Geophysical Services Inc. v. Sable Mary Seismic Inc. et al., 2009 NSSC 404

• Judge: Warner, J.
• Court: Supreme Court of Nova Scotia (Canada)
• Case Date: December 31, 2009
• Jurisdiction: Nova Scotia
• Citations: 2009 NSSC 404;(2009), 287 N.S.R.(2d) 50 (SC)

Geophysical v. Sable Mary Seismic (2009), 287 N.S.R.(2d) 50 (SC);

    912 A.P.R. 50

MLB headnote and full text

Temp. Cite: [2010] N.S.R.(2d) TBEd. JA.010

Geophysical Services Incorporated (plaintiff) v. Sable Mary Seismic Incorporated and Matthew Kimball (defendants)

(Hfx No. 190408; 2009 NSSC 404)

Indexed As: Geophysical Services Inc. v. Sable Mary Seismic Inc. et al.

Nova Scotia Supreme Court

Warner, J.

December 31, 2009.

Summary:

Geophysical Services Inc. (GSI) and Sable Mary Seismic Inc. (SMS) entered a contract, or more specifically a series of contracts, for the provision by SMS and its principal, Kimball, of services to GSI respecting marine seismic activities between January 1998 and October 8, 2002. The services included management of GSI's seismic vessel; obtaining, managing and paying the crew; and securing provisions, supplies and other services for the vessel's operation. After SMS resigned and GSI took direct responsibility for these services, GSI determined that it had been overcharged about $1,800,000 and sued for recovery. SMS denied GSI's claim and countersued for profit or "success" sharing promised by GSI.

The Nova Scotia Supreme Court granted GSI $1,764,251.70 against SMS for over billing, holding that GSI's interpretation of the words "cost plus 5%" in the agreement was correct. Further, the court found that the crewing invoices included claims for wages and benefits for Kimball's family members and persons working for GSI under another contract with another company (also owned by Kimball), and these claims were fraudulent misrepresentations. The court held that GSI was entitled to judgment against SMS and Kimball jointly and severally for $451,885.41, the amount of the fraudulent misrepresentation. Finally, while GSI intended to establish a success sharing respecting the marine seismic operation and intended that SMS would share in its success when GSI was in a profit position, GSI's intentions expressed in the letter agreements were no more than a statement of intention and did not constitute a legally binding contract. Alternatively, the court was not satisfied that GSI was "in a profit position" at the time that SMS terminated the agreement.

Company Law - Topic 312

Nature of corporations - Lifting the corporate veil - Principals - "Directing mind and will" of company - GSI and SMS entered a contract for the provision by SMS, and its principal and directing mind, Matthew Kimball, of services to GSI respecting marine seismic activities - The services included management of GSI's seismic vessel; obtaining, managing and paying the crew; and securing provisions, supplies and other services for the vessel's operation - After SMS resigned and GSI took direct responsibility for these services, GSI determined that it had been overcharged about $1,800,000 and sued for recovery - The Nova Scotia Supreme Court stated that "It is clear that a corporation itself can commit a fraud. Furthermore, fraud by a corporation only leads to liability of a shareholder, director or officer if it is shown that the shareholder, director or officer was also involved in the fraud. On the facts of this case, if SMS committed a fraud, Matthew Kimball committed the same fraud. The claim against Matthew Kimball personally is based upon his personal participation in the fraud claimed against SMS. While courts are generally unwilling to pierce the corporate veil, the separate personality of the corporation will be generally disregarded where the corporation has been used for a deliberate wrongdoing such as a fraud." - See paragraph 140.

Contracts - Topic 1444

Formation of contract - Agreements that are not contracts - Agreements to agree - GSI and SMS entered a contract, or more specifically a series of contracts, for the provision by SMS and its principal, Kimball, of services to GSI respecting marine seismic activities - The services included management of GSI's seismic vessel; obtaining, managing and paying the crew; and securing provisions, supplies and other services for the vessel's operation - After SMS resigned and GSI took direct responsibility for these services, GSI determined that it had been overcharged about $1,800,000 and sued for recovery - SMS denied GSI's claim and countersued for profit or "success" sharing promised by GSI - The Nova Scotia Supreme Court held, inter alia, that while GSI intended to establish a success sharing respecting the marine seismic operation and intended that SMS would share in its success when GSI was in a profit position, GSI's intentions expressed in the letter agreements, were no more than a statement of intention - The letter agreements, read in the context of the written agreements and the extrinsic evidence, did not contain the essential terms of a profit-sharing plan (ex., how success sharing would be calculated or structured) and did not constitute a legally binding contract - Alternatively, the court was not satisfied that GSI was "in a profit position" at the time that SMS terminated the agreement - See paragraphs 173 to 201.

