispute, proceeding to trial would generally not be
proportionate, timely or cost effective. Similarly, a process that does not
give a judge confidence in her conclusions can never be the proportionate
way to resolve a dispute. It bears reiterating that the standard for
fairness is not whether the procedure is as exhaustive as a trial, but
whether it gives the judge confidence that she can find the necessary
facts and apply the relevant legal principles so as to resolve the dispute.
[37]
It is important to emphasize that the Manitoba Court of Appeal had this to
say regarding the application of Hryniak in Manitoba, in Lenko v. Manitoba,
2016 MBCA 52, 330 Man.R. (2d) 48 (QL):
71
Hryniak did not, however, change the test to be applied on a
motion for summary judgment in Manitoba. The test remains whether
the claim or defence raises a genuine issue for trial (r 20.03(1)). If there
is a genuine issue for trial, it is not for the motion court to resolve that
issue; rather, the motion should be dismissed and the matter should
proceed to trial. The situation is different in Ontario, where the summary
judgment rules have been substantially amended to expand the role of
the court in resolving claims without a trial. This difference must be kept
in mind when applying Hryniak to a motion for summary judgment under
the Manitoba rules.
ISSUE 1: Is the claim statute-barred?
[38]
The statement of claim was filed on September 18, 2013.
In the
amended statement of defence the defendants allege that the conduct
complained of in the statement of claim occurred in 2006 and that the time
Page: 15
period within which to commence an action arising out of such conduct expired
six years following.
[39]
In the reply to amended statement of defence, the plaintiffs state that
their claim in not statute-barred because:
[40]
a.
the Fric Kiln was sold to Delta by the Defendant, Trenton Patrick
Lawrence in 2009;
b.
the causes of action as set out in the Statement of Claim were
discovered by the Plaintiffs in or around January, 2013 when the
Plaintiffs first discovered that Jim McGregor continued the work of
McGregor Hardwoods Ltd. as Delta Trading Inc.; and
c.
the causes of action as set out in the Statement of Claim were
fraudulently concealed from the Plaintiffs by the Defendants.
Brooks relies upon ss. 2(1)(k), 2(1)(n) and 5 of The Limitation of
Actions Act, C.C.S.M. c. L150 (the "LA Act"), which provide as follows:
Limitations
2(1) The following actions shall be commenced within and not after the
times respectively hereinafter mentioned:
.....
(k)
actions grounded on accident, mistake, or other equitable ground
of relief not hereinbefore specifically dealt with, within six years
from the discovery of the cause of action;
.....
(n)
any other action for which provision is not specifically made in this
Act, within six years after the cause of action arose.
.....
Concealed fraud
5
Where the existence of a cause of action has been concealed by
fraud of the person setting up this Part or Part II as a defence, the cause
of action shall be deemed to have arisen when the fraud was first known
or discovered.
Page: 16
[41]
Brooks submits that the limitation period does not begin to run until the
fraud was first known or discovered. Brooks therefore submits that the plaintiffs
have a real chance of succeeding on this ground.
[42]
Further, Brooks submits that the sale of the Kiln by 530 to Delta took
place on May 31, 2009, within six years of the issuance of the statement of claim
and, therefore, the claim is not statute-barred.
[43]
The cause of action is grounded in fraud and negligence and is based on
actions that occurred in 2006. I am not satisfied that the sale of the Kiln on May
31, 2009 is material to the cause of action that is alleged by Brooks.
[44]
On the basis of my review of the evidence, Brooks knew that the Kiln had
been purchased by 530, a company owned or controlled by Lawrence.
The
defendants, BDO and Caplan did not conceal the purchase from Douglas. Caplan
told Douglas that he believed Lawrence was acting independently of LSCU, based
on making a profit, and that was reported to Brooks. Lawrence did not conceal
by fraud or otherwise 530's purchase of the Kiln. In fact, in his offer Lawrence
sent the funds on the condition that MHL's shareholders agreed to the sale of the
assets. BDO refused that condition and said the shareholders' approval was not
required.
[45]
Brooks was aware of the Kiln purchase by 530 in 2006 and became aware
of the LSCU re-financing McGregor and his new company, Delta. Brooks was
also aware in 2006 that Lawrence was working with McGregor in connection with
the Kiln.
Page: 17
[46]
In my view, the defendants have established on a prima facie basis that
Brooks knew in 2006 the material facts necessary to commence this action.
Brooks submits that there is a genuine issue for trial, which, if proven, will
establish that there is a cause of action and that the claim is not statute-barred.
[47]
Dealing with whether the claim is statute-barred, my task is to take a hard
look at the merits and decide whether there is a "real chance" that the action will
be successful.
Extensive evidence was filed together with transcripts of
examinations for discovery, which provide a basis to make credibility findings.
