Abbey Glen Property Corp. v. Stumborg, Stumborg and Gem Holdings Ltd., (1978) 9 A.R. 234 (CA)

• Judge: McDermid, Clement and Haddad, JJ.A.
• Case Date: April 19, 1978
• Citations: (1978), 9 A.R. 234 (CA)

Abbey Glen Prop. Corp. v. Stumborg (1978), 9 A.R. 234 (CA)

MLB headnote and full text

Abbey Glen Property Corporation v. Stumborg, Stumborg and Gem Holdings Ltd.

Indexed As: Abbey Glen Property Corp. v. Stumborg, Stumborg and Gem Holdings Ltd.

Alberta Supreme Court

Appellate Division

McDermid, Clement and Haddad, JJ.A.

April 19, 1978.

Summary:

This case arose out of a plaintiff's claim against the defendants for an accounting. The plaintiff was the successor company of Terra Developers Ltd., which was incorporated by the two defendant Stumborg brothers. Terra was not the only business interest which the Stumborgs had. The Stumborgs approached a third party on behalf of Terra with a proposal for the development of lands in which the Stumborgs, but not Terra, were interested. The third party refused to deal with Terra, so the Stumborgs incorporated another company for the purpose of developing the lands with the third party. The Stumborgs disclosed the contract with the third party to Terra and agreed to turn over the profits of the land development project to Terra in return for a long-term contract for the Stumborgs to manage Terra. Four years later the Stumborgs resigned as directors of Terra and sold their shares in the company. The management agreement expired. The plaintiff successor company of Terra brought an action against the Stumborgs and their holding company for an accounting for the profits from the land development scheme with the third party. The Alberta Supreme Court, Trial Division, in a judgment reported [1976] 2 W.W.R. 1 allowed the action and held that the Stumborgs were liable to account to the plaintiff. The Stumborgs appealed.

The Alberta Supreme Court, Appeal Division, dismissed the appeal and affirmed the judgment of the Trial Division. The Court of Appeal held that the Stumborgs, as fiduciaries, had a duty to account to Terra for the profits arising out of the land development scheme.

The Court of Appeal held that in approaching the third party on behalf of Terra with a proposal to develop lands in which the Stumborgs were interested, the Stumborgs elected to cede their interests in the lands to Terra and by doing so impressed the lands with a trust in favor of Terra - see paragraphs 1 to 26 and 69 to 75.

The Court of Appeal held that the trust was not terminated when the Stumborgs entered into a management agreement with Terra (see paragraphs 47 and 88 to 90) or when the Stumborgs withdrew from their association with Terra - see paragraph 94.

McDermid, J.A., dissenting in part, would have allowed the appeal on the ground that to order an accounting would result in a windfall for the present shareholders of the plaintiff, who were all new shareholders - see paragraphs 49 to 67.

Practice - Topic 9018

Appeals - Limitations on argument on appeal - Equitable defence not raised at trial or in pleadings - The Alberta Court of Appeal held that a defendant was entitled to raise an equitable defence on appeal even though the defence was not raised at trial or in the pleadings - See paragraphs 49 and 95.

Trusts - Topic 332

Creation of trust - Methods of creation - Acts by fiduciaries - Director acting on behalf of company - The director of Terra Developers Ltd. approached a third party on behalf of Terra with a proposal for the development of lands in which the director, but not Terra, was interested - The Alberta Court of Appeal held that in doing so the director elected to cede his interest in the lands to Terra and by doing so impressed the lands with a fiduciary trust in favor of Terra - See paragraphs 1 to 26 and 69 to 75.

Trusts - Topic 2308

Constructive trusts - Circumstances when constructive trust imposed - The director of Terra Developers Ltd. approached a third party on behalf of Terra with a proposal for the development of lands in which the director, but not Terra, was interested - The third party refused to enter an agreement with Terra, so the director incorporated his own company for the purpose of developing the lands with the third party - The Alberta Court of Appeal held that in approaching a third party on behalf of Terra the director elected to cede his interest in the lands to Terra and by doing so impressed the lands with a fiduciary trust in favor of Terra - See paragraphs 1 to 26 and 69 to 75 - The Court of Appeal held that the director's shares in the newly formed company which contracted with the third party were held on a constructive trust for Terra - See paragraph 91.

Trusts - Topic 5928

The trustee - Duties - Effect of unilateral acts of withdrawal by trustee - The Director of Terra Developers Ltd. approached a third party on behalf of Terra with a proposal for the development of lands in which the director, but not Terra, was interested - The third party refused to enter an agreement with Terra, so the director formed his own company for the purpose of developing the lands with the third party - The director disclosed the agreement to Terra and agreed to turn over the profits of the land development project to it in return for a long-term contract for the director to manage Terra - Four years later the director resigned his directorship and sold his shares in Terra - The management contract expired - The Alberta Court of Appeal held that in approaching the third party on behalf of Terra the director elected to cede his interest in the lands to Terra and by doing so impressed the lands with a fiduciary trust in favor of Terra - See paragraphs 1 to 26 and 69 to 75 - The Court of Appeal held that the trust was not terminated when the director entered the management contract (see paragraphs 47 and 88 to 90) or when the director withdrew from his association with Terra - See paragraphs 94.