Contracts - Topic 2525

Variation or alteration - By parties - Waiver - By conduct - GSI and SMS entered a contract for the provision by SMS and its principal, Kimball, of services to GSI respecting marine seismic activities between January 1998 and October 8, 2002 - The services included management of GSI's seismic vessel; obtaining, managing and paying the crew; and securing provisions, supplies and other services for the vessel's operation - After SMS resigned and GSI took direct responsibility for these services, GSI determined that it had been overcharged about $1,800,000 and sued for recovery - All invoices were faxed to Carr, the controller, at Calgary - She received backup for all invoices except the crewing invoices - A copy of all invoices was forwarded to Einarsson, GSI's principal, for approval before payment - Carr only faxed him backup when he asked for it - When Carr received the first crewing invoice, Einarsson was at the Calgary office - She asked him if he wanted further backup; he replied with words to the effect: "Not at this time ... maybe at a later date we will need backup" - Einarsson stated that he did not request backup that day because he was in a hurry; he expected that Carr was receiving backup for the crewing invoices from SMS - GSI did not request, and SMS never provided, backup or a breakdown of the crewing cost invoices, until Lam, the chief financial officer at Calgary, requested worksheets in September 2002 - None were ever provided - The Nova Scotia Supreme Court found that Kimball, for SMS, prepared or approved the crewing invoices that were submitted to and paid by GSI - The nature of the contract, a cost plus contract, required SMS to be able to account to GSI for the particulars of its crewing invoices - SMS was unable to account to GSI for the calculation of its crewing invoices when mysteriously and intentionally, the worksheets and back up documents for those calculations went missing - That could not have happened without Kimball's knowledge and approval - The court held that GSI never waived SMS's obligation to maintain records and be able to account to GSI - See paragraphs 52 and 203.

Contracts - Topic 2532

Variation or alteration - By parties - Oral variation - [See Evidence - Topic 6204 ].

Contracts - Topic 2533

Variation or alteration - By parties - Oral variation of written contract - [See Evidence - Topic 6204 ].

Contracts - Topic 7426

Interpretation - Ambiguity - What constitutes ambiguity - GSI and SMS entered a contract, or more specifically a series of contracts, for the provision by SMS and its principal, Kimball, of services to GSI respecting marine seismic activities between January 1998 and October 8, 2002 - The services included management of GSI's seismic vessel; obtaining, managing and paying the crew; and securing provisions, supplies and other services for the vessel's operation - After SMS resigned and GSI took direct responsibility for these services, GSI determined that it had been overcharged about $1,800,000 and sued for recovery - At issue was the interpretation of the words "cost plus 5%" in the agreement between GSI and SMS for crewing services - GSI argued that the agreement obligated SMS to invoice GSI for actual crews' salaries plus statutory and non-statutory benefits plus 5%, while SMS argued that it obligated GSI to pay $143,900 per month or, alternatively, actual seismic crew costs plus 30% plus 6% plus 5% - The Nova Scotia Supreme Court stated that "In respect of resolving the ambiguity in a written agreement, it is clear that if the interpretation of the contract itself (interpretation within the four corners of the contract) still leaves two reasonable alternative interpretations, which is clearly the situation in this case, extrinsic evidence of the factual matrix and conduct of the parties before, contemporaneous with, and after the agreement was put into writing, is admissible." - See paragraph 86.

Contracts - Topic 7430

Interpretation - Ambiguity - Admissibility of extrinsic evidence - [See Contracts - Topic 7426 ].

