BANKRUPTCY
& INSOLVENCY LAW
PROCEEDINGS – Setting aside
transactions prior to bankruptcy –
Fraudulent preferences, conveyances or
transactions – Insolvency – Non-arm’s
length transactions – Presumptions.
Application by the trustee in bankruptcy
of Piikani Energy Corporation (PEC) for an
order setting aside certain payments as
fraudulent preferences. Ho Lem and
McMullen were directors and officers of
PEC. Until their removal in 2008, McMullen acted as CEO and Ho Lem was the Vice
President and Corporate Secretary. Ho Lem
provided her services through a numbered
company. The trustee challenged the propriety of payments made by PEC to Ho Lem,
her company, and McMullen. The payments
occurred in the face of an application by the
trustee, in its capacity as investigator of
PEC’s sole shareholder, Piikani Investment
Corporation (PIC), to freeze certain funds
belonging to PEC. PIC was a company
which invested and administered trust funds
received by the Piikani Nation following the
settlement of a land use dispute with the
provincial and federal governments. PEC
was one of the entities funded by PIC. Since
inception, the settlement trust loaned
$14,025 million to PIC, which in turn loaned
$11.4 million to PEC. The running of PIC
was politicized due to the involvement of
Chiefs and Councils. Litigation ensued due
to McMullen’s adversarial relationship with
the various Chiefs and Councils. PIC encountered financial difficulties after PEC was
unable to make loan payments. PEC alleged
that the Nation circumvented a $7 million
payment it had negotiated for the use of
power transmission lines in the AltaLink
project. Further litigation ensued over a $1
million loan from PEC to the Nation. An
investigator over PIC was appointed, with
subsequent orders for a stay, a freezing of
affairs, and the appointment of a receiver.
The investigator was subsequently appointed
as trustee in bankruptcy of PEC. The trustee
challenged a payment by PEC to Ho Lem
through her company described as a base
annual retainer, seeking partial repayment
following her termination, and a payment to
McMullen described as a severance payment. The trustee submitted that the payments were not made at arm’s length and
constituted fraudulent preferences.
HELD: Application allowed. As directors
of the company, McMullen, Ho Lem, and by
extension, her company, were not at arm’s
length to PEC. The claims against them were
brought in time for payments to non-arm’s
length creditors pursuant to s. 95(1)(b) of the
Bankruptcy and Insolvency Act. At the time
of the payments, both individuals were
creditors of PEC. The impugned payments
were made when PEC was insolvent. Ho
Lem and McMullen did not satisfy their onus
to show that the payments were not made
with the intent to prefer them over other
creditors. McMullen’s contention that the
claim against him was inequitable or was an
abuse of process was not established. Both
payments constituted fraudulent preferences
within the meaning of s. 95(1)(b) of the Act
and thus were required to be repaid. In
respect of the payment received by Ho Lem,
her company was the contracting party and
recipient of the funds and thus relief was
ordered against the company rather than Ho
Lem personally for the unearned portion of
the retainer following Ho Lem’s termination.
CIVIL LITIGATION
CIVIL PROCEDURE – Estoppel –
Estoppel by record (res judicata) –
Exceptions – Issue estoppel.
Application by the defendants for summary judgment dismissing the action of the
plaintiff, Nahal. The parties had dealt with
one another since 2005. The defendants
included a solicitor and his professional corporation. The plaintiff granted a blanket
mortgage to the corporate defendant over
properties he controlled. The funds were
used to pay out the mortgage on one of his
properties in foreclosure. The plaintiff stated
that he was told to use the defendant solicitor
on the transaction or it would not proceed.
The solicitor acted for both the plaintiff and
the lenders. The plaintiff alleged that the
solicitor failed to provide him with a conflict
or disclosure statement. The solicitor denied
acting for the plaintiff on the transaction at
issue and referred to an express provision in
the mortgage stating as much. The blanket
mortgage went into foreclosure and the
properties were ordered sold. The plaintiff
contended that the sale of one particular
property was improvident. That sale was
upheld and affirmed on appeal. The plaintiff
subsequently discovered that the property
was re-listed at a significantly higher price by
a company in which the solicitor held an
interest. He alleged that the defendants
manipulated the sale process using a straw
buyer to obtain the property at less than market value. The plaintiff commenced an action
based on breaches of the mortgage and professional duties. At issue was whether a separate action based on manipulation of the
foreclosure sale process could be sustained
where the original order for the sale of the
property was not appealed on that basis. The
defendants sought summary judgment on
the basis of res judicata or impermissible collateral attack of the foreclosure orders.
HELD: Application allowed in part. In
the course of the foreclosure action, which
involved the same parties, the blanket mort-
gage was held to be valid and enforceable.
Any claims alleging breaches of duties, mis-
representation or negligence by the solicitor
related to the execution of the mortgage
should have been raised at that time. The
plaintiff could not re-litigate a matter fun-
damental to the parties’ action in a separate
action against the solicitor. The plaintiff’s
claims related to the validity of the mort-
gage were thus barred on the basis of res
judicata and issue estoppel. However, appli-
cation of the doctrine was refused to permit
the action regarding the claims associated
with the sale of the plaintiff’s property for
less than fair market value. The involve-
ment of the foreclosing lenders in the offer
to purchase should have been disclosed to
the court given that higher offers were made
and refused. Justice required that the plain-
tiff be permitted to proceed with his claim
for damages on those specific grounds.