Trusts - Topic 6081

The trustee - Duties - Duty to account - The director of Terra Developers Ltd. approached a third party on behalf of Terra with a proposal for the development of lands in which the director, but not Terra, was interested - The third party refused to enter an agreement with Terra, so the director formed his own company for the purpose of developing the lands with the third party - The Alberta Court of Appeal held that in approaching a third party on behalf of Terra the director elected to cede his interest in the lands to Terra and by doing so impressed the lands with a fiduciary trust in favor of Terra - See paragraphs 1 to 26 and 69 to 75 - The Court of Appeal held that the director's shares in the newly formed company which contracted with the third party were held on a constructive trust for Terra - See paragraph 91 - The Court of Appeal held that the director was liable to account to Terra respecting the shares in the new company, particularly with regard to the profits from the development of the lands - See paragraph 92.

Trusts - Topic 8484

Termination of trusts - Failure of purpose - What constitutes - The director of Terra Developers Ltd. approached a third party on behalf of Terra with a proposal for the development of lands in which the director, but not Terra, was interested - The third party refused to enter an agreement with Terra, so the director formed his own company for the purpose of developing the lands with the third party - The Alberta Court of Appeal held that in approaching the third party on behalf of Terra for development of the lands the director elected to cede his interest in the lands to Terra and by doing so impressed the lands with a fiduciary trust in favor of Terra - See paragraphs 1 to 26 and 69 to 75 - The Court of Appeal held that the fiduciary trust respecting the lands continued even after the third party refused to deal with Terra - See paragraph 87.

Cases Noticed:

Canadian Aero Service Ltd. v. O'Malley, Zarzycki et al., [1974] S.C.R. 592, appld. [paras. 22, 73].

Aberdeen Railway Co. v. Blaikie Bros. (1854), 2 Eq. Reports 1281, appld. [para. 43].

Bangor Punta Operations Inc. et al. v. Bangor & Aroostook Railroad Co. et al. (1974), 41 L. Ed.(2d) 418; 417 U.S. 703; 94 S. Ct. 2578, dist. [paras. 49, 98].

Salomon v. Salomon, [1897] A.C. 22, consd. [para. 52].

Regal (Hastings) Ltd. v. Gulliver et al., [1942] 1 All E.R. 378, refd to. [paras. 60, 91].

Scottish Co-Operative Wholesale Society Ltd. v. Meyer, [1959] A.C. 324, refd to. [para. 61].

D.H.N. Food Distributors Limited v. Tower Hamlets London Borough Council, [1976] 1 W.L.R. 852, refd to. [para. 61].

Palmolive Manufacturing Co. (Ont.) Ltd. v. The King, [1933] S.C.R. 131, refd to. [para. 63].

Shorthoaks v. Mobil Oil Canada Ltd. (1975), 5 N.R. 23; [1976] 2 S.C.R. 147, consd. [para. 64].

English v. Dedham Vale Properties Ltd., [1978] 1 All E.R. 382, appld. [para. 90].

Rathwell v. Rathwell, 19 N.R. 91; [1978] 2 W.W.R. 101, appld. [para. 90].

Hussey v. Palmer, [1972] 1 W.L.R. 1286, appld. [para. 90].

Evans et al. v. Anderson et al. (1977), 3 A.R. 361, appld. [para. 91].

Moses v. Macfarlan (1760), 97 E.R. 676, appld. [para. 94].

Authors and Works Noticed:

Fletcher's Cyclopedia of the Law of Private Corporations, vol. 3A, para. 1287; vol. 13, para. 5981 [para. 59].

Gower, The Principles of Modern Company Law (13th Ed.), p. 189 [para. 62].

Pennington's Company Law (3rd Ed.), p. 514 [para. 61].

Ziegel, Canadian Company Law, p. 598 [para. 61].

Counsel:

T. Mayson, Q.C., for the appellants Stumborgs;

B.C. Vogel, for the respondent.

This case was heard before McDERMID, CLEMENT and HADDAD, JJ.A., of the Alberta Supreme Court, Appellate Division.

On April 19, 1978, the judgment of the Appellate Division was delivered and the following opinions were filed:

McDERMID, J.A., dissenting in part - See paragraphs 1 to 67;

CLEMENT, J.A. - See paragraphs 68 to 100.

HADDAD, J.A., concurred with CLEMENT, J.A.