IN THE SUPREME COURT OF BRITISH COLUMBIA
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Citation: |
G.R.A.M. Contracting Ltd. v. Biosource Power Inc., |
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2014 BCSC 350 |
Date: 20140303
Docket: S124533
Registry: Vancouver
Between:
G.R.A.M. Contracting Ltd.
Plaintiff
And
BioSource Power Inc.
Defendant
And
G.R.A.M. Contracting Ltd.
Defendant by Way of Counterclaim
And
FMI Bioenergy Inc., Brent Wiren and Paul Adams
Third Parties
Before: The Honourable Madam Justice Kloegman
Reasons for Judgment
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Counsel for the Plaintiff: |
J.D. Shields |
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Agent for the Defendant: |
J. Dizon, In Person |
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Counsel for the Third Parties: |
N.M. Safarik |
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Place and Date of Trial: |
Vancouver, B.C. November 25-29 and |
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Place and Date of Judgment: |
Vancouver, B.C. March 3, 2014 |
[1] The plaintiff, G.R.A.M. Contracting Ltd., is in the business of logging and supplying timber cuts to the wood processing industry. The defendant, Biosource Power Inc., for the purposes of this lawsuit, is the co-owner of land in Kamloops, British Columbia, on which stands a pellet mill and bale shavings mill.
[2] The third party, FMI Bioenergy Inc. (“FMI”), was hired by the defendant as its consultant in the wood industry. The third parties, Brent Wiren and Paul Adams were principals of FMI at all material times.
[3] This lawsuit came about in June 2012 because during October 11 and November 17, 2011, the plaintiff delivered logs (the “Logs”) firstly to the defendant’s mill site, and later in November to a second, temporary site at the instructions of FMI.
[4] The plaintiff claims that the defendant, through its agent FMI, agreed to purchase the Logs from the plaintiff at a price of $2,275 per truck load. Further, the defendant agreed with the plaintiff to engage its log loading equipment at a rate of $165 per hour. The plaintiff delivered 85 truck loads of Logs and invoiced the defendant accordingly. The plaintiff also invoiced for the rental of the log loader at 171 hours for the sum of $28,215 plus tax and interest.
[5] The defendant paid the plaintiff $25,000 prior to the first delivery of Logs, $25,000 during delivery of the Logs, and $5,000 about a month after delivery of the Logs had been completed.
[6] The defendant refused to pay any further sums to the plaintiff on account of the Logs or rental of the log loader, and the principal amount of $202,053.90 remains outstanding on the invoices presented by the plaintiff to the defendant between October 26 and November 23, 2011.
[7] The plaintiff sues alternatively in debt, breach of contract and quantum meruit.
[8] The defendant denies liability to the plaintiff, alleging that:
a) there was no contract, or alternatively;
b) if there was a contract for the delivery of the Logs it was made between the plaintiff and the third parties directly, not as agent for the defendant; and
c) if the third parties were acting as agent in entering the contract on behalf of the defendant, they acted outside their actual authority in doing so;
d) property in the Logs never passed to the defendant; and
e) the Logs were misrepresented, not of merchantable quality and not fit for the purpose.
[9] The defendant counterclaimed against the plaintiff for return of the $55,000 paid by the defendant on account of the Logs, less any revenues received by the defendant for processing and selling the Logs. The defendant also claimed for damages for breach of contract, including the alleged difference between the value of the quality of Logs for which they contracted and the value of the Logs which they received. Finally, the defendant seeks an order “assigning the responsibility and liability of the contract to the third party as principals”.
[10] The defendant sues the third parties for breach of contract, negligence, fraud, breach of fiduciary duty and conversion, all arising out of the consulting relationship and the plaintiff’s contract for supply of the Logs.
[11] The only witness who was not credible in large parts of her testimony was Ms. Juliet Dizon, the representative of the defendant. By and large, I had no concerns over the credibility of the other witnesses who testified. Mr. Johnson admitted to having a poor memory, Ms. Janine Walker was working under some unproven assumptions, and the impartiality and accuracy of Mr. Gray’s evidence was questionable, but these witnesses, like most of the other witnesses, seemed to be making an honest effort to give reliable evidence within their own genuine limitations.
