Phillips v. 707739 Alberta Ltd. et al., (2000) 259 A.R. 201 (QB)

• Judge: Rooke, J.
• Court: Court of Queen's Bench of Alberta (Canada)
• Case Date: February 15, 2000
• Citations: (2000), 259 A.R. 201 (QB)

Phillips v. 707739 Alta. Ltd. (2000), 259 A.R. 201 (QB)

MLB headnote and full text

Temp. Cite: [2000] A.R. TBEd. MR.054

Tim Phillips (plaintiff/defendant by counterclaim) v. 707739 Alberta Ltd. (defendant/plaintiff by counterclaim) and Azmin Habib and Azmin Habib operating under the name and style of 707739 Alberta Ltd. (defendant)

(Action No. 9701-15966)

Indexed As: Phillips v. 707739 Alberta Ltd. et al.

Alberta Court of Queen's Bench

Judicial District of Calgary

Rooke, J.

February 15, 2000.

Summary:

The plaintiff negotiated a sale of his 75% share interest in a company to Habib. When the final share purchase agreement was completed, Habib had substituted the name of 707739 Alberta Ltd. as the purchaser. The plaintiff sued 707739 for recovery of the purchase price which he alleged had not been paid in accordance with the agreement. He also sued Habib, claiming that 707739 was the mere agent and alter ego of Habib. 707739 argued that there were unfulfilled conditions precedent to the payment of the purchase price instalments and also that it was entitled to a set-off against the purchase price owed based on alleged breaches of representations and warranties under the agreement. 707739 also counterclaimed for damages for alleged breaches of representa­tions and warranties under the agreement.

The Alberta Court of Queen's Bench held that: (1) the plaintiff was entitled to judg­ment for the payment of the purchase price which remained due in the sum of $84,096, less set-offs in favour of 707739 totalling $10,147, for a net of $73,949; (2) 707739 was entitled to declaratory judgments for approximately $25,202, with respect to certain rights arising from obligations assumed by the plaintiff, but for which no monetary judgment was appropriate: (3) Habib was the alter ego of 707739, and, accordingly, the corporate veil surrounding 707739 should be pierced and the plaintiff's judgment against 707739 was joint and several as against Habib; (4) the plaintiff was entitled to $25,000 punitive damages jointly and severely against both 707739 and Habib; and (5) the plaintiff was entitled to costs, 1/2 on a solicitor-client basis and 1/2 under Column 2 of Schedule "C" of the Alberta Rules of Court.

Company Law - Topic 314

Nature of corporations - Lifting the corpor­ate veil - Fraudulent conduct, conversion or conveyance by company officers - [See Damages - Topic 1316 ].

Company Law - Topic 5802

Sale of shares - Warranties - Breach of - [See first Practice - Topic 5652 ].

Company Law - Topic 5811

Sale of shares - Warranties - Re inventory - The plaintiff sold his 75% share interest in a company to 707739 Alberta Ltd. - The plaintiff sued 707739 for recovery of the unpaid purchase price - 707739 raised the defence of set-off and also counterclaimed for damages based on alleged breaches of representations and warranties under the agreement - With respect to the amount represented by the plaintiff for inventory of the company, 707739 claimed deduc­tions for non-useful or obsolete inventory ("dead stock") - 707739 argued that the inventory should not include a large supply of paper lunch boxes as they were not useful to the business and were therefore obsolete - The plaintiff submitted that the supply of lunch boxes was used from time to time - The Alberta Court of Queen's Bench held that while it appeared that the inventory of lunch boxes had only periodic use, it was still useful from time to time in the business and therefore was properly in inventory - See paragraphs 87 to 89.

Damages - Topic 1316

Exemplary or punitive damages - Fraud - The plaintiff negotiated a sale of his 75% share interest in a company to Habib - When the final share purchase agreement (drafted by Habib) was completed, Habib had substituted the name of 707739 Alberta Ltd. as the purchaser - The plain­tiff sued 707739 for recovery of the unpaid purchase price - He also sued Habib, claiming that 707739 was the mere agent and alter ego of Habib - The Alberta Court of Queen's Bench awarded the plaintiff judgment for the net sum of $73,949 joint­ly and severally against both 707739 and Habib - The court pierced the corporate veil where Habib's conduct was improper and fraudulent - The court also awarded the plaintiff punitive damages of $25,000 -See paragraphs 152 to 221.

Fraud and Misrepresentation - Topic 2516

Misrepresentation - Contracts - [See Fraud and Misrepresentation - Topic 2825 ].

