Bauer v. Erben, (2007) 324 N.B.R.(2d) 145 (TD)

• Jurisdiction: New Brunswick
• Judge: Rideout, J.
• Neutral Citation: 2007 NBQB 299
• Court: Court of Queen's Bench of New Brunswick (Canada)
• Citation: (2007), 324 N.B.R.(2d) 145 (TD),2007 NBQB 299
• Date: 08 August 2005

Bauer v. Erben (2007), 324 N.B.R.(2d) 145 (TD);

    324 R.N.-B.(2e) 145; 834 A.P.R. 145

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Sommaire et texte intégral

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Temp. Cite: [2007] N.B.R.(2d) TBEd. SE.024

Renvoi temp.: [2007] N.B.R.(2d) TBEd. SE.024

Walter Bauer (plaintiff) v. Kurt Erben, Renate Erben and Port Elgin Hybrid Farms Ltd. (defendant)

(M/C/391/99; 2007 NBQB 299; 2007 NBBR 299)

Indexed As: Bauer v. Erben et al.

Répertorié: Bauer v. Erben et al.

New Brunswick Court of Queen's Bench

Trial Division

Judicial District of Moncton

Rideout, J.

September 12, 2007.

Summary:

Résumé:

The plaintiff (Bauer) asserted that the individual defendants (the Erbens) fraudulently misrepresented the value and debts of their farm (the corporate defendant), which induced Bauer to purchase a half interest in the farm. Bauer also sought relief from oppression. The farm cross-claimed, asserting that the Erbens converted or misappropriated assets and money from the farm; failed to convey land to the farm and breached a fiduciary duty owed to the farm. The Erbens asserted that the cross-claim was statute barred and claimed against Bauer and another shareholder for oppression.

The New Brunswick Court of Queen's Bench, Trial Division, allowed the action and the cross-claim and determined the appropriate remedies.

Company Law - Topic 2170

Shareholders - Shareholders' rights - To rectify oppressive or unfairly prejudicial act - Erben owned shares in a corporate farm - He sold the shares to Bauer - Thereafter, Erben and his wife claimed against Bauer and another shareholder (Kummer), alleging oppression and seeking the winding up of the farm - They asserted that the wife was removed from her home and not notified of corporate meetings - The wife also complained that Bauer "broke into her home" and removed corporate records - The New Brunswick Court of Queen's Bench, Trial Division, held that Erben did not qualify to bring a claim for oppression because he ceased to be a shareholder and resigned as an officer and director before the alleged oppression occurred - Although the wife had resigned as an officer and director, she remained a shareholder - The year after her resignation, she was neither notified of the annual meeting nor given copies of the financial statements - However, she was given notice in the following years but did not attend - An allegation that decisions were made detrimental to her interest was not substantiated - The home was actually a farm asset and the officers of the corporation were entitled to enter and obtain the records - Erben felt violated and was treated harshly in being required to move out under very short notice - However, the infractions committed by Bauer and Kummer were not sufficiently egregious to warrant the winding up of the farm - See paragraphs 86 to 91.

Company Law - Topic 2170

Shareholders - Shareholders' rights - To rectify oppressive or unfairly prejudicial act - Erben and her husband owned shares in a corporate farm - The husband sold his shares to a "good friend" (Bauer) who was living in Germany - Bauer paid $1,000,000 for the shares and paid $500,000 for the farm to reduce its debt - Shortly after the sale Bauer loaned $720,000 to the farm to enable it to expand its operations - The Erbens did not pay down the farm debts - The Erbens used at least 50% of the $720,000 for other purposes (mostly for day to day expenses) - The New Brunswick Court of Queen's Bench, Trial Division, stated that the expectation of Bauer was that the Erbens would manage the farm and properly carry out the intentions of their agreements and not take money that was destined for capital expenditures and utilize it for their personal benefit - The Erbens' conduct was oppressive or unfairly prejudiced or disregarded Bauer's interests - The appropriate remedy was for the farm to prepare, by independent accountants, a valuation of Erben's shareholdings and for the farm to purchase her shares at that price - See paragraphs 92 and 93.

Company Law - Topic 2170.1

Shareholders - Shareholders' rights - Oppressive acts - Remedies - [See both Company Law - Topic 2170 ].