[12] Ms. Dizon’s evidence, on the other hand, was unreliable. She had the misfortune to be saddled with the conduct of the defendant’s case at trial and to be its primary witness. Through her endeavour to be both counsel and witness she showed confusion about her role as the legal representative of the defendant, her role as a witness testifying under oath, and the role of the defendant as litigant. Thus at times she appeared to be giving evidence, instead of submissions, and vice versa.
[13] Furthermore, Ms. Dizon either failed, or refused, to comprehend my instructions to her regarding document disclosure. She attempted on a number of occasions to tender documents that should have been much earlier disclosed and were not. On more than one occasion I admonished her to bring all relevant, undisclosed documents in her possession and make them available to counsel for the plaintiff and counsel for the third parties. Even when I replaced my admonition with a court order, she did not comply. To this day she has not produced highly relevant documentation relating to the defendant’s utilization of the Logs.
[14] Ms. Dizon’s ignorance of procedure may be excusable to some extent as she was an inexperienced lay person, but her inconsistent evidence under oath cannot be excused and has tainted the reliability of anything she said that was not corroborated by documents or other witness testimony. Most telling were her prior inconsistent statements that were audio recorded by Mr. Adams and used in cross-examination by counsel for the third parties.
[15] Ms. Dizon had a partner, Leo Fung, also a shareholder of the defendant, who had been privy to many of the communications between the parties. He attended court during most days of the trial, yet chose not to testify. I do not draw an adverse inference from his failure to testify, but it does highlight the lack of corroboration of Ms. Dizon’s statements which were often contradicted by the plaintiff and third party witnesses.
[16] Ms. Dizon’s testimony and statements in her role as representative of the defendant were not only inconsistent with each other from time to time, but they were inconsistent with the pleadings which had been prepared for the defendant when it had been represented by legal counsel. For example, the defendant alleged in paragraph 10 of its response to civil claim that the defendant never had any direct discussions with the plaintiff until January 2012. On her examination for discovery, Ms. Dizon deposed that she had met with Guy Lennea, principal of the plaintiff, in the summer of 2011 to talk about the supply of Logs to the defendant. As another example, the defendant alleged in paragraph 24 of the response to civil claim that the defendant only received the plaintiff’s November 23, 2011 invoice on January 26, 2012. On her examination for discovery, Ms. Dizon deposed that she had received it on November 23, 2011.
[17] The inconsistent allegations, evidence and submissions of Ms. Dizon and the defendant are strongly suggestive of reconstruction after the fact to justify the defendant’s inability to pay the plaintiff’s bill. The incontrovertible fact is that the defendant did not have its funding in place when it commenced this business venture. Ms. Dizon and her partner naïvely charged into what was for them the unknown and complex territory of the logging industry by purchasing a mill and endeavouring to get it up and running before they had sufficient capital in place to pay for anything – whether supplies, parts and equipment, or labour.
[18] I have no doubt that had the funding from the defendant’s potential investors come through, this lawsuit would never have materialized. The plaintiff would have been paid, the pellet mill would have been repaired, the cant mill would have been installed, and the Logs would have been processed and profits made. Ms. Dizon was always careful not to antagonize either the plaintiff as the defendant’s timber supplier, or the third parties, as its consultants. She continued the promise of payment until it became clear that the defendant could not raise the capital to commence operations, and the plaintiff would no longer wait for payment but chose instead to sue for the balance outstanding.
[19] At that point, in a desperate attempt at damage control, Ms. Dizon aggressively opposed the plaintiff’s claim on the basis of everything from “there was no contract” to “the lumber was defective” to “the defendant’s consultant conspired with the plaintiff’s supplier” to “the defendant made payments on the plaintiff’s account as a show of good faith, not to signify acceptance of the Logs”. None of these theories presented by Ms. Dizon on behalf of the defendant were sufficiently supported by the evidence to displace the plaintiff’s overwhelming proof of debt owing to it by the defendant.