Fraud and Misrepresentation - Topic 2701

Misrepresentation - What constitutes mis­representation - General - [See Fraud and Misrepresentation - Topic 2825 ].

Fraud and Misrepresentation - Topic 2825

Misrepresentation - Defences - Lack of reliance - The plaintiff sold his 75% share interest in a company to 707739 Alberta Ltd. - The plaintiff sued 707739 for recov­ery of the unpaid purchase price - 707739 counterclaimed for, inter alia, the amount of a judgment obtained by Ramadan in a wrongful dismissal action against the com­pany - 707739 argued that the plaintiff misrepresented in the share purchase agree­ment that there was no employment con­tract with Ramadan - The Alberta Court of Queen's Bench held that: (1) 707739 knew that Ramadan was employed by the com­pany and that the representations by the plaintiff were intended to mean that there were no formal employment agreements with Ramadan; (2) 707739 did not rely on any such misrepresentation and, according­ly, no damages would follow; (3) a letter of agreement absolved the plaintiff of any liability for wrongful dismissal in exchange for the plaintiff agreeing to pay 50% of the cost of the defence; and (4) the company had become defunct and had paid nothing to Ramadan and therefore had suffered no loss - See paragraphs 116 to 137.

Practice - Topic 1308.1

Pleadings - Prayers for relief - [See Prac­tice - Topic 5650 ].

Practice - Topic 1464

Pleadings - Statement of claim - General - Plea for general relief - [See Practice - Topic 5650 ].

Practice - Topic 5650

Judgments and orders - Declaratory judg­ments - General - The Alberta Court of Queen's Bench stated that with respect to declaratory relief, the pleadings should reveal the grounds for the declaration sought and should specifically state what action made it necessary to ask for relief - However, the court held that if declaratory relief was not specifically requested, it could grant declaratory relief based on a general prayer for relief or it could allow the party to amend its pleadings - See paragraphs 241 to 248.

Practice - Topic 5652

Judgments and orders - Declaratory judg­ments - When available - The plaintiff sold his 75% share interest in a company to 707739 Alberta Ltd. - The plaintiff sued 707739 for recovery of the unpaid pur­chase price - 707739 raised the defence of set-off and also counterclaimed for dam­ages based on alleged breaches of repre­sentations and warranties under the agree­ment - In determining the issues between the parties, the Alberta Court of Queen's Bench held, inter alia, that 707739 was entitled to declaratory judgments for ap­proximately $25,202, with respect to cer­tain rights arising from obligations assumed by the plaintiff, but for which no monetary judgment was appropriate - As no damages had been proven by 707739 at that point in time, the declaratory judg­ments represented a right to potential future damages - Declaratory relief was appropriate where all of the parties, facts and issues were before the court, the link between the plaintiff's responsibility and the potential future harm to 707739 was capable of proof, and no other just remedy was available - See paragraphs 225 to 227.

Practice - Topic 5652

Judgments and orders - Declaratory judg­ments - When available - The Alberta Court of Queen's Bench discussed when a court had jurisdiction to grant declaratory relief and when declaratory relief should be granted - See paragraphs 228 to 240.

Sale of Goods - Topic 7424

Sale of business goods - Definitions - Stock-in-trade or inventory - [See Com­pany Law - Topic 5811 ].

Cases Noticed:

Costello and Dickhoff v. Calgary (City) (1997), 209 A.R. 1; 160 W.A.C. 1; 53 Alta. L.R.(3d) 15 (C.A.), refd to. [para. 16].

Guarantee Co. of North America v. Beasse et al. (1992), 124 A.R. 161 (Q.B.), refd to. [para. 37, footnote 4].

Ironside v. Smith et al., [1998] 6 W.W.R. 256; 223 A.R. 379; 183 W.A.C. 379; 70 Alta. L.R.(3d) 393 (C.A.), refd to. [para. 82].

Clarkson Co. v. Zhelka, [1967] 2 O.R. 565 (H.C.), refd to. [para. 158].

Anderson Exploration Ltd. v. Pan-Alberta Gas Ltd. (1997), 224 A.R. 109; 70 Alta. L.R.(3d) 355 (Q.B.), refd to. [para. 159].

Palmolive Manufacturing Co. v. R., [1933] 2 D.L.R. 81 (S.C.C.), refd to. [para. 159].

Aluminium Co. of Canada v. Toronto, [1944] 3 D.L.R. 609 (S.C.C.), refd to. [para. 159].

Montreal Trust Co. of Canada et al. v. ScotiaMcLeod Inc. et al. (1995), 87 O.A.C. 129; 26 O.R.(3d) 481 (C.A.), refd to. [para. 160].