Company Law - Topic 2178

Shareholders - Shareholders' rights - Rescission - Misrepresentation - The Erbens were the majority shareholders in a farm - To induce their friend (Bauer) to purchase 50% of the farm's shares, they fraudulently misrepresented the value of the farm and its potential to have a return on investment - The New Brunswick Court of Queen's Bench, Trial Division, stated that it could rescind the contract and attempt to put the parties in the position that they were in before the sale - However, given that Bauer had now operated the farm for approximately 10 years, this was not a practicable solution - The more appropriate approach was to award Bauer damages - The best evidence that the court had to calculate damages was a report from an accountant - The accountant opined that the Erbens had overstated the value of the assets by $770,000 to $1,000,000 - Bauer had purchased shares, not assets, but in the circumstances, there was a correlation between the value of the shares and the value of the assets - The court concluded that Bauer's damages arising out of the fraudulent misrepresentations was $770,000 - See paragraphs 84, 85 and 123 to 125.

Company Law - Topic 7013

Fundamental changes and shareholders' rights - Rights of minority or dissenting shareholders - Oppression - What constitutes - [See both Company Law - Topic 2170 ].

Company Law - Topic 8417

Winding-up legislation - Winding-up order - Oppression remedy - [See first Company Law - Topic 2170 ].

Company Law - Topic 9785

Actions against corporations and directors - Action for oppressive conduct - Oppression, prejudice or disregard of interests - [See both Company Law - Topic 2170 ].

Consumer Law - Topic 1610

Sale of goods - General - Caveat emptor - The New Brunswick Court of Queen's Bench, Trial Division, stated that "The law in the area of misrepresentation and vendor/purchaser is evolving. In my view, it is moving away from the doctrine of 'caveat emptor' and toward a doctrine of full disclosure and truthfulness on the part of parties." - See paragraph 83.

Damages - Topic 1814

Torts affecting goods - Conversion - Basis for calculation - A corporate farm claimed against a shareholder and former shareholders (the Erbens) for conversion or misappropriation of insurance proceeds that were payable to the farm as a result of fire damage - The New Brunswick Court of Queen's Bench, Trial Division, stated that the onus was on the farm to prove the claim - The court referred to a report of a chartered accountant, who was an expert in forensic accounting, which stated that "[w]e are uncertain what conclusions, if any, can be drawn from the analysis other than to say the entries don't match" and stated that it was unable to make an award except for the amount of interest the Erbens improperly received as a result of the insurance proceeds - The court ordered the Erbens to reimburse the farm the interest paid net of taxes ($33,672) - The court recognized that, given different tax rates and the losses suffered by the farm, it might result in the farm being entitled to more - However, this was the only calculation that the court had and there was insufficient evidence to make a calculation based on the insurance proceeds being paid to the farm - See paragraphs 126 to 128.

Damages - Topic 3625

Deceit and misrepresentation - Fraudulent misrepresentation - [See Company Law - Topic 2178 ].

Fraud and Misrepresentation - Topic 6

Fraudulent misrepresentation (deceit) - General principles - What constitutes deceit or fraudulent misrepresentation - Bauer was interested in purchasing a 50% interest in a farm from his friends, the Erbens - The Erbens provided him with a list of the farm's assets and liabilities - The asset listed with the greatest value (600 acres of land) was owned by the Erbens, not the farm - There was also a discrepancy of 44 acres - The value attributed to each acre was the same whether the acre was in production or not - Large quantities of land were not being cultivated and had a very small value - The farm's assets were over valued by approximately 50 or 66 percent - Liabilities were under represented - The New Brunswick Court of Queen's Bench, Trial Division, stated that the misrepresentations went beyond "puffery" and were fraudulent in nature - The Erbens were dealing with their "best friend" and Bauer was relying on the Erbens - The Erbens provided the information knowing that it was false or were reckless as to the truth - The purpose of the information was to cause Bauer to rely on it and finalize the purchase, which he did - This constituted fraudulent misrepresentation or, at the very least, was contrary to the principles set out in Queen (D.J.) v. Cognos Inc. (S.C.C.) - As held in Cognos, the Erbens had a duty not only to be honest but also to use reasonable care to ensure that the representations made were accurate and not misleading - The burden of proof for fraud was higher than a balance of probabilities, but less than the criminal burden - What occurred was very close to criminal and met the standards set out in Cognos - The Erbens' representations constituted fraudulent misrepresentation - See paragraphs 72 to 75.

Fraud and Misrepresentation - Topic 6

Fraudulent misrepresentation (deceit) - General principles - What constitutes deceit or fraudulent misrepresentation - Bauer was interested in purchasing a 50% interest in a farm from his friends (Erben and Erben's wife) - Erben advised Bauer that he would receive a 15 percent return on his investment of $1,500,000 - Shortly after Bauer completed the purchase on November 4, 1993, he loaned the farm $720,000 for an expansion - Erben advised him that the farm would be able to pay him a 10 percent return on investment on the loan - Although the farm had been profitable from 1986 to 1988, the rest of the time it had lost money and, in some years, substantial amounts - The New Brunswick Court of Queen's Bench, Trial Division, held that Erben's representations constituted fraudulent misrepresentations designed to induce Bauer to invest in the farm - While Erben might not have known the exact profit or loss in each year, he would have known that the farm had not been profitable for many years prior to the sale - He had been in no position to state that Bauer could expect any return on investment - See paragraphs 76 to 78.