[20] It is against this background of financial stress and the eventual failure to raise the necessary capital that Ms. Dizon’s credibility and the defendant’s defences and claims must all be measured.
[21] The onus is on the plaintiff to show that a valid contract existed between it and the defendant for the purchase of the Logs. The plaintiff relies on a Log Purchase Agreement in writing and the evidence of Brent Wiren, Eli Lennea and Paul Adams.
[22] The Log Purchase Agreement is dated October 2011 and is signed by Ms. Dizon on behalf of the defendant and Mr. Guy Lennea, principal of the plaintiff. The timber is identified as Timber Mark 84525, the location is described as Okanagan 32 km Stuart FSR and deliveries were to be made October, November, and December 2011. Instead of describing the species of trees, the timber is described as “burnt pulp $32 per cubic metre” or “$2,275 per B train load”. As the defendant had no scale on site, and as the Logs were cut from an Innovative Timber Sale Licence (“ITSL”) which did not require the Logs to be scaled, the defendant was charged per truck load.
[23] The defendant pleaded that it had not seen nor signed the Log Purchase Agreement, but Ms. Dizon led no evidence from herself or anyone else under oath that the person who wrote the name Juliet Dizon as buyer was not her, or that the signature was forged. The evidence from Mr. Brent Wiren was that Ms. Dizon signed the Log Purchase Agreement on the same day as she signed the Parts and Components Agreement for the pellet mill. That latter agreement also bears the date October 8, 2011, and the signature of Ms. Dizon appears the same as on the Log Purchase Agreement.
[24] Although the Log Purchase Agreement was not signed until October, the evidence established that an oral agreement was already in place for the plaintiff to provide about $200,000 worth of burnt Logs from an ITSL to the defendant for use in a pellet mill, shavings mill, and possibly a cant mill in the future. The defendant had no loading equipment so it rented a log loader and manpower from the plaintiff for $165 per hour.
[25] The oral arrangement for the supply of the Logs and log loading services was made between Mr. Wiren of FMI and Mr. Guy Lennea of the plaintiff. FMI had entered into a consulting agreement with the defendant dated August 2, 2011 (the “Consulting Agreement”), whereby it agreed to act on behalf of the defendant to establish long term fibre contracts, among other things. “Fibre” is the industry term for timber that can be processed into other lumber products. Mr. Lennea understood that Mr. Wiren’s company was acting only as agent for the defendant – hence he asked for a deposit from the defendant before starting any deliveries. The defendant paid a deposit to the plaintiff of $25,000 by way of cheque made out to G.R.A.M. Contracting Ltd. and dated October 11, 2011.
[26] The plaintiff addressed all its invoices to the defendant, not FMI, and the defendant provided further cheques made out to the plaintiff.
[27] Ms. Dizon admitted in chief that FMI was the agent of the defendant. She also admitted that FMI and the plaintiff had entered into a contract for the supply of the Logs. However, she maintained in submissions that neither she nor Mr. Fung had knowledge of the contract until after the fact, and that FMI was never authorized to enter into it.
[28] It is trite law that the authority of an agent to bind a principal can be actual or ostensible. Actual authority is the authority which the principal gives the agent under an express, or in some cases an implied, agreement between the principal and the agent that the agent should represent the principal. Actual authority can also exist as a result of ratification by the principal of an originally unauthorized act of the agent: Gerald Fridman, Canadian Agency Law (Markham, Ont.: LexisNexis Canada Inc., 2009) at p. 60.
[29] Ratification is a question of fact. It must be evidenced by clear, adoptive acts, manifesting the principal’s intention to be bound by what the agent has done. If the principal takes any benefits or profits of the agent’s acts, that is strong evidence of such an intention. Ratification operates retrospectively to endow the agent with actual authority to perform the act in question, as if the agent had been given such authority prior to performing the act. The burden of proving ratification is on the party alleging that ratification has occurred: Canadian Agency Law at pp. 35-47.