Shibamoto & Co. Ltd. et al. v. Western Fish Producers Inc. (Bankrupt) et al. (1991), 43 F.T.R. 1 (T.D.), affd. (1992), 145 N.R. 91 (F.C.A.), refd to. [para. 173].

McCardell v. Tisi Holdings Co. and Tisi (1992), 133 A.R. 340; 5 Alta. L.R.(3d) 87 (Q.B. Master), refd to. [para. 185].

Sun Sudan Oil Co. et al. v. Methanex Corp. et al. (1992), 134 A.R. 1; 5 Alta. L.R.(3d) 292 (Q.B.), refd to. [para. 186].

Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. et al. (1996), 2 O.T.C. 146; 28 O.R.(3d) 423 (Gen. Div.), refd to. [para. 186].

Pattison (Jim) Developments Ltd. v. Fudex International Inc. et al. (1996), 191 A.R. 282 (Q.B. Master), refd to. [para. 185].

Jones v. Lipman, [1962] 1 All E.R. 442 (Ch. D.), refd to. [para. 197].

Gilford Motor Co. v. Horne, [1933] All E.R. 109, refd to. [para. 197].

Smith v. Hancock, [1894] 2 Ch. 377, refd to. [para. 197].

Sturrock et al. v. Ancona Petroleums Ltd. et al. (1990), 111 A.R. 86; 75 Alta. L.R.(2d) 216 (Q.B.), refd to. [para. 197].

Clarkson Co. v. Zhelka, [1967] 2 O.R. 565; 64 D.L.R.(2d) 457 (H.C.), refd to. [para. 198].

McMurray Homes Ltd. v. Fort McMurray, [1976] 5 W.W.R. 442 (Alta. C.A.), refd to. [para. 232].

Brown v. Canada (Attorney General) (1999), 244 A.R. 86; 209 W.A.C. 86 (C.A.), affing. (1998), 225 A.R. 333 (Q.B.), refd to. [para. 233].

Security Trust Co. v. Wishart, [1920] 1 W.W.R. 476 (Alta. S.C.), refd to. [para. 234].

Operation Dismantle Inc. et al. v. Canada et al., [1985] 1 S.C.R. 441; 59 N.R. 1; 13 C.R.R. 287; 18 D.L.R.(4th) 481; 12 Admin. L.R. 16, refd to. [para. 235].

Solex Energy Ltd. v. Emerging Alberta Resource Corp., [1994] A.J. No. 348 (C.A.), refd to. [para. 240].

Kennerey v. Hextall (1913), 3 W.W.R. 695 (Alta. S.C.), refd to. [para. 243].

Meisner v. Mason, [1931] 2 D.L.R. 156 (N.S.S.C.), refd to. [para. 244].

R. v. Bales; Ex parte Meaford General Hospital (1971), 17 D.L.R.(3d) 641 (Ont. H.C.), refd to. [para. 245].

Authors and Works Noticed:

Canadian Encyclopaedic Digest (Western) (3rd Ed. 1998), vol. 8, pp. 37-174 [para. 185]; 83 [para. 158].

Fraser, Fraser's Handbook on Canadian Company Law (8th Ed. 1994), pp. 386 [para. 165]; 387 [para. 166]; 388, 389 [para. 165]; 419-421 [para. 165]; 454 [para. 164]; 618 [para. 171].

Halsbury's Laws of England (2nd Ed.), vol. 19, para. 512 [para. 232].

Kohler, A Dictionary for Accountants (5th Ed. 1975), pp. 39-40, 271 [para. 90].

Meagher, Gummow and Lehane, Equity, Doctrines and Remedies (1975), paras. 1917, 1918 [para. 231]; 1927 [para. 239].

Odger, High Court Pleading and Practice (23rd Ed. 1991), p. 213 [para. 247].

Sarna, The Law of Declaratory Judgments (2nd Ed. 1988), pp. 1 [para. 229]; 2 [paras. 229, 238].

Sproat, Wrongful Dismissal Handbook (1995), pp. 3-1, 3-2 [para. 122].

Sutherland, H., Annotated Alberta Business Corporations Act, generally [para. 164].

Counsel:

K.E. Staroszik, for Tim Phillips;

J.K. Phillips, for 707739 Alberta Ltd. and Azmin Habib.

This action and counterclaim were heard before Rooke, J., of the Alberta Court of Queen's Bench, Judicial District of Calgary, who delivered the following decision on February 15, 2000.