Campbell v. Lienaux et al.,

• Jurisdiction: Nova Scotia
• Judge: Hood, J.
• Neutral Citation: 2001 NSSC 44
• Citation: (2001), 195 N.S.R.(2d) 220 (SC),2001 NSSC 44,[2001] CarswellNS 208,[2001] NSJ No 230 (QL),10 CLR (3d) 63,195 NSR (2d) 220,609 APR 220,195 NSR(2d) 220,195 N.S.R.(2d) 220,609 A.P.R. 220,[2001] NS.J. No 230 (QL),(2001), 195 NSR(2d) 220 (SC)
• Date: 18 June 2001
• Court: Supreme Court of Nova Scotia (Canada)

Campbell v. Lienaux (2001), 195 N.S.R.(2d) 220 (SC);

 609 A.P.R. 220

MLB headnote and full text

Temp. Cite: [2001] N.S.R.(2d) TBEd. JN.023

Smith's Field Manor Development Ltd., Karen Turner-Lienaux and Byrne Architects Incorporated (plaintiffs) v. Wesley G. Campbell (defendant) (SH 93-5567 (101803); 2001 NSSC 44)

Indexed As: Campbell v. Lienaux et al.

Nova Scotia Supreme Court

Hood, J.

June 18, 2001.

Summary:

Smith's Field Manor Development Ltd. was incorporated to develop a seniors retire­ment residence (The Berkeley). Turner-Lienaux was the president and sole share­holder of Smith's Field. Her husband (Lienaux) was its secretary. The Berkeley Developments Ltd. (BDL) was incorporated to construct and operate the project. Lienaux, Campbell, MacNutt and Logie were the directors and shareholders of BDL. After three years of operation, a mortgagee appointed a receiver, foreclosed on and sold the Berkeley. Turner-Lienaux and Smith Field's sued Campbell, alleging that he breached his fiduciary duty by participating in a financing scheme with respect to the equity investment made by Campbell, Logie and MacNutt, and that the financing scheme led to the appointment of a receiver by the mortgagee. The breaches of fiduciary duty included allegations of criminal fraud, acquiesence in fraud or equitable fraud. Byrne Architects Inc. (BAI) also claimed against Campbell for fees owed with respect to the project, arguing that it had continued to work on the project because of assurances given by Campbell. In the alternative, BAI echoed the argument that Campbell's actions caused the receivership.

The Nova Scotia Supreme Court dismissed the action. The court awarded solicitor and client costs against Lienaux-Turner and Smith's Field and lump sum costs in the amount of $10,000 against BAI.

Editor's Note: For previous decisions in this matter see 153 N.S.R.(2d) 241; 450 A.P.R. 241, 154 N.S.R.(2d) 159; 452 A.P.R. 159, 154 N.S.R.(2d) 241; 452 A.P.R. 241, 165 N.S.R.(2d) 356; 495 A.P.R. 356, 167 N.S.R.(2d) 196; 520 A.P.R. 196, 188 N.S.R.(2d) 171; 587 A.P.R. 171.

Company Law - Topic 2507

Shareholders - Shares - Voting of - Shares held in trust - [See Company Law - Topic 3550 ].

Company Law - Topic 3550

Share transfer - Shares in escrow - Effect on voting rights - Turner-Lienaux was the president and sole shareholder of Smith's Field Manor Development Ltd. - The shares in Smith Field's were to be trans­ferred to The Berkeley Developments Ltd. (BDL) - However, only $566,750 of the $666,750 purchase price had been paid - The remaining $100,000 was postponed and was the subject of a promissory note - Turner-Lienaux executed the share transfer, but the shares were to be held in escrow until the $100,000 balance was paid - The Nova Scotia Supreme Court stated that Turner-Lienaux held the shares as trustee for BDL and that she could continue to vote the shares but only in such a way as would serve to protect her interest in getting the balance owed for the shares - Resolutions passed by Turner-Lienaux which purported to cancel the agreement to sell the shares were in breach of the escrow agreement and her position as trustee of the shares for BDL - See para­graphs 442 to 453.

Company Law - Topic 4262

Directors - Duties - General principles - Fiduciary duty - Smith's Field Manor Development Ltd. was incorporated to develop a seniors residence (The Berkeley) - The Berkeley Developments Ltd. (BDL) was incorporated to construct and operate the project - Lienaux, Campbell, MacNutt and Logie were the directors and share­holders of BDL - After three years of operation, a mortgagee appointed a receiver and foreclosed on the Berkeley - Smith Field's and its president and sole shareholder (Turner-Lienaux) sued Campbell, alleging that he breached his fiduciary duty to his joint venture partners or the other directors of BDL by his par­ticipation in a financing scheme whereby $200,000 of the permanent cash equity investment made by Campbell, Logie and MacNutt was provided by way of a demand loan from Stonehedge Investments Ltd. - The plaintiffs argued that the financ­ing scheme led to the mortgagee's appoint­ment of a receiver - The breaches of fiduciary duty included allegations of criminal fraud, acquiesence in fraud or equitable fraud - The Nova Scotia Supreme Court dismissed the action - The court concluded that: the permanent cash equity could be borrowed; the plaintiffs knew the source of the $200,000; the loan was not a demand loan; there was no joint venture and no fiduciary duty arising from one; any fiduciary duty owed by a director was owed to the company not other directors; there was no dishonest act by Campbell; and the mortgagee's appointment of a receiver resulted from actions by Smith's Field and Lienaux - See paragraphs 127 to 371.