CONTRACTS
VALIDITY – Public policy – Agree-
ments in restraint of trade – Restrictive
covenants – Non-solicitation agree-
ments – Non-competition agreements.
Application by Martin for a declaration
that non-competition and non-solicitation
agreements with the respondents, ConCreate and SDF Limited, were unenforceable in whole or in part as an illegal restraint
of trade. Tozer owned or was the majority
shareholder in ConCreate, SDF, and Underground Services. The applicant was a minority shareholder, vice president and director
at the time of SDF’s incorporation in 2005.
SDF manufactured structural steel for
Underground Services. The applicant had
worked for Underground for 15 years as a
labourer, foreman and superintendent
before being appointed as its vice-president
when SDF was incorporated. In 2007,
Underground and ConCreate amalgamated.
The majority of ConCreate’s business was in
the public sector for government tenders
across Canada related to rehabilitating infrastructure. In 2011, SDF and ConCreate sold
its assets and business undertaking to Tri-West, which formed a new ConCreate entity
and amalgamated a numbered company
with the old SDF to form a new SDF entity.
The applicant’s holding company became a
limited partner in the new ConCreate. The
applicant became the president of ConCreate and SDF, while Tozer served as CEO.
The limited partnership agreement contained a non-competition agreement binding the applicant and his company. The
applicant also entered into employment
agreements with ConCreate and SDF which
included non-competition and non-solicitation agreements. Six months later, the applicant was terminated, ostensibly for cause.
The applicant formed a competing company
which secured $34 million in new contracts
and employed several former ConCreate
employees. SDF and ConCreate commenced
an action to enforce the restrictive covenants. The applicant sought a declaration that
the covenants were illegal and unenforceable in restraint of trade.
HELD: Application dismissed. The
impugned covenants within the agreements
were reasonable with respect to both the
parties’ interests and general public policy.
Within their parameters, the covenants were
strict and comprehensive but were not
ambiguous. The applicant had advance
notice of what conduct was prohibited. The
covenants were part of the commercial sale
of the respondents and were thus inter-
preted beyond the context of an employ-
ment arrangement. The substantive, terri-
torial, and temporal scope of the covenants
was reasonable as between the contracting
parties. The covenants did not prevent the
applicant from using his skill and business
acumen and did not go further than neces-
sary to protect the respondents’ legitimate
business interests. The applicant failed to
show that the covenants in restraint of trade
were illegal as unreasonable in the public
interest. It was unnecessary to rely on the
doctrine of severance.
CRIMINAL LAW
CRIMINAL CODE OFFENCES –
Offences against the administration of
law and justice – Misleading justice –
Obstruction of justice.
Trial of Robinson on a charge of obstruction of justice. Robinson’s vehicle collided
with a motorcyclist, who died from his injuries at the scene. Robinson immediately
exited his vehicle along with his two children
and approached two bystanders and asked
them to take his driver’s licence because he
wanted to “get [his] kids out of there.” He
said that he would come back. Robinson left
the scene with his two children and ran two
blocks to his home. He drank two shots of
vodka and then returned to the scene of the
accident. Constable Swallow was at the
scene within 10 minutes of the crash. After
talking to bystanders and learning that the
driver of the vehicle had left the scene, leaving his driver’s licence behind, she observed
a man standing near the vehicle in the middle of the intersection amidst the debris.
Robinson said: “I believe that you are probably looking for me. I am the driver.” Swallow asked Robinson how much he had had
to drink. Robinson said that he had consumed two shots of vodka. Swallow told
Robinson that she felt his observable symptoms of impairment exceeded that level of
consumption. Robinson replied that he had
consumed “a couple beers at 5:30” while at a
party. This was not true, as the evidence
established that Robinson knew he had consumed five beers from 5:30 in the afternoon
to around 9:40 in the evening. Robinson
was arrested for impaired driving. He was
administered two breathalyzer tests, and the
lowest reading showed a 1.00 mg per cent
blood alcohol concentration (BAC.) An
expert forensic toxicology specialist testified
that it was not possible to accurately extrapolate backwards to determine the effect of the
two shots of vodka upon Robinson’s blood
alcohol reading because the information
Robinson provided to the police was not
certain as to the amount consumed or the
percentage of alcohol in the vodka. Robinson had been an RCMP police officer since
1996. He commonly investigated drinking
and driving offences and was familiar with
the protocol of questions and observations to
be made in these circumstances.
HELD: Robinson was convicted. Robinson knew that his statements as to his drinking pattern that night fit classically into the
defence criteria that he had been taught. He
knew that the information he provided to
the police was not specific enough for the
experts to extrapolate backwards to accurately determine his BAC at the time of care
and control of the motor vehicle. He admitted as much. In cross-examination, he
