Communities Economic Development Fund v. 5250821 Manitoba Ltd. et al., (2011) 269 Man.R.(2d) 35 (QB)

• Judge: Cameron, J.
• Court: Court of Queen's Bench of Manitoba (Canada)
• Case Date: August 10, 2011
• Jurisdiction: Manitoba
• Citations: (2011), 269 Man.R.(2d) 35 (QB);2011 MBQB 193

Com. Economic Dev. v. 5250821 Man. (2011), 269 Man.R.(2d) 35 (QB)

MLB headnote and full text

Temp. Cite: [2011] Man.R.(2d) TBEd. SE.010

Community Economic Development Fund (plaintiff) v. 5250821 Manitoba Inc. and Lyle Sean Kernaghan (defendants)

(CI 08-15-00222 transferred to CI 10-01-69602; 2011 MBQB 193)

Indexed As: Communities Economic Development Fund v. 5250821 Manitoba Ltd. et al.

Manitoba Court of Queen's Bench

Thompson Centre and Winnipeg Centre

Cameron, J.

August 10, 2011.

Summary:

In two actions, the plaintiff Communities Economic Development Fund (CEDF) alleged that 5250821 Manitoba Ltd. and Kernaghan (the defendants) defaulted on loans made for the purchase of property. The defendants counterclaimed against CEDF and three other parties, including Sefton, a business loans consultant. The counterclaim asserted fraud, negligence and breach of contract, with emphasis on fraud in that CEDF was complicit in completing an unrealistic market evaluation and financing, making the sale to the defendants possible at an overvalued price. The defendants also sued the plaintiffs and defendants by counterclaim on similar grounds. CEDF moved for summary judgment for the sums owing in its actions and to dismiss the defendants' claim against it.

A Master of the Manitoba Court of Queen's Bench, in a decision reported at (2010), 256 Man.R.(2d) 41, granted the motions. The defendants appealed.

The Manitoba Court of Queen's Bench dismissed the appeal.

Equity - Topic 3606

Fiduciary or confidential relationships - General principles - What constitutes a fiduciary relationship - In two actions, the plaintiff Communities Economic Development Fund (CEDF) alleged that 5250821 Manitoba Ltd. and Kernaghan (the defendants) defaulted on loans made for the purchase of property - The defendants counterclaimed against CEDF and three other parties, including Sefton, a business loans consultant - The counterclaim asserted fraud, negligence and breach of contract, with emphasis on fraud in that CEDF was complicit in completing an unrealistic market evaluation and financing, making the sale to the defendants possible at an overvalued price - The defendants also sued the plaintiffs and defendants by counterclaim on similar grounds - CEDF moved for summary judgment for the sums owing in its actions and to dismiss the defendants' claim against it - A Master granted the motions - The Manitoba Court of Queen's Bench dismissed the defendants' appeal - The court rejected the defendants' assertion that the Master had erred in failing to recognize that equitable fraud was committed by CEDF - Nothing established that CEDF owed a special duty of care to the defendants - In light of Kernaghan's admissions that the purchase price was agreed before CEDF was approached, that CEDF refused to comment on whether that price was fair and that he had reviewed and understood the feasibility clause in the loan documents, there was no genuine issue regarding the existence of a fiduciary relationship between the defendants and CEDF - Even if there was such a relationship, the fact that the defendants had independent legal advice in the completion of the final offer to purchase and of corresponding loan documents satisfied any obligations CEDF might have otherwise had - There was no genuine issue of equitable fraud - See paragraphs 91 to 104.

Equity - Topic 3761

Fiduciary or confidential relationships - The creditor debtor relationship - General - [See Equity - Topic 3606 ].

