Ceapro Inc. v. Saskatchewan et al., 2008 SKQB 237

• Jurisdiction: Saskatchewan
• Judge: Popescul, J.
• Court: Court of Queen's Bench of Saskatchewan (Canada)
• Citation: 2008 SKQB 237,(2008), 326 Sask.R. 7 (QB)
• Date: 05 June 2008

Ceapro Inc. v. Sask. (2008), 326 Sask.R. 7 (QB)

MLB headnote and full text

Temp. Cite: [2008] Sask.R. TBEd. JN.050

Ceapro Inc. (plaintiff) v. Government of Saskatchewan, Saskatchewan Government Growth Fund Management Corporation, Saskatchewan Government Growth Fund Ltd., Gary K. Benson, Janice MacKinnon and Can-Oat Milling Products Inc. (defendants)

(2002 Q.B.G. No. 638; 2008 SKQB 237)

Indexed As: Ceapro Inc. v. Saskatchewan et al.

Saskatchewan Court of Queen's Bench

Judicial Centre of Saskatoon

Popescul, J.

June 5, 2008.

Summary:

Ceapro was the principal shareholder in Canamino, a corporation that received financial assistance from the Saskatchewan Government Growth Fund (SGGF). This assistance included a loan. Under the applicable agreements, concluded in 1993, SGGF would receive non-voting, dividend-earning, Class B shares in Canamino. In case of default, SGGF was entitled to convert its non-voting Class B shares into 51% of voting Class A shares and thus take over control of Canamino. Canamino, who also had loans with other financial institutions, ran into financial difficulty. In 1997, Ceapro devised a salvage plan that called for the following: Ceapro would raise over $5 million in fresh capital, convince SGGF to exchange its shares in Canamino for shares in Ceapro, and work through a Companies' Creditors' Arrangements Act proposal that would reconfigure the almost $4.7 million in Ceapro and Canamino's joint accounts payable into a one-third cash payout and convert the other two-thirds of the debts into Ceapro shares. Ceapro wrote SGGF, providing them with reasons to convert their Canamino shares into Ceapro shares. SGGF's reply was that it was prepared to consider converting its shares if certain specified and detailed conditions were met. The conditions included Ceapro raising $5.525 million in new cash, and the parties entering into a formal agreement. The conditions were never met. Canamino eventually defaulted. SGGF took it over. Ceapro sued SGGF and others, raising the following causes of action: breach of contract; negligent and/or intentional misrepresentation; breach of fiduciary duty; breach of the duty of fairness; breach of the duty of good faith; and negligently breaching the fiduciary duty, the duty of fairness and the duty of good faith.

The Saskatchewan Court of Queen's Bench dismissed the action, holding as follows: "While not its intention, a strong argument can be made that SGGF did Ceapro and its potential investors a favour by exercising its option to take control because it stopped them from throwing more good money after bad". Even if SGGF's liability had been engaged, Ceapro did not suffer damage. In hindsight, Canamino would likely not have been able to survive anyway.

Company Law - Topic 2164

Shareholders - Shareholders' rights - Derivative actions - Ceapro was the principal shareholder in Canamino, a corporation that received financial assistance from the Saskatchewan Government Growth Fund (SGGF) - This assistance included a loan - Under the applicable formal agreements, concluded in 1993, SGGF would receive non-voting, dividend-earning, Class B shares in Canamino - In case of default, SGGF was entitled to convert its non-voting Class B shares into 51% of voting Class A shares and thus take over control of Canamino - Canamino defaulted - SGGF took it over - Both SGGF and Ceapro lost their investment in Canamino - Ceapro sued SGGF for damages for wrongful takeover - At issue was whether the rule in Foss v. Harbottle applied to bar Ceapro's claim - The Saskatchewan Court of Queen's Bench held that the rule did not apply here - The dispute was between Ceapro and SGGF and not between SGGF and Canamino, in which case Ceapro's remedy would have been by way of a derivative action - See paragraphs 257 to 259.