Fraud and Misrepresentation - Topic 404

Fraudulent misrepresentation (deceit) - Remedies - Damages - [See Company Law - Topic 2178 ].

Fraud and Misrepresentation - Topic 408

Fraudulent misrepresentation (deceit) - Remedies - Rescission - Bars - [See Company Law - Topic 2178 ].

Fraud and Misrepresentation - Topic 2826.1

Misrepresentation - Defences - Unreasonable reliance - The New Brunswick Court of Queen's Bench, Trial Division, stated that a lack of due diligence was not a shield for false representations - The law required the utmost good faith and a wrongdoer could not benefit from his or her lack of good faith - See paragraph 95.

Limitation of Actions - Topic 15

General principles - Discoverability rule - Application of - The plaintiff (Bauer) asserted that the individual defendants (the Erbens) fraudulently misrepresented the value and debts of their farm (the corporate defendant), which induced Bauer to purchase a half interest in the farm - Bauer also sought relief from oppression - The Erbens counterclaimed for relief - The farm cross-claimed against the Erbens for conversion or misappropriation, failure to convey land and breach of a fiduciary duty - The Erbens asserted that the cross-claim was statute barred - The New Brunswick Court of Queen's Bench, Trial Division, held that the cross-claim was filed in response to the Erbens' counterclaim and as such, given the timing of the pleadings, was timely - Further the misappropriations were not discoverable until a chartered accountant finished his investigation and reported his finding - That being so, the material facts were discoverable only within the limitation period - Alternatively, it would be unjust to permit the Erbens to benefit from their ability to conceal matters long enough to fall within the Limitations of Actions Act - This was particularly so because the relationship between the Erbens and Bauer was based on mutual friendship and presumably trust - See paragraphs 101 to 112.

Limitation of Actions - Topic 9305

Postponement or suspension of statute - General - Discoverability rule - [See Limitation of Actions - Topic 15 ].

Limitation of Actions - Topic 9428

Bars - Disallowance of defence - Considerations - Concealment - [See Limitation of Actions - Topic 15 ].

Practice - Topic 1796

Pleadings - Cross-claim - Application of limitation periods - [See Limitation of Actions - Topic 15 ].

Sale of Land - Topic 8107

Defences of vendor - Caveat emptor - General - [See Consumer Law - Topic 1610 ].

Dommages-intérêts - Cote 1814

Délits civil relatifs aux biens - Appropriation illicite - Base de calcul - [Voir Damges - Topic 1814 ].

Dommages-intérêts - Cote 3625

Dol et assertion inexacte - Assertion inexacte et frauduleuse - [Voir Damages - Topic 3625 ].

Droit des compagnies - Cote 2170

Actionnaires - Droits des actionnaires - Droit à la rectification d'un acte oppressif ou injustement préjudiciable - [Voir Company Law - Topic 2170 ].

Droit des compagnies - Cote 2170.1

Actionnaires - Droits des actionnaires - Actes oppressifs - Recours - [Voir Company Law - Topic 2170.1 ].

Droit des compagnies - Cote 2178

Actionnaires - Droits des actionnaries - Résiliation - Assertion inexacte - [Voir Company Law - Topic 2178 ].

Droit des compagnies - Cote 7013

Modifications de structure et droits des actionnaires - Droits des actionnaires minoritaires ou dissidents - Oppression - Éléments constitutifs - [Voir Company Law - Topic 7013 ]

Droit des compagnies - Cote 8417

Législation sur la liquidation - Ordonnance de liquidation - Recours pour oppression - [Voir Company Law - Topic 8417 ].

Droit des compagnies - Cote 9785

Actions contre les corporations et les administrateurs - Demande en cas d'alors - Oppression - Préjudice ou mépris des intérêts - [Voir Company Law - Topic 9785 ].

Droit du consommateur - Cote 1610

Vente d'objets - Généralitiés - Caveat emptor - [Voir Consumer Law - Topic 1610 ].

Fraud et assertion inexacte - Cote 6

Assertion inexacte frauduleuse (dol) - Principes généraux - En quoi consiste un dol ou une assertion inexacte frauduleuse - [Voir Fraud and Misrepresentation - Topic 6 ].

Fraud et assertion inexacte - Cote 404

Assertion inexacte frauduleuse (dol) - Recours - Dommages-intérêts - [Voir Fraud and Misrepresentation - Topic 404 ].