Equity - Topic 3607

Fiduciary or confidential relationships - Relationships which are not fiduciary - [See Practice - Topic 301 ].

Equity - Topic 3646

Fiduciary or confidential relationships - Breach of fiduciary relationship - By direc­tor or officer of company - [See Company Law - Topic 4262 ].

Equity - Topic 3650

Fiduciary or confidential relationships - Breach of fiduciary relationship - Joint ventures - [See Company Law - Topic 4262 ].

Fraud and Misrepresentation - Topic 7

Fraudulent misrepresentation (deceit) - What constitutes fraud - [See Company Law - Topic 4262 ].

Fraud and Misrepresentation - Topic 8

Fraudulent misrepresentation (deceit) - What constitutes equitable fraud - [See Company Law - Topic 4262 ].

Joint Ventures - Topic 5

What constitutes a joint venture - [See Company Law - Topic 4262 ].

Joint Ventures - Topic 5

What constitutes a joint venture - The Nova Scotia Supreme Court stated that a joint venture could not exist where a part­nership or corporation was formed - See paragraphs 214 to 233.

Practice - Topic 301

Parties - General - Smith's Field Manor Development Ltd. was incorporated to develop a seniors residence (The Berkeley) - Turner-Lienaux was the president and sole shareholder of Smith's Field - Her husband (Lienaux) was its secretary - The Berkeley Developments Ltd. (BDL) was incorporated to construct and operate the project - Lienaux, Campbell, MacNutt and Logie were the directors and shareholders of BDL - Unknown to the others, Lienaux held his shares in trust for Lienaux-Turner, the shares having been purchased with her money - Lienaux, Turner-Lienaux and Smith Field's later sued Campbell, alleging that he breached his fiduciary duty by his participation in a financing scheme with respect to the equity investment made by Campbell, Logie and MacNutt - Upon the bankruptcy of Lienaux, only Turner-Lienaux and Smith's Field remained as plaintiffs - Campbell argued that if anyone was owed a duty, it was Lienaux, who was not a party - The Nova Scotia Supreme Court held that Campbell had no contrac­tual or fiduciary relationship with Smith Field's or Lienaux-Turner - Therefore Smith Field's and Turner-Lienaux were not proper plaintiffs and Campbell was not a proper defendant - See paragraphs 372 to 411.

Practice - Topic 7109

Costs - Party and party costs - Special orders - Discretion to exceed scale of costs - [See Practice - Topic 7117 ].

Practice - Topic 7117

Costs - Party and party costs - Special orders - Lump sum in lieu of taxed costs - The Berkeley Developments Ltd. (BDL) was incorporated to construct and operate a retirement residence on land owned by Smith's Field Manor Development Ltd. - Smith's Field and its president and sole shareholder (Turner-Lienaux) later sued Campbell, a director of BDL, alleging that he breached his fiduciary duty by partici­pating in a financing scheme which led to a mortgagee's appointment of a receiver - The breaches included allegations of crimi­nal fraud, acquiesence in fraud or equitable fraud - Byrne Architects Inc. (BAI) also claimed against Campbell for fees owed with respect to the project, arguing that it had continued to work on the project because of assurances given by Campbell -Alternatively, it echoed the argument that Campbell caused the receivership - The Nova Scotia Supreme Court dismissed the action - The court rebuked Turner- Lienaux's and Smith's Field's reprehen­sible conduct in pursuing unfounded alle­gations of fraud and dis­honesty by an award of solicitor-client costs - The court awarded lump sum costs against BAI in the amount of $10,000 (the highest Tariff scale called for an award of $6,825) - See paragraphs 479 to 508.

Practice - Topic 7454

Costs - Solicitor and client costs - Entitle­ment to solicitor and client costs - Improper, irresponsible or unconscionable conduct - [See Practice - Topic 7117 ].

Practice - Topic 7462.1

Costs - Solicitor and client costs - Entitle­ment to solicitor and client costs - Unproven allegations of dishonest or improper conduct - [See Practice - Topic 7117 ].

Practice - Topic 7470

Costs - Solicitor and client costs - Entitle­ment to solicitor and client costs - Un­proven allegation of fraud - [See Prac­tice - Topic 7117 ].

Trusts - Topic 6141

The trustee - Breach of trust - General - [See Company Law - Topic 3550 ].

Cases Noticed:

Graham v. Central Mortgage & Housing Corp. and Bras d'Or Construction Ltd. (1973), 13 N.S.R.(2d) 183; 9 A.P.R. 183; 43 D.L.R.(3d) 686 (T.D.), refd to. [para. 215].

R. v. Olan, Hudson and Hartnett (1978), 21 N.R. 504 (S.C.C.), refd to. [para. 261].

Paton v. R., [1963] C.C.C. 148 (S.C.C.), refd to. [para. 261].