Company Law - Topic 4311

Directors - Duties to company and shareholders - Duty to act in the best interest of the corporation - Ceapro was the principal shareholder in Canamino, a corporation that received financial assistance from the Saskatchewan Government Growth Fund (SGGF) - This assistance included a loan - Under the applicable formal agreements, concluded in 1993, SGGF would receive non-voting, dividend-earning, Class B shares in Canamino - In case of default, SGGF was entitled to convert its non-voting Class B shares into 51% of voting Class A shares and thus take over control of Canamino - Canamino defaulted - SGGF took it over - Ceapro sued SGGF, alleging that SGGF breached the duty of acting in good faith in the best interest of the corporation imposed on directors of Crown corporations by s. 46(1)(a) of the Crown Corporations Act - The Saskatchewan Court of Queen's Bench dismissed the action - The duty imposed by s. 46(1)(a) was owed to the Crown corporation, not fellow shareholders and/or others - See paragraphs 194 to 196.

Contracts - Topic 1205

Formation of contract - Offer - What constitutes an offer (incl. counter-offer) - Ceapro was the principal shareholder in Canamino, a corporation that received financial assistance from the Saskatchewan Government Growth Fund (SGGF) - This assistance included a loan - Under the applicable agreements, concluded in 1993, SGGF would receive non-voting, dividend-earning, Class B shares in Canamino - In case of default, SGGF was entitled to convert its non-voting Class B shares into 51% of voting Class A shares and thus take over control of Canamino - Canamino, who also had loans with other financial institutions, ran into financial difficulty - In 1997, Ceapro devised a salvage plan that included the following: Ceapro would raise over $5 million in fresh capital and convince SGGF to exchange its shares in Canamino for shares in Ceapro - On December 23, 1997, Ceapro wrote SGGF, providing them with reasons to convert their Canamino shares into Ceapro shares - SGGF's reply, dated December 24, 1997, was that it was prepared to consider converting its shares if certain specified and detailed conditions were met - The conditions included Ceapro raising $5.525 million in new cash, and the parties entering into a formal agreement - The conditions were never met - Canamino eventually defaulted - SGGF took it over - Ceapro sued SGGF for breach of contract, saying that it had made a contract with SGGF in 1997 - The Saskatchewan Court of Queen's Bench dismissed the action - There was no enforceable contract made in 1997 because: (1) Ceapro's December 23, 1997 letter was only an invitation to treat; (2) SGGF's December 24, 1997 letter could be considered an offer but was never accepted; (3) even if there was an offer and acceptance, a formal agreement was required before an enforceable contract could exist; (4) satisfaction of the conditions listed in SGGF's December 24, 1997 letter was so manifestly dependent upon the subjective mind of SGGF that the resulting conditional arrangement was unenforceable; and (5) the conditions were not satisfied - See paragraphs 143 to 174.

Contracts - Topic 2116

Terms - Express terms - "Entire agreement" or "four corners" clause - Ceapro was the principal shareholder in Canamino, a corporation that received financial assistance from the Saskatchewan Government Growth Fund (SGGF) - This assistance included a loan - Under the applicable formal agreements, concluded in 1993, SGGF would receive non-voting, dividend-earning, Class B shares in Canamino - In case of default, SGGF was entitled to convert its non-voting Class B shares into 51% of voting Class A shares and thus take over control of Canamino - Canamino defaulted - SGGF took it over - Ceapro sued SGGF, alleging that SGGF breached a purported collateral contract concluded in 1993 providing, among others, that SGGF would act fairly and reasonably in exercising any right to take control of Canamino - The Saskatchewan Court of Queen's Bench dismissed the action - While the evidence sought to be tendered by Ceapro with respect to the alleged existence of a collateral agreement was admissible as an exception to the parol evidence rule, there was no collateral agreement - The entire agreement was that contained within the carefully prepared unambiguous set of agreements executed with formality and with the assistance of legal counsel - One agreement contained a "no other agreement clause" - See paragraphs 115 to 136.

Contracts - Topic 2280

Terms - Conditions precedent - General - [See Contracts - Topic 1205].

Contracts - Topic 2284

Terms - Conditions precedent - Requirement of written contract - [See Contracts - Topic 1205].

Contracts - Topic 3502

Performance or breach - Obligation to perform - Good faith - Exercise of - Ceapro was the principal shareholder in Canamino, a corporation that received financial assistance from the Saskatchewan Government Growth Fund (SGGF) - This assistance included a loan - Under the applicable agreements, concluded in 1993, SGGF would receive non-voting, dividend-earning, Class B shares in Canamino - In case of default, SGGF was entitled to convert its non-voting Class B shares into 51% of voting Class A shares and thus take over control of Canamino - Canamino, who also had loans with other financial institutions, ran into financial difficulty - In 1997, Ceapro devised a salvage plan that included the following: Ceapro would raise over $5 million in fresh capital and convince SGGF to exchange its shares in Canamino for shares in Ceapro - On December 23, 1997, Ceapro wrote SGGF, providing them with reasons to convert their Canamino shares into Ceapro shares - SGGF's reply, dated December 24, 1997, was that it was prepared to consider converting its shares if certain specified and detailed conditions were met - The conditions were never met - Canamino eventually defaulted - SGGF took it over - Ceapro sued SGGF for breach of an implied duty of good faith arising from the 1993 agreements and the December 24, 1997 letter - The Saskatchewan Court of Queen's Bench dismissed the action - The court discussed the duty of good faith in the execution of contracts and concluded that, although there was no stand-alone duty of good faith, there was a limited implied duty of good faith arising from the contract that precluded the parties from evading contractual obligations by insidious means - The court then ruled that SGGF did not breach any agreement or duty of good faith - See paragraphs 191 to 228.

Equity - Topic 3607

Fiduciary or confidential relationships - General principles - Relationships which are not fiduciary - Ceapro was the principal shareholder in Canamino, a corporation that received financial assistance from the Saskatchewan Government Growth Fund (SGGF) - This assistance included a loan - Under the applicable formal agreements, concluded in 1993, SGGF would receive non-voting, dividend-earning, Class B shares in Canamino - In case of default, SGGF was entitled to convert its non-voting Class B shares into 51% of voting Class A shares and thus take over control of Canamino - Canamino defaulted - SGGF took it over - Ceapro sued SGGF, alleging that SGGF breached a purported fiduciary duty - The Saskatchewan Court of Queen's Bench dismissed the action - There was no fiduciary duty - This was a commercial agreement between two companies - SGGF never pledged to act in the best interests of Ceapro - Even if there was a fiduciary duty, SGGF did not breach it - See paragraphs 181 to 187, 212 to 228.

Evidence - Topic 6325

Parol evidence rule - Integration of legal act, conditions and collateral agreements - Collateral agreements - [See Contracts - Topic 2116].

Cases Noticed:

Prairie Pulse Inc. v. LaCasse, [2005] Sask.R. Uned. 82; 2005 SKCA 80, consd. [para. 118].

R. v. Marshall (D.J.), Jr., [1999] 3 S.C.R. 456; 246 N.R. 83; 178 N.S.R.(2d) 201; 549 A.P.R. 201, refd to. [para. 120].

Palachek v. Canadian Imperial Bank of Commerce (1991), 79 Alta. L.R.(2d) 159 (C.A.), refd to. [para. 120].

Queen (D.J.) v. Cognos Inc., [1993] 1 S.C.R. 87; 147 N.R. 169; 60 O.A.C. 1, consd. [para. 138].

Schiller, First Devenshire Building Corp. and Nu-Towne Developments Inc. v. Fisher, Ru-More Investments Ltd. and Kingsmont Properties Ltd., [1981] 1 S.C.R. 593; 37 N.R. 350, refd to. [para. 148].

Hill v. Develcon Electronics Ltd. (No. 1) (1991), 92 Sask.R. 241 (Q.B.), refd to. [para. 148].