Fraud and Misrepresentation - Topic 4040

Practice - Evidence and proof - General - In two actions, the plaintiff Communities Economic Development Fund (CEDF) alleged that 5250821 Manitoba Ltd. and Kernaghan (the defendants) defaulted on loans made for the purchase of property - The defendants counterclaimed against CEDF and three other parties, including Sefton, a business loans consultant - The counterclaim asserted fraud, negligence and breach of contract, with emphasis on fraud in that CEDF was complicit in completing an unrealistic market evaluation and financing, making the sale to the defendants possible at an overvalued price - The defendants also sued the plaintiffs and defendants by counterclaim on similar grounds - CEDF moved for summary judgment for the sums owing in its actions and to dismiss the defendants' claim against it - A Master granted the motions - The Manitoba Court of Queen's Bench dismissed the defendants' appeal - The court rejected the defendants' assertion that the Master had erred in failing to recognize that equitable fraud was committed by CEDF - The court agreed with the Master that much of the defendants' evidence regarding fraud was based on unsubstantiated conjecture and suspicion - The evidence agreed to by the defendants was that Kernaghan had pursued the loan despite CEDF's reluctance to provide it - This was clearly contrary to any assertion that CEDF was trying to overvalue or misrepresent any portion of the transaction to entice the defendants to complete the deal - See paragraphs 83 to 90.

Practice - Topic 3250.1

Appearance and default proceedings - Noting in default - General - [See Practice - Topic 5710 ].

Practice - Topic 4954

Admissions - Effect of - [See Practice - Topic 5710 ].

Practice - Topic 5701.1

Judgments and orders - Summary judgments - Debt or liquidated demand - In two actions, the plaintiff Communities Economic Development Fund (CEDF) alleged that 5250821 Manitoba Ltd. and Kernaghan (the defendants) defaulted on loans made for the purchase of property - The defendants counterclaimed against CEDF and three other parties, including Sefton, a business loans consultant - The counterclaim asserted fraud, negligence and breach of contract, with emphasis on fraud in that CEDF was complicit in completing an unrealistic market evaluation and financing, making the sale to the defendants possible at an overvalued price - The defendants also sued the plaintiffs and defendants by counterclaim on similar grounds - CEDF moved for summary judgment for the sums owing in its actions and to dismiss the defendants' claim against it - A Master granted the motions - The Manitoba Court of Queen's Bench dismissed the defendants' appeal - The test on a motion for summary judgment was the same whether the motion was for summary judgment allowing a claim, dismissing a defence or dismissing a counterclaim - Here, CEDF had to establish that there was no genuine issue for trial - The defendants had to present an answer to the claim in law supported by sufficient evidence to establish a "real chance" of the defence succeeding - There was no real dispute regarding the loan transaction nor the default - The defendants failed to establish their claim that CEDF had committed both legal and equitable fraud - CEDF was entitled to summary judgment on their claims against the defendants and summary judgment to dismiss the defendants' counterclaim and action as it pertained to CEDF - See paragraphs 75 to 82.

Practice - Topic 5710

Judgments and orders - Summary judgments - Evidence - In two actions, the plaintiff Communities Economic Development Fund (CEDF) alleged that 5250821 Manitoba Ltd. and Kernaghan (the defendants) defaulted on loans made for the purchase of property - The defendants counterclaimed against CEDF and three other parties, including Sefton, a business loans consultant - The counterclaim asserted fraud, negligence and breach of contract, with emphasis on fraud in that CEDF was complicit in completing an unrealistic market evaluation and financing, making the sale to the defendants possible at an overvalued price - The defendants also sued the plaintiffs and defendants by counterclaim on similar grounds - The defendants obtained a default judgment against Sefton - CEDF moved for summary judgment for the sums owing in its actions and to dismiss the defendants' claim against it - A Master granted the motions - The defendants appealed, asserting, inter alia, that the Master had erred in not applying Queen's Bench Rule 19.02(1) (consequences of noting in default) in such a manner that any deemed admission on Sefton's behalf was a deemed admission against CEDF - The Manitoba Court of Queen's Bench disagreed with this argument - The defendants' argument was that the rule should be applied in a manner analogous to the application of criminal admissions in civil proceedings - The court agreed with the Master's assessment that evidence on a summary judgment motion had to be in affidavit or other acceptable form and that pleadings did not constitute evidence - Further, Sefton and CEDF were separate parties and, thus, more analogous to co-accused - A guilty plea by a co-accused could not constitute a deemed admission in a civil proceeding against another co-accused who denied criminal liability - See paragraphs 69 to 74.