Specifically taking a hard look at the evidence, I must consider whether the
denials of knowledge contained in Fields' affidavit raise credibility issues which
cannot be resolved on a summary judgment motion and establish that there is a
genuine issue for trial.
[48]
In paragraph 20 of Fields' affidavit, he swears that as of 2006 he did not
know who was behind 530.
This statement is incorrect and contrary to the
documentation that has been produced and the information obtained by Douglas
and provided to Fields at the time. Whether or not Fields recalls when he first
learned of who was behind 530, the fact of the matter is that his legal counsel,
Douglas, had knowledge of who was behind 530 in 2006 and knowledge of legal
counsel is imputed to clients.
(See Taillefer v. Fillmore Riley LLP, 2016
MBQB 16, 324 Man.R. (2d) 272 (QL))
[49]
In paragraph 21 of Fields' affidavit he states:
21.
As of September 2006, I did not know that Lawrence, an
employee of the Credit Union, had in fact been the purchaser of the Kiln
Page: 18
and other Equipment, who then entered into some kind of arrangement
with Jim McGregor to allow the Equipment to stay at the premises
previously occupied by McGregor Hardwoods and then occupied by Delta
in 2006 all the way up to today.
[50]
It is unclear as to why Fields references September 2006 regarding the
date of his lack of knowledge since the relevant date for assessing whether the
claim is statute-barred is Fields’ and Brooks’ knowledge of the existence of a
cause of action prior to September 18, 2007, six years prior to the date the
statement of claim was issued. In any event, the evidence shows that while
Fields may not have had knowledge of the precise arrangement negotiated
between 530 and McGregor, he knew that there was an arrangement to allow
the Kiln to be used by McGregor and Delta.
[51]
In paragraph 29 of Fields' affidavit he claims to have learned of "the
precise relationship" shortly after January 18, 2013.
[52]
Further, in paragraph 31, Fields claims to have learned that the Kiln never
left the MHL premises, which allowed McGregor to start up with his new business
called Delta only after January 18, 2013.
On the basis of my review of the
evidence and the law, knowledge of the precise relationship between 530 and
McGregor is not the issue. The issues are: when the cause of action arose, when
Brooks knew or discovered the material facts necessary for the alleged cause of
action and whether the existence of the cause of action was concealed by fraud.
[53]
As to the statement made in paragraph 31 of Fields' affidavit, taking a
hard look at the evidence I find as follows:
Page: 19
(a)
in 2006, Fields knew Lawrence was the loans manager employed
by LSCU and handling banking and loans made to McGregor and
MHL;
(b)
in September 2006, Fields knew from his legal counsel that 530,
Lawrence's company, had purchased the Kiln;
(c)
Fields instructed his legal counsel to look further into the issue,
having realized that McGregor was the only logical user of the Kiln,
and in September 2006, his legal counsel reported that Lawrence
was the owner of 530;
(d)
Fields knew by mid-October 2006, at the latest, that Delta existed
and that Delta was operating a similar business that had been
operated by McGregor and MHL;
(e)
Fields received detailed reports about the business operations of
Delta through 2006 and 2007 from Broeska;
(f)
Fields knew and discussed with others that Lawrence had become a
business partner with McGregor (see Exhibit 45, p. 89, note of
November 15, 2006, Vol. II, affidavit of Lawrence sworn November
30, 2015), and that Lawrence was "facilitating McGregor's ongoing
business" (see Exhibit 45, p. 92, note of November 21, 2006, Vol.
II, affidavit of Lawrence sworn November 30, 2015);
(g)
by virtue of e-mail messages and notes that were produced, the
plaintiffs decided to be patient and not pursue a claim at that time
Page: 20
in the hope that some further proceedings would be taken and they
would be in a position to press LSCU for payment (see, for
example, Exhibit 45, supra).
[54]
In my view, the examination for discovery of McGregor conducted by Mr.
Kroft on January 18, 2013 (as referenced at pp. 21-31 of Fields' affidavit) did not
provide Fields or Brooks with new material facts that were not known prior to
September 18, 2007 to support an action based on fraud or negligence against
the defendants.
[55]
The parties do not dispute that the limitation period is six years from the
date the cause of action arose or six years from the discovery of the cause of
action (see ss. 2(1)(n) and 2(1)(k) of the LA Act, respectively). On my review
of all of the evidence that has been filed, I am satisfied that the material facts
giving rise to a potential cause of action either arose or were known or
discovered by Brooks in 2006 and, in any event, prior to September 18, 2007.