[30] Apparent or ostensible authority is the authority an agent is held to possess in law, over and above, or in the absence of, the agent’s actual authority. It is dependent on the way a reasonable third party would understand the conduct or statements of the principal in ostensibly authorizing the agent to act on its behalf. The existence and scope of an apparent authority is governed largely by the class of agent employed – provided the agent acted in accordance with its ordinary trade, business or profession – or by some custom of the agent’s particular trade, business or profession on which such apparent authority can be predicated: Canadian Agency Law at pp. 72-77.
[31] In the case at bar, FMI had the actual authority to bind the defendant to a fibre contract by virtue of the Consulting Agreement. Furthermore, Ms. Dizon on behalf of the defendant, ratified the contract when she signed the Log Purchase Agreement. She further manifested an intention to bind the defendant by receiving the Logs, making some payments on account to the plaintiff, and utilizing some of the Logs in the defendant’s bale shaving operations.
[32] Even if I were to accept Ms. Dizon’s premise that FMI was premature in binding the defendant to a fibre contract and therefore was without authority, FMI had the ostensible authority to do so because the defendant had retained it to establish fibre contracts as per the Consulting Agreement, and the plaintiff had no knowledge of the alleged lack of authority, nor any facts which might have put it on enquiry.
[33] I find that there was a valid and binding contract for the plaintiff to deliver the Logs and the defendant to accept and pay for them. Under s. 32 of the Sale of Goods Act, R.S.B.C. 1996, c. 410, payment and delivery are mutually dependent. The test is not whether property has passed in the Logs, but whether the Logs were delivered. Delivery was proved by the plaintiff through the evidence of Mr. Lennea and his son, the photographs and load delivery slips.
[34] The defendant’s obligation to accept the Logs was subject to the right to reject them upon delivery, if they did not meet the description, or were unfit for the purpose, or of unmerchantable quality. However, under s. 39 of the Sale of Goods Act, a buyer is deemed to have accepted the goods when:
(a) the buyer intimates to the seller that the buyer has accepted them,
(b) the goods have been delivered to the buyer, and the buyer does any act in relation to them which is inconsistent with the ownership of the seller, or
(c) after the lapse of a reasonable time, the buyer retains the goods without intimating to the seller that the buyer has rejected them.
[35] There was no evidence that the defendant was not allowed a reasonable time to inspect the Logs, or that the defendant pointed out defects in the Logs within a reasonable time. In fact, Ms. Dizon drove to the mill site from Vancouver and saw some delivered Logs on the site and other Logs being unloaded from a truck. She knew previously that the Logs came from a forest fire and she saw for herself that the Logs were burnt, but made no complaint or attempt to reject them. After that visit on October 31, 2011, Ms. Dizon paid a further $25,000 to the plaintiff on account, and then a further $5,000 on December 19, 2011, weeks after delivery of the Logs had been completed. She never questioned any of the invoices sent by the plaintiff and kept promising payment. On December 14, 2011, she wrote an email stating:
Please be advised that we have sent a partial payment to be credited to our total balance owing. Please accept this payment in good faith. Cheques to cover the balance will be sent to you within the next few weeks. Again, we apologize for this terrible inconvenience but we hope to clear this up as soon as possible.
[36] The day before this email, Ms. Dizon had met with Mr. Paul Adams and made comments to him that she knew that the defendant had gotten a good deal, and all that remained was to get the funding in place to pay the bills.
[37] At trial, Ms. Dizon testified that she told Mr. Adams in a meeting on October 28, 2011, to stop deliveries of the Logs. This is completely inconsistent with the tenor of her aforescribed documented communications and her conduct at the time. It is glaringly noticeable that Ms. Dizon never complained about the existence of the contract or the quality of the Logs until the spring of 2012 when it became apparent that the defendant had lost its funding and could not pay the plaintiff for the Logs or loading services. By that time the defendant had already used some of the Logs for shavings.
[38] There is no doubt that the plaintiff has proved that there was a contract, that the Logs in question were delivered and unloaded, and that the defendant accepted delivery of the Logs. Any right of rejection that the defendant may have asserