Hardman Group Ltd. et al. v. Alexander et al., (2003) 215 N.S.R.(2d) 280 (SC)

• Judge: Hood, J.
• Court: Supreme Court of Nova Scotia (Canada)
• Case Date: May 20, 2003
• Jurisdiction: Nova Scotia
• Citations: (2003), 215 N.S.R.(2d) 280 (SC);2003 NSSC 151

Hardman Group v. Alexander (2003), 215 N.S.R.(2d) 280 (SC);

 675 A.P.R. 280

MLB headnote and full text

Temp. Cite: [2003] N.S.R.(2d) TBEd. JL.021

W.B. Hardman, The Hardman Group Limited and Bryman Enterprises Limited and D.S. Precious Maxillofacial Surgery Inc. (plaintiffs/defendants by counterclaim and defendants) v. Christopher Alexander, Susan Pratt and Herman's Point Developments Limited (defendants/plaintiffs by counterclaim and plaintiffs) and Ronald Stockton and Bernadette Maxwell (second defendants)

(S.H. No. 150389; 2003 NSSC 151)

Indexed As: Hardman Group Ltd. et al. v. Alexander et al.

Nova Scotia Supreme Court

Hood, J.

July 18, 2003.

Summary:

Herman's Point was incorporated to buy and develop land on behalf of investors. Herman's Point entered a management/development agreement with a developer. Hardman was the president of both the developer and Herman's Point. Within 12-18 months, relations between Hardman and investors deteriorated over the developer's actions and mandate, and the lack of communication between Hardman and other investors. At a director's meeting, Hardman purportedly resigned as Herman's Point president in favour of Alexander. However, Hardman continued to act as president, refusing Alexander access to corporate books, etc. Hardman et al. commenced an action against Alexander for allegedly unlawfully taking control of Herman's Point. Alexander counterclaimed for damages for breach of fiduciary duty, negligence and breach of contract. Another investor (Pratt) counterclaimed for damages for breach of contract, breach of fiduciary duty and special damages for loss of value of her shares and loss of opportunity.

The Nova Scotia Supreme Court, in a judgment reported (2003), 212 N.S.R.(2d) 304; 665 A.P.R. 304, held that (1) Hardman did resign and was replaced by Alexander as president of Herman's Point; (2) the shares of two of the investors were validly transferred; (3) the management/development contract was breached by the developer; (4) the negligence claim failed; and (5) Hardman breached his fiduciary duty to other investors/shareholders. The issues of damages and costs were deferred to a later date.

The Nova Scotia Supreme Court subsequently assessed damages for breach of contract and breach of fiduciary duty. The court declined to award aggravated damages, but did award punitive damages and lump sum costs against Hardman.

Company Law - Topic 2164

Shareholders - Shareholders' rights - Derivative actions - Five investors (shareholders) incorporated a company (HPDL) to develop property - One investor (Hardman) was elected a director and president of the company and was president of the developer contracted to manage the project - The developer breached the contract - Two of the shareholders claimed damages for breach of contract - The Nova Scotia Supreme Court held that the rule in Foss v. Harbottle precluded the shareholders' claim for breach of a contract between HPDL and the developer and for the alleged loss in the value of their shares - The court stated that "a shareholder can only have a personal claim if his or her claim is based on a separate contract with the shareholder or if the injury is distinct from that suffered by a corporation" - The claims for breach of contract could only be made by HPDL - The court assessed damages to HPDL for breach of contract at $67,000 - See paragraphs 2 to 34.

Company Law - Topic 9415

Actions by corporations - Practice - Proper plaintiff - [See Company Law - Topic 2164 ].

Damage Awards - Topic 643

Torts - Injury to the person - Breach of fiduciary duty - [See first Equity - Topic 3655 ].

Damage Awards - Topic 2030.5

Exemplary or punitive damages - Breach of fiduciary duty - Five investors (shareholders) incorporated a company to develop property - One investor (Hardman) was elected a director and president of the company and was president of the developer contracted to manage the project - Hardman was the only one with development experience, had access to information not made available to investors and made decisions for the company and developer without seeking the required approval of other investors - Hardman requested that the other investors place their trust and confidence in him and undertook to act with loyalty to them and in the utmost good faith - Hardman took control over the whole project as if it were his own - Hardman was found liable to two shareholders for breach of fiduciary duty by holding two lots off the market, failing to provide information, advertising two lots as "sold" when they were not, failing to accept the full purchase price offer of an independent purchaser for one of the lots and failing to give up the presidency after he resigned - The breaches, although serious, were not egregious and did not cause great financial loss to the two shareholders - The two shareholders sought punitive damages against Hardman - The Nova Scotia Supreme Court stated that Hardman's "purposefully repugnant" conduct was so outrageous that punitive damages were rationally required to deter such conduct - The court ordered Hardman to pay each of the two shareholders $50,000 punitive damages - See paragraphs 61 to 103.

Damages - Topic 905

Aggravation - Aggravated damages - Claim for - The defendant was found liable to two shareholders for breach of fiduciary duty - The shareholders, who were awarded general damages for breach of the fiduciary duty, also sought aggravated damages - The Nova Scotia Supreme Court dismissed the claim - Aggravated damages were compensatory, not punitive - Although aggravated damages could be awarded for intangible injuries, such as distress or humiliation caused by a defendant's insulting behaviour, the conduct in this case did not warrant such compensation - See paragraphs 56 to 60.

Damages - Topic 1309.1

Exemplary or punitive damages - Breach of confidence or fiduciary duty - [See Damage Awards - Topic 2030.5 ].

Equity - Topic 3655

Fiduciary or confidential relationships - Breach of fiduciary relationship - Damages - Five investors (shareholders) incorporated a company (HPDL) to develop property - One investor (Hardman) was elected a director and president of the company and was president of the developer contracted to manage the project - Hardman was the only one with development experience, had access to information not made available to investors and made decisions for the company and developer without seeking the required approval of other investors - Hardman requested that the other investors place their trust and confidence in him and undertook to act with loyalty to them and in the utmost good faith - Hardman took control over the whole project as if it were his own - Hardman was found liable to two shareholders for breach of fiduciary duty by holding two lots off the market, failing to provide information, advertising two lots as "sold" when they were not, failing to accept the full purchase price offer of an independent purchaser for one of the lots and failing to give up the presidency after he resigned - The breaches, although serious, were not egregious and did not cause great financial loss to the two shareholders - The Nova Scotia Supreme Court awarded each shareholder $1,000 as their "guesstimated" loss and $10,000 general damages each to recognize a fiduciary's high duty and to keep them "up to their duty" - See paragraphs 35 to 54.

Equity - Topic 3655

Fiduciary or confidential relationships - Breach of fiduciary relationship - Damages - [See Damage Awards - Topic 2030.5 ].

Practice - Topic 7117

Costs - Party and party costs - Special orders - Lump sum in lieu of taxed costs - Five investors (shareholders) incorporated a company (HPDL) to develop property - One investor (Hardman) was elected a director and president of the company and was president of the developer contracted to manage the project - Hardman was the only one with development experience, had access to information not made available to investors and made decisions for the company and developer without seeking the required approval of other investors - Hardman requested that the other investors place their trust and confidence in him and undertook to act with loyalty to them and in the utmost good faith - Hardman took control over the whole project as if it were his own - Hardman was found liable to two shareholders for breach of fiduciary duty - The shareholders sought solicitor and client costs - The Nova Scotia Supreme Court held that although solicitor and client costs were not precluded by the awarding of punitive damages to the shareholders, Hardman's conduct was not "so reprehensible as to constitute the rare and exceptional circumstances which merit an award of solicitor/client costs" - The court awarded the shareholders lump sum costs of $125,000 and $90,000 respectively to achieve substantial indemnification for their legal costs - See paragraphs 109 to 153.

Practice - Topic 7470.11

Costs - Solicitor and client costs - Entitlement to solicitor and client costs - Breach of fiduciary duty - [See Practice - Topic 7117 ].

Cases Noticed:

Foss v. Harbottle (1843), 67 E.R. 189, refd to. [para. 5].

Hadley v. Baxendale (1854), 9 Exch. 341, refd to. [para. 23].

Penvidic Contracting Co. v. International Nickel Co. of Canada Ltd., [1976] 1 S.C.R. 267; 4 N.R. 1, refd to. [para. 27].