The only thing that happened after that date was the sale of the Kiln by 530 to
Delta which occurred in 2009. However, as noted above, the sale of the Kiln is
not a material fact that is required to advance the claim of conspiracy, fraud and
negligence alleged by Brooks. The alleged conspiracy to defraud the plaintiffs is
based on the purchase of the Kiln by 530 in 2006 and the steps taken by the
defendants to facilitate McGregor's new business operated by Delta, facts known
by Fields and Brooks prior to September 18, 2007.
Page: 21
[56]
Section 5 of the LA Act either does not apply or does not assist Brooks in
this case. In my view, there is no evidence that a cause of action has been
concealed by fraud.
[57]
I was referred to the case of Manitoba Métis Federation Inc. et al. v.
Canada (Attorney General), 2010 MBCA 71, 255 Man.R. (2d) 167, and was
referred to the governing legal principles set out in that decision, specifically:
[299] The leading Canadian cases on equitable fraud and limitation
periods are the Supreme Court of Canada's decisions in Guerin and
K.M. v. H.M. In Guerin, Dickson, J. (as he then was), wrote on behalf
of the majority of the court that (at p. 390):
“It is well established that where there has been a
fraudulent concealment of the existence of a cause of
action, the limitation period will not start to run until the
plaintiff discovers the fraud, or until the time when, with
reasonable diligence, he ought to have discovered it. The
fraudulent concealment necessary to toll or suspend the
operation of the statute need not amount to deceit or
common law fraud. Equitable fraud, defined in Kitchen v.
Royal Air Force Association, [1958] 1 W.L.R. 563, as
‘conduct which, having regard to some special relationship
between the two parties concerned, is an unconscionable
thing for the one to do towards the other’, is sufficient.”
.....
[302] In Authorson, the Ontario Court of Appeal described the
equitable fraud doctrine in the following manner (at para. 120):
“The principle of ‘equitable fraud’ is aimed at preventing a
limitation period from operating ‘as an instrument of
injustice’: M.(K.) v. M.(H.), [supra], at para. 66 [p. 59].
It has been described in many ways. Essentially, it involves
some form of unconscionable conduct on the part of a
wrongdoer who stands in a special relationship with
another party, where the conduct conceals the existence
of a claim by that party against the wrongdoer and is
considered by equity to be sufficient to preclude the
wrongdoer from relying on a limitation period defence.”
[Emphasis added]
Page: 22
[58]
Although the Manitoba Métis case did not reference s. 5 of the LA Act,
s. 5 was considered by one of my colleagues in Wong v. Hawryluk et al., 2011
MBQB 161, 266 Man. R. (2d) 190. At paragraph 80 of that decision, Perlmutter
J. (as he then was) dealt with the legal test:
[80] With respect to the test for fraudulent concealment under s. 5 of
the LAA, I was referred to numerous authorities, including Giroux et al.
v. Trillium Health Centre et al. (2005), 194 O.A.C. 231; 2005 CanLII
1488 (C.A.), Penner Estate v. Isaak (2002), 165 Man.R. (2d) 237;
2002 MBQB 200, and Manitoba Metis Federation Inc. v. Canada
(Attorney General) et al. (2010), 255 Man.R. (2d) 167; 486 W.A.C.
167; 2010 MBCA 71. Although the test for fraudulent concealment is,
perhaps as a result of its very nature, somewhat nebulous, what these
cases make clear is that the defendant must commit some
unconscionable act where there is a special relationship between the
parties before fraudulent concealment will be found.
[59]
Applying these principles to the facts of this case, the plaintiffs, and
specifically Fields, Brooks and Baxter, knew of the facts that may give rise to a
cause of action prior to September 18, 2007, or could have discovered those
facts by exercise of reasonable diligence. They made a conscious decision to
wait. Instead, they pursued McGregor and his companies in a separate legal
action.
[60]
Further, there is no evidence that the defendants committed some
unconscionable act where there is a special relationship between the parties.
That is a requirement before fraudulent concealment will be found and s. 5 of
the LA Act applied.
[61]
Having considered all of the evidence, I am able to reach a fair and just
determination on the merits on the summary judgment motion. In applying the
Page: 23
law to the facts of this case, I am satisfied that there is no genuine issue for trial
based on the limitation defence. In my view, the plaintiffs' reliance on s. 5 of the
LA Act must fail and the limitation period applicable to the potential cause of
action expired before the claim was commenced.
[62]
In light of my finding on the limitation issue, it is unnecessary for me to
decide whether the conduct of Lawrence is actionable and whether LSCU is liable
for the conduct of Lawrence.
CONCLUSION
[63]
The defendants' motion is allowed and Brooks' claim against the
defendants is dismissed with costs. In their brief, the defendants sought costs
on a solicitor and own client basis and reserved the right to address this issue
further.
If the parties cannot agree on costs, they may schedule a date for
further submissions on that issue.
_____________________________ J.