Bawitko Investments Ltd. v. Kernels Popcorn Ltd. (1991), 53 O.A.C. 314; 79 D.L.R.(4th) 97 (C.A.), consd. [para. 152].

Mellco Developments Ltd. et al. v. Portage la Prairie (City) et al. (2002), 166 Man.R.(2d) 285; 278 W.A.C. 285; 222 D.L.R.(4th) 67; 2002 MBCA 125, refd to. [para. 156].

Wiebe v. Bobsien (1985), 20 D.L.R.(4th) 475 (B.C.C.A.), consd. [para. 162].

Mark 7 Development Ltd. et al. v. Peace Holdings Ltd. et al. (1991), 53 B.C.L.R.(2d) 217 (C.A.), leave to appeal refused [1991] 3 S.C.R. ix; 136 N.R. 41, consd. [para. 162].

Norberg v. Wynrib, [1992] 2 S.C.R. 226; 138 N.R. 81; 9 B.C.A.C. 1; 19 W.A.C. 1, consd. [para. 181].

Gateway Realty Ltd. v. Arton Holdings Ltd. et al. (No. 3) (1991), 106 N.S.R.(2d) 180; 288 A.P.R. 180 (T.D.), affd. (1992), 112 N.S.R.(2d) 180; 307 A.P.R. 180 (C.A.), consd. [para. 199].

Ascent Financial Services Ltd. et al. v. Blythman et al. (2007), 302 Sask.R. 118; 411 W.A.C. 118; 2007 SKCA 78, consd. [para. 199].

Transamerica Life Canada Inc. et al. v. ING Canada Inc., [2003] O.A.C. Uned. 565; 234 D.L.R.(4th) 367 (C.A.), consd. [para. 205].

Newswest Corp. v. Glendar Holdings Ltd. et al., [2001] 9 W.W.R. 312; 209 Sask.R. 56; 2001 SKQB 336, consd. [para. 206].

IT/NET Inc. v. Cameron (2006), 207 O.A.C. 26; 47 C.C.E.L.(3d) 99 (C.A.), consd. [para. 207].

BG Checo International Ltd. v. British Columbia Hydro and Power Authority, [1993] 1 S.C.R. 12; 147 N.R. 81; 20 B.C.A.C. 241; 35 W.A.C. 241, consd. [para. 230].

Foss v. Harbottle (1843), 67 E.R. 189; 2 Hare 461 (V.C. Ct.), consd. [para. 257].

Hercules Management Ltd. et al. v. Ernst & Young et al., [1997] 2 S.C.R. 165; 211 N.R. 352; 115 Man.R.(2d) 241; 139 W.A.C. 241, consd. [para. 257].

Statutes Noticed:

Crown Corporations Act, S.S. 1993, c. C-50.101, sect. 46(1)(a) [para. 194].

Authors and Works Noticed:

Fridman, Gerald Henry Louis, The Law of Contract in Canada (3rd Ed. 1994), p. 455 [para. 117].

McCamus, John D., The Law of Contracts (2005), pp. 784 to 805 [para. 209].

Waddams, Stephen M., The Law of Contracts (4th Ed. 1999), p. 21 [para. 143].

Counsel:

Gordon R. McKenzie, Q.C., and Richard J. Cotter, Q.C., for the plaintiff, Ceapro Inc.;

Grant J. Scharfstein, Q.C., and Dorinda M. Stahl, for the defendants, Government of Saskatchewan and Janice MacKinnon;

Jeffrey M. Lee, Shaunt Parthev and Naheed Bardai, for the defendants, Saskatchewan Government Growth Fund Management Corporation, Saskatchewan Government Growth Fund Ltd. and Gary K. Benson;

Peter T. Bergbusch and Jamie S. Patterson, for Can-Oat Milling Products Inc.

This action was heard by Popescul, J., of the Saskatchewan Court of Queen's Bench, Judicial Centre of Saskatoon, who delivered the following final judgment on June 5, 2008.