May 21, 2019

Summary of Domenic Construction Ltd v Primewest Capital Corp

Domenic Construction Ltd v Primewest Capital Corp, 2019 ABQB 58 (CanLII)

The Plaintiff applied to amend its Statement of Claim to add two new Defendants and to add claims of misrepresentation, fraudulent conveyance, and piercing the corporate veil as against those Defendants. The Statement of Claim originated as seeking to enforce a corporate guarantee given by the Defendant, Primewest Capital Corp. (“Primewest”). The Plaintiff obtained a Consent Judgment against Primewest in 2012, and the Action continued against Primewest’s sole corporate shareholder Bar-N Ghost Pine Ranch Ltd. (“Bar-N”). The Plaintiff alleged that in attempting to enforce the Consent Judgment, it was discovered that Primewest was an empty shell, whose assets were transferred to another related company and ultimately sold. The proposed amendments in effect sought to follow the assets (or their value) which Primewest owned when it gave the corporate guarantee. The proposed Defendants were a related corporation to Primewest and Bar-N, as well as the sole director of all of these corporations, Greg Noval (“Mr. Noval”).

Master Robertson noted that the classic rule for amendments sets a low bar, which are subject to the four major exceptions outlined in Dow Chemical Canada Inc v Nova Chemicals, 2010 ABQB 524: where the amendments are i) prejudicial not compensable in Costs, ii) hopeless, iii) limitations barred, or iv) brought in bad faith for not having been plead in the first instance. The Defendants asserted that all four exceptions applied.

The proposed Defendants argued that substantial prejudice would result because they may have defended differently and provided different evidence had they known Judgment was being sought against the proposed Defendants in the first instance, but they had now been deprived of that opportunity. Master Robertson dismissed these arguments on the basis that the proposed Defendants had full knowledge of the original claim and were intimately involved in conducting the defence of the original Action. Master Robertson also noted that the substantial passage of time can give rise to the presumption of prejudice, however, the passage of time in this case and the nature of the amendments did not create that presumption here.

The proposed Defendants asserted that the amendments were hopeless because a creditor is prohibited from pursing a principal if they have first taken Judgment against the agent. Master Robertson noted that this was the case at common law, though noted that the concerns which gave rise to the principle “seem more theoretical than real in today’s world, and in light of [R]ules 3.39 and 3.40…”, as Rule 3.39 permits a Plaintiff to enter Default Judgment against a Defendant who has failed to enter a Defence or Demand for Notice, and Rule 3.40 permits the Plaintiff to continue the Action against any remaining Defendant. These Rules therefore created the possibility for multiple Judgments in potentially varying amounts (as contractual interest would cease as against the defaulting Defendant but not the others) for the same debt. Notwithstanding this, Master Robertson held that the common law continued to apply such that a creditor who has taken Judgment against an agent is prohibited from subsequently advancing a claim against the undisclosed principal. Master Robertson noted however, that this did not prohibit claims relating to lifting the corporate veil or claims relating to a party having specifically assuming the debt the Plaintiff sought Judgment over.

Master Robertson found that the Plaintiff, or its counsel, had knowledge of the material facts relating to the claims for misrepresentation and fraudulent conveyance at the very latest when it took enforcement steps against Primewest in 2012. Accordingly, these claims were limitations barred. Master Robertson held that section 6 of the Limitations Act, RSA 2000, c L-12 was inapplicable to the proposed amendments as the proposed new Defendants must be shown to have sufficient knowledge of the added claim. Master Robertson pointed out that if the proposed amended claims were really mere attempts to apply the Judgment in the original claim against the proposed Defendants, the correct procedure was to apply to set the original Judgment aside, but here, the Plaintiff was attempting to re-define the claim and “paste it onto enforcement proceedings”. As for the claims of lifting the corporate veil and assumption of liabilities however, new evidence had come to light during the enforcement proceedings which suggested that those claims had merit and the material information was discovered within the 2 year limitation period.

Master Robertson found that there was no evidence of bad faith in the Plaintiff’s proposed amendments, as the allegations had evolved as further information was obtained (as opposed to being “a military about-face”). Master Robertson also noted that the evidence presented regarding the allegations of fraud did not meet the heightened evidentiary threshold required to amend to allege fraud. Moreover, the proposed amendments did not provide particulars of the fraud as required by Rule 13.7, and thus, were offside of the technical requirements of the Rules.

Master Robertson allowed the amendments to the extent they related to claims for lifting the corporate veil and that the original debt had been assumed by the other corporations, as well as claims for punitive and aggravated damages, but allowed for the Plaintiff to provide a revised Amended Statement of Claim which was not intertwined with the disallowed amendments relating to misrepresentation and fraud. Master Robertson noted that per Rule 13.6 a pleading is required to be succinct, and that “the thrust of a claim gets lost when too much detail is recited”.