Practice - Topic 9031

Appeals - Evidence on appeal - Admission of "new evidence" or "fresh evidence" - In two actions, the plaintiff Communities Economic Development Fund (CEDF) alleged that 5250821 Manitoba Ltd. and Kernaghan (the defendants) defaulted on loans made for the purchase of property - The defendants counterclaimed against CEDF and three other parties, including Sefton, a business loans consultant - The counterclaim asserted fraud, negligence and breach of contract, with emphasis on fraud in that CEDF was complicit in completing an unrealistic market evaluation and financing, making the sale to the defendants possible at an overvalued price - The defendants also sued the plaintiffs and defendants by counterclaim on similar grounds - CEDF moved for summary judgment for the sums owing in its actions and to dismiss the defendants' claim against it - At the hearing of the motions, the defendants' request to adjourn for further discovery or disclosure (relating to Sefton) was denied - A Master granted the motions - At issue on the defendants' appeal was whether additional evidence was admissible on the appeal under Queen's Bench Rule 61.01(13), including an examination of Sefton that followed the Master's decision - Sefton's participation was only obtained after a warrant was issued for his arrest and contempt proceedings - The Manitoba Court of Queen's Bench admitted the examination of Sefton as evidence on the appeal - The evidence clarified Sefton's role in the loan transaction - Because of the nature of the evidence and the considerable effort required to obtain it, the defendants' lack of due diligence was not determinative - The remaining items of fresh evidence were not admitted on the basis of a lack of significance or for a failure of due diligence - See paragraphs 41 to 68.

Cases Noticed:

2841836 Manitoba Ltd. et al. v. 4011198 Manitoba Ltd. et al. (2009), 238 Man.R.(2d) 101; 2009 MBQB 62, refd to. [para. 43].

Anderson v. Lockwood, [2008] Man.R.(2d) Uned. 7; 2008 MBQB 18, refd to. [para. 43].

Podkriznik v. Schwede (1990), 64 Man.R.(2d) 199 (C.A.), refd to. [para. 71].

Olson v. Argus Industrial Supply Ltd., [1981] M.J. No. 150 (C.A.), refd to. [para. 75].

Jacobson Estate v. Freed et al. (1994), 97 Man.R.(2d) 197; 79 W.A.C. 197 (C.A.), refd to. [para. 75].

Homestead Properties (Canada) Ltd. v. Sekhri et al. (2007), 214 Man.R.(2d) 148; 395 W.A.C. 148; 2007 MBCA 61, refd to. [para. 77].

Canadian Imperial Bank of Commerce v. Derksen Brothers Holdings Ltd. et al. (1995), 100 Man.R.(2d) 224; 91 W.A.C. 224 (C.A.), refd to. [para. 79].

Canadian Imperial Bank Holdings v. Canadian Imperial Bank of Commerce - see Canadian Imperial Bank of Commerce v. Derksen Brothers Holdings Ltd. et al.

Vita Health Co. (1985) Ltd. v. Toronto-Dominion Bank (1994), 95 Man.R.(2d) 255; 70 W.A.C. 255 (C.A.), leave to appeal denied (1995), 190 N.R. 238; 107 Man.R.(2d) 320; 109 W.A.C. 320 (S.C.C.), refd to. [para. 92].

Hong Kong Bank of Canada v. Phillips (1997), 119 Man.R.(2d) 243 (Q.B.), refd to. [para. 84].

Royal Bank of Canada v. Wirth (1998), 133 Man.R.(2d) 246 (Q.B.), refd to. [para. 103].

Authors and Works Noticed:

Waters, Donovan, Banks, Fiduciary Obligations and Unconscionable Transactions (1986), 65 Can. Bar Rev. 37, generally [para. 93].

Counsel:

Robert J. Graham and Russell G. Wookey, for the plaintiff;

Lyle Sean Kernaghan appeared in person.

This appeal was heard by Cameron, J., of the Manitoba Court of Queen's Bench, Thompson Centre and Winnipeg Centre, who delivered the following judgment on August 10, 2011.