Damage Awards - Topic 767

Torts - Fraud and misrepresentation - Fraudulent misrepresentation - GSI and SMS entered a contract, or more specifically a series of contracts, for the provision by SMS and its principal, Kimball, of services to GSI respecting marine seismic activities - The services included management of GSI's seismic vessel; obtaining, managing and paying the crew; and securing provisions, supplies and other services for the vessel's operation - After SMS resigned and GSI took direct responsibility for these services, GSI determined that it had been overcharged about $1,800,000 and sued for recovery - Einarsson was GSI's principal - The Nova Scotia Supreme Court awarded GSI damages of $1,764,251.70 for over billing (based on an erroneous interpretation of the contract (wages plus 30%)) - See paragraphs 87 to 131 - The court further found that a deceit or fraud was completed by SMS and Kimball respecting those portions of the crewing invoices that exceeded the actual wages of the seismic crew listed on the bi-monthly invoices plus 30% - The court found that SMS invoiced fraudulently (a) for relatives who were not seismic crew named on the crewing invoices, (b) for some navigators working under a contract with another company owned by Kimball, (c) a mark up on the salary taken by Kimball from SMS, and (d) a mark up greater than that which GSI/ Einarsson was aware of - The court found that the minimal quantifiable amount established by SMS's fraudulent misrepresentation was $451,885.41, and it found both SMS and Matthew Kimball liable for that amount - See paragraphs 132 to 172.

Damages - Topic 3625

Deceit and misrepresentation - Fraudulent misrepresentation - [See Damage Awards - Topic 767 ].

Damages - Topic 7076

Contracts - Contracts for services - Evidence and proof - GSI and SMS entered a contract, or more specifically a series of contracts, for the provision by SMS and its principal, Kimball, of services to GSI respecting marine seismic activities - The services included management of GSI's seismic vessel; obtaining, managing and paying the crew; and securing provisions, supplies and other services for the vessel's operation - After SMS resigned and GSI took direct responsibility for these services, GSI determined that it had been overcharged about $1,800,000 and sued for recovery - At issue was the interpretation of the words "cost plus 5%" in the agreement between GSI and SMS for crewing services - The Nova Scotia Supreme Court held that SMS was entitled to be paid for the seismic crew whose names appeared on the invoices on the basis of the actual wages of the named crew, the actual cost of their benefits, plus 5% - The court held that SMS's principal intentionally disposed of the worksheets and backup information that it was required to maintain to substantiate its crewing invoices - Based on the plaintiff's expert report, the court awarded GSI damages of $1,764,251.70 for over billing - See paragraphs 87 to 131.

Evidence - Topic 6202

Parol evidence rule - General principles - Exceptions - General - The Nova Scotia Supreme Court accepted John Swan's analysis in Canadian Contract Law (1st Ed. 2006), following generally Gallen v. Nunweiler (1984 BCCA), that extrinsic evidence might be taken into account as context: to show that there was no enforceable contract, and/or that there were other sources of the parties' undertakings; and to resolve ambiguities - The court noted that a similar conclusion was advanced by Geoff R. Hall in Canadian Contractual Interpretation Law (1st Ed. 2007) - His eighth "fundamental precept" was that the parol evidence rule was a weak rule, not applicable to the admission of extrinsic evidence for some purposes and running counter to modern themes of interpretation - See paragraph 85.

Evidence - Topic 6204

Parol evidence rule - General principles - Evidence offered to contradict or explain written agreement - The Nova Scotia Supreme Court stated that "While an oral agreement can, in certain circumstances, modify an earlier agreement, where an oral agreement is reduced to writing, parol evidence of the parties' understanding of the oral agreement cannot be used to contradict the wording in the subsequent written document." - See paragraph 84.

Fraud and Misrepresentation - Topic 6

Fraudulent misrepresentation (deceit) - What constitutes deceit or fraudulent misrepresentation - GSI and SMS entered a contract for the provision by SMS and its principal, Kimball, of services to GSI respecting marine seismic activities - The services included management of GSI's seismic vessel; obtaining, managing and paying the crew; and securing provisions, supplies and other services for the vessel's operation - After SMS resigned and GSI took direct responsibility for these services, GSI determined that it had been overcharged about $1,800,000 and sued for recovery - The Nova Scotia Supreme Court held that the onus was on GSI to establish that SMS and Kimball, operating mind of SMS, knew that the crewing invoices were not in accord with the crewing contract, and knowingly or recklessly misrepresented the truth to, or concealed material facts from, GSI - Whether GSI could have uncovered the misrepresentation by due diligence did not affect the analysis of the defendants' liability; however, to the extent that the court found that GSI did know the basis of the representations, then it was not induced to pay the invoices by SMS's and Kimball's fraud - See paragraphs 143 to 146.