Canson Enterprises Ltd. v. Boughton & Co. (1991), 131 N.R. 321; 6 B.C.A.C. 1; 13 W.A.C. 1; 85 D.L.R.(4th) 129, refd to. [para. 36].

Guerin v. Canada, [1984] 2 S.C.R. 335; 55 N.R. 161; 13 D.L.R.(4th) 321, refd to. [para. 37].

Gould v. Edmonds Landscape & Construction Services Ltd. et al. (1999), 182 N.S.R.(2d) 79; 563 A.P.R. 79 (S.C.), refd to. [para. 50].

Vorvis v. Insurance Corp. of British Columbia, [1989] 1 S.C.R. 1085; 94 N.R. 321, refd to. [para. 57].

Whiten v. Pilot Insurance Co. et al. (2002), 283 N.R. 1; 156 O.A.C. 201; 209 D.L.R.(4th) 257 (S.C.C.), refd to. [para. 67].

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; 209 D.L.R.(4th) 318 (S.C.C.), refd to. [para. 69].

Norberg v. Wynrib, [1992] 2 S.C.R. 226; 138 N.R. 81; 9 B.C.A.C. 1; 19 W.A.C. 1; 92 D.L.R.(4th) 449, refd to. [para. 80].

Peppiatt et al. v. Royal Bank of Canada et al. (2001), 148 O.A.C. 105 (C.A.), refd to. [para. 82].

Coleman v. Myers, [1977] 2 N.Z.L.R. 225 (C.A.), refd to. [para. 87].

Bell and Stewart v. Source Data Control Ltd. (1988), 29 O.A.C. 134; 66 O.R.(2d) 78 (C.A.), refd to. [para. 87].

Campbell v. Jones (2001), 197 N.S.R.(2d) 212; 616 A.P.R. 212; 2001 CarswellNS 342 (S.C.), refd to. [para. 114].

Hines v. Registrar of Motor Vehicles (N.S.) (1990), 105 N.S.R.(2d) 240; 284 A.P.R. 240 (T.D.), refd to. [para. 115].

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; 108 D.L.R.(4th) 193, refd to. [para. 118].

Brown v. Metropolitan Authority et al. (1996), 150 N.S.R.(2d) 43; 436 A.P.R. 43 (C.A.), refd to. [para. 119].

Campbell v. Lienaux et al. (2001), 195 N.S.R.(2d) 220; 609 A.P.R. 220; 10 C.L.R.(3d) 63; 2001 CarswellNS 208 (C.A.), refd to. [para. 120].

Smith's Field Manor Development Ltd. v. Campbell - see Campbell v. Lienaux et al.

353903 Ontario Ltd. et al. v. Black & MacDonald Ltd. et al. (2000), 187 N.S.R.(2d) 323; 585 A.P.R. 323 (C.A.), refd to. [para. 120].

Aulwes v. Mai (2002), 207 N.S.R.(2d) 314; 649 A.P.R. 314 (S.C.), refd to. [para. 120].

Warner v. Arsenault, [1982] N.S.J. No. 32 (C.A.), refd to. [para. 120].

Barrett v. Reynolds et al. (1998), 170 N.S.R.(2d) 201; 515 A.P.R. 20;, 1998 CarswellNS 333 (C.A.), refd to. [para. 120].

Leenen v. Canadian Broadcasting Corp. et al. (2001), 147 O.A.C. 317; 2001 CarswellOnt 2011 (C.A.), refd to. [para. 127].

Williamson v. Williams, [1998] N.S.J. No. 498 (C.A.), refd to. [para. 145].

McBeth v. Dalhousie University (1986), 72 N.S.R.(2d) 224; 173 A.P.R. 224 (C.A.), refd to. [para. 162].

Authors and Works Noticed:

Palmer, Company Law (1992), para. 8.809 [para. 4].

Counsel:

John Merrick, Q.C., and Dufferin Harper, for the plaintiffs;

William L. Ryan, Q.C., for the defendants, Christopher Alexander and Herman's Point Development Ltd.;

Robert G. Belliveau, Q.C., for the defendant, Susan Pratt;

Ronald Stockton and Bernadette Maxwell, on their own behalf.

These submissions on damages and costs were heard on April 25 and May 20, 2003, before Hood, J., of the Nova Scotia Supreme Court, who delivered the following judgment on July 18, 2003.