Fraud et assertion inexacte - Cote 408

Assertion inexacte frauduleuse (dol) - Recours - Résiliation - Obstacles - [Voir Fraud and Misrepresentation - Topic 408 ].

Fraud et assertion inexacte - Cote 2826.1

Assertion inexacte - Moyens de défence - Confiance déraisonnable - [Voir Fraud and Misrepresentation - Topic 2826.1 ].

Prescription - Cote 15

Principes généraux - Application de la règle du moment où le préjudice aurait pu être découvert - [Voir Limitation of Actions - Topic 15 ].

Prescription - Cote 9305

Suspension de la prescription - Généralités - Règle du moment où le préjudice aurait pu être découvert - [Voir Limitation of Actions - Topic 9305 ].

Prescription - Cote 9428

Obstacles - Rejet de la defense - Facteurs considérés - Dissimulation frauduleuse - [Voir Limitation of Actions - Topic 9428 ].

Procédure - Cote 1796

Plaidoires - Demandes entre défendeurs - Application de périodes de prescription - [Voir Practice - Topic 1796 ].

Vente de biens-fonds - Cote 8107

Défenses du vendeur - Caveat emptor - Généralités - [Voir Sale of Land - Topic 8107 ].

Cases Noticed:

Queen (D.J.) v. Cognos Inc., [1993] 1 S.C.R. 87; 147 N.R. 169; 60 O.A.C. 1, refd to. [para. 54].

Baniuk and Heritage Court Holdings Ltd. v. Carpenter et al. (1988), 90 N.B.R.(2d) 1; 228 A.P.R. 1 (T.D.), refd to. [para. 63].

Toronto-Dominion Bank v. Leigh Instruments Ltd. (Bankrupt) et al., 1998 CarswellOnt 2565, additional reasons (1998), 78 O.T.C. 134 (Gen. Div.), refd to. [para. 71].

International Molders and Allied Workers Union v. R-Theto, 1998 CarswellOnt 5574, refd to. [para. 71].

Aucoin and Aucoin v. Young (1988), 87 N.B.R.(2d) 170; 221 A.P.R. 170; 1988 CarswellNB 324 (C.A.), refd to. [para. 71].

Jacobs Farms Ltd. v. Jacobs, [1992] O.J. No. 813 (Gen. Div.), appld. [para. 86].

Naneff v. Con-Crete Holdings Ltd. et al. (1995), 85 O.A.C. 29; 23 O.R.(3d) 481 (C.A.), refd to. [para. 89].

Desjardins et al. v. Côté et al. (2003), 267 N.B.R.(2d) 115; 702 A.P.R. 115 (T.D.), affd. (2006), 304 N.B.R.(2d) 40; 788 N.B.R.(2d) 40 (C.A.), refd to. [para. 102].

Central Trust Co. v. Rafuse and Cordon, [1986] 2 S.C.R. 147; 69 N.R. 321; 75 N.S.R.(2d) 109; 186 A.P.R. 109; 31 D.L.R.(4th) 481; 37 C.C.L.T. 117; 42 R.P.R. 161; 34 B.L.R. 187, refd to. [para. 109].

Kitchen v. Royal Air Force Association, [1958] 1 W.L.R. 563 (C.A.), refd to. [para. 111].

Vienneau v. Arsenault (1982), 41 N.B.R.(2d) 82; 107 A.P.R. 82 (C.A.), refd to. [para. 111].

Authors and Works Noticed:

Feldthusen, Bruce, Economic Negligence: The Recovery of Pure Economic Loss (4th Ed. 2000), p. 87 [para. 47].

Fridman, Gerald Henry Louis, The Law of Torts in Canada (2nd Ed. 2002), pp. 746 [para. 46]; 747 [para. 48].

Gray, Wayne D., The 2001 Annotated Canada Business Corporations Act (Looseleaf), p. 447 [para. 61]; s. 9550 [para. 62].

Klar, Lewis N., Remedies in Tort (Looseleaf Ed.) vol. 1, pp. 5-12, 5-13 [para. 51]; 5-33, 5-40 [para. 52]; 5-45 [para. 53].

Klar, Lewis N., Tort Law (3rd Ed. 2003), pp. 232 [para. 49]; 608 [para. 50].

Counsel:

Avocats:

Eugene Mockler, Q.C., and James Mockler, on behalf of the plaintiff;

Ruben Dexter, on behalf of the defendant.

This action was heard on January 25, March 8 and August 8, 2005, August 22 to 25, 2005, June 5 to 9, 2006, September 28, and October 10, 2006, and June 11, 2007, by Rideout, J., of the New Brunswick Court of Queen's Bench, Trial Division, Judicial District of Moncton, who delivered the following judgment on September 12, 2007.