Fraud and Misrepresentation - Topic 221

Fraudulent misrepresentation - Reliance and alteration of position - General - [See Fraud and Misrepresentation - Topic 6 ].

Fraud and Misrepresentation - Topic 402

Fraudulent misrepresentation (deceit) - Remedies - Persons liable - [See Company Law - Topic 312 and Damage Awards - Topic 767 ].

Fraud and Misrepresentation - Topic 404

Fraudulent misrepresentation (deceit) - Remedies - Damages - [See Damage Awards - Topic 767 ].

Fraud and Misrepresentation - Topic 2508

Misrepresentation - General principles - Negligent misrepresentation - GSI and SMS entered a contract for the provision by SMS and its principal, Kimball, of services to GSI respecting marine seismic activities - The services included management of GSI's seismic vessel; obtaining, managing and paying the crew; and securing provisions, supplies and other services for the vessel's operation - After SMS resigned and GSI took direct responsibility for these services, GSI determined that it had been overcharged about $1,800,000 and sued for recovery - The Nova Scotia Supreme Court stated that the facts did not lend themselves to a finding of negligent misrepresentation - Either SMI and Kimball believed that their interpretation of the crewing contract with GSI entitled SMS to bill what it billed or they knew that the invoices were false or made recklessly without knowing whether they were true or false - See paragraph 142.

Fraud and Misrepresentation - Topic 4044

Practice - Evidence and proof - Burden of proof - [See Fraud and Misrepresentation - Topic 6 ].

Words and Phrases

Cost plus 5% - The Nova Scotia Supreme Court discussed the meaning of this phrase as found in a contract for, inter alia, the provision of a crew for a seismic vessel - See paragraphs 87 to 131.

Cases Noticed:

Gates v. Croft (2009), 279 N.S.R.(2d) 175; 887 A.P.R. 175; 2009 NSSC 184, folld. [para. 79].

B.C. Rail Partnership v. Standard Car Truck Co. et al. (2009), 282 N.S.R.(2d) 112; 895 A.P.R. 112; 2009 NSSC 240, folld. [para. 79].

Eli Lilly & Co. et al. v. Novopharm Ltd. et al., [1998] 2 S.C.R. 129; 227 N.R. 201, refd to. [para. 80].

Gallen v. Butterley, Nunweiler and Allstate Grain Co., 1984 CarswellBC 104 (C.A.), folld. [para. 80].

Kentucky Fried Chicken Canada v. Scott's Food Services Inc. et al. (1998), 114 O.A.C. 357; 1998 CarswellOnt 4170 (C.A.), refd to. [para. 80].

Hi-Tech Group Inc. v. Sears Canada Inc. (2001), 141 O.A.C. 56; 2001 CarswellOnt 9 (C.A.), refd to. [para. 80].

Moore (Geoffrey L.) Realty Inc. v. Manitoba Motor League (2003), 173 Man.R.(2d) 300; 293 W.A.C. 300; 2003 CarswellMan 229 (C.A.), refd to. [para. 80].

Canadian Pacific Ltd., Re, 1978 CarswellBC 525 (C.A.), affd. [1979] 2 S.C.R. 668; 30 N.R. 541, refd to. [para. 86].

Canadian National Railway v. Canadian Pacific Ltd. - see Canadian Pacific Ltd., Re.

Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., [1980] 1 S.C.R. 888; 32 N.R. 488, refd to. [para. 116].

Parmenter (G.T.) Construction Ltd. v. Saunders, 1947 CarswellOnt 248 (H.C.), refd to. [para. 127].

Jorgensen Construction Co. v. Benny and Benny, 1953 CarswellOnt 201 (H.C.), refd to. [para. 127].

891178 Ontario Inc. v. Humphrey et al., [1998] O.T.C. Uned. 338; 1998 CarswellOnt 3057 (Gen. Div. Master), refd to. [para. 127].

Queen (D.J.) v. Cognos Inc., [1993] 1 S.C.R. 87; 147 N.R. 169; 60 O.A.C. 1, refd to. [para. 135].

Parna v. G. & S. Properties Ltd., [1971] S.C.R. 306, refd to. [para. 136].

MacDonald v. MacNeil et al. (1988), 88 N.S.R.(2d) 279; 225 A.P.R. 279; 1988 CarswellNS 355 (Co. Ct.), refd to. [para. 136].

Insurance Corp. of British Columbia v. Blue Mountain Collision Ltd. et al., [2002] B.C.T.C. 670; 2002 CarswellBC 1075 (S.C.), refd to. [para. 136].

Sylvan Lake Golf & Tennis Club Ltd. v. Performance Industries Ltd. and O'Connor (No. 2) (2002), 283 N.R. 233; 299 A.R. 201; 266 W.A.C. 201; 2002 SCC 19, refd to. [para. 137].

Goodbody v. Bank of Montreal, 1974 CarswellOnt 308 (S.C.), refd to. [para. 138].

Westdeutsche Landesbank Girozentrale v. London Borough of Islington, [1996] 2 W.L.R. 802; 198 N.R. 241 (H.L.), refd to. [para. 138].

Insurance Corp. of British Columbia v. Dragon Driving School Canada Ltd. et al. (2006), 234 B.C.A.C. 115; 387 W.A.C. 115; 2006 CarswellBC 3141 (C.A.), refd to. [para. 138].

Insurance Corp. of British Columbia v. Dragon Driving School Canada Ltd. et al., [2007] B.C.T.C. Uned. 193; 2007 CarswellBC 646 (S.C.), refd to. [para. 138].

United Shoe Machinery Co. v. Brunet, [1909] A.C. 330 (P.C.), refd to. [para. 139].

Faryna v. Chorny, 1951 CarswellBC 153 (C.A.), appld. [para. 151].

Mitsui & Co. (Point Aconi) Ltd. v. Jones Power Co. et al. (2000), 189 N.S.R.(2d) 1; 590 A.P.R. 1; 2000 NSCA 95, refd to. [para. 175].

United Gulf Developments Ltd. et al. v. Iskandar et al. (2007), 254 N.S.R.(2d) 263; 810 A.P.R. 263; 2007 NSSC 157, affd. (2008), 267 N.S.R.(2d) 318; 853 A.P.R. 318; 2008 NSCA 71, refd to. [para. 178].

MHA Contracting Inc. v. Christie Mechanical Contractors Ltd., [2005] O.T.C. 144; 2005 CarswellOnt 713 (Sup. Ct.), refd to. [para. 181].

Alexander (Percy) Enterprises Ltd. v. Genesis Land Development Corp. (2007), 412 A.R. 172; 404 W.A.C. 172; 2007 CarswellAlta 1017 (C.A.), refd to. [para. 181].

Authors and Works Noticed:

Fridman, Gerald Henry Louis, The Law of Contract in Canada (5th Ed. 2006), generally [para. 79]; pp. 316, 317 [para. 138]; 444 [para. 84]; 448 [para. 119]; 451 [para. 86].

Gehlen, Monika, Deceit, in Rainaldi, Linda D., Remedies in Tort (2009 Looseleaf Update, Release 4), c. 5 [para. 141].

Hall, Geoff R., Canadian Contractual Interpretation Law (1st Ed. 2007), generally [paras. 79, 85].

Maddaugh, Peter D., and McCamus, John D., The Law of Restitution (2009 Looseleaf), c. 5, 20 [para. 141].

McGuinness, Kevin Patrick, Canadian Business Corporations Law (2nd Ed. 2007), §§ 2.26 to 2.33 [para. 140].

Rainaldi, Linda D., Remedies in Tort (2009 Looseleaf Update, Release 4), c. 5 [para. 141].

Swan, John, Canadian Contract Law (1st Ed. 2006), generally [para. 79]; pp. 28 [para. 82]; 233 [paras. 178, 189]; 234 [para. 178]; 509 [para. 84]; 511 [para. 119]; 516 [para. 85]; 720 [para. 189].

Counsel:

Richard F. Southcott and Colin D. Piercey, for the plaintiff, Geophysical Services Incorporated;

Derrick J. Kimball, for the defendant, Sable Mary Seismic Incorporated;

Nash T. Brogan, for the defendant, Matthew Kimball.

This action was heard at Kentville, N.S., on March 2-5, 9-13 and 16-19, 2009, by Warner, J., of the Nova Scotia Supreme Court, who delivered the following reasons for judgment on December 31, 2009.