R. v. Shead (R.G.S.) (1996), 114 Man.R.(2d) 42 (Q.B.), refd to. [para. 262].

R. v. Théroux (R.), [1993] 2 S.C.R. 5; 151 N.R. 104; 54 Q.A.C. 184; 79 C.C.C.(3d) 449, refd to. [para. 262].

R. v. Zlatic (Z.), [1993] 2 S.C.R. 29; 151 N.R. 81; 54 Q.A.C. 161; 79 C.C.C.(3d) 466, refd to. [para. 262].

ACA Cooperative Association Ltd. v. Associated Freezers of Canada Inc. et al. (No. 3) (1992), 113 N.S.R.(2d) 1; 309 A.P.R. 1 (C.A.), refd to. [para. 360].

Marinelli et al. v. Keigan et al. (1999), 173 N.S.R.(2d) 56; 527 A.P.R. 56 (C.A.), refd to. [para. 361].

Athey v. Leonati et al., [1996] 3 S.C.R. 458; 203 N.R. 36; 81 B.C.A.C. 243; 132 W.A.C. 243; 140 D.L.R.(4th) 235, refd to. [para. 361].

Brown & Root Ltd. v. Chimo Shipping Ltd., [1967] S.C.R. 642, refd to. [para. 363].

Canson Enterprises Ltd. v. Boughton & Co., [1991] 3 S.C.R. 534; 131 N.R. 321; 6 B.C.A.C. 1; 13 W.A.C. 1; 85 D.L.R.(4th) 129, refd to. [para. 367].

2475813 Nova Scotia Ltd. v. Rodgers et al. (2001), 189 N.S.R.(2d) 363; 590 A.P.R. 363 (C.A.), refd to. [para. 393].

Hodgkinson v. Simms, [1994] 3 S.C.R. 377; 171 N.R. 245; 49 B.C.A.C. 1; 80 W.A.C. 1, refd to. [para. 393].

Musselwhite v. Musselwhite & Son Ltd., [1962] Ch. D. 964, refd to. [para. 445].

Coughlan et al. v. Westminer Canada Ltd. et al. (1994), 127 N.S.R.(2d) 241; 355 A.P.R. 241 (C.A.), refd to. [para. 479].

Young v. Young et al., [1993] 4 S.C.R. 3; 160 N.R. 1; 34 B.C.A.C. 161; 56 W.A.C. 161; [1993] 8 W.W.R. 513; 108 D.L.R.(4th) 193; 84 B.C.L.R.(2d) 1; 18 C.R.R.(2d) 41; 49 R.F.L.(3d) 117, refd to. [para. 481].

Leung v. Leung, [1993] B.C.J. No. 2909 (S.C.), refd to. [para. 482].

Brown v. Metropolitan Authority et al. (1996), 150 N.S.R.(2d) 43; 436 A.P.R. 43 (C.A.), refd to. [para. 483].

Outerbridge v. Constance, [2000] O.T.C. 345; 2000 CarswellOnt. 1600 (Sup. Ct.), refd to. [para. 486].

Austin et al. v. Habitat Development Ltd. et al. (1992), 114 N.S.R.(2d) 379; 313 A.P.R. 379; 94 D.L.R.(4th) 359 (C.A.), dist. [para. 494].

Mason v. Mason, [1982] N.S.J. No. 27 (T.D.), dist. [para. 496].

Griffin v. Corcoran (1999), 179 N.S.R.(2d) 273; 553 A.P.R. 273 (S.C.), refd to. [para. 501].

Authors and Works Noticed:

Anderson, R.J., The External Audit (2nd Ed. 1977), p. 846 [para. 191].

Barrett and Seago, Partners and Partner­ships, Law and Taxation (1956), p. 65 [para. 215].

Gower, Modern Company Law (3rd Ed. 1969), pp. 401, 402 [para. 444]; 517 [para. 234].

Orkin, Mark M., The Law of Costs (2nd Ed.), pp. 2-94.9 [para. 497]; 2-144 to 2-146 [para. 480]; 2-146 [para. 484].

Williston on Contracts (3rd Ed. 1959), vol. 2 [para. 216]; pp. 554, 555, 556 [para. 217].

Counsel:

Charles Lienaux, secretary of Smith's Field Manor Development Ltd., for the plain­tiff, Smith's Field Manor Development Ltd.;

Karen Turner-Lienaux, self-represented;

Joel E. Pink, Q.C., for the plaintiffs, Smith's Field Manor Development Ltd. and Karen Turner-Lienaux (only for the direct examination of Charles Lienaux, Karen Turner-Lienaux and Charles Lienaux, Jr.);

Marvin C. Block, Q.C., for the plaintiff, Byrne Architects Inc.;

Alan V. Parish, Q.C., and Gavin Giles, for the defendant, Campbell.

This action was heard on January 8-11, 15-18, 22-25 and 29-31, February 1, 5, 6, 8, 12-15, 19-21 and 26-28, and March 1, 5-8, 12, 13 and 19-21, 2001, before Hood, J., of the Nova Scotia Supreme Court, who delivered the following judgment on June 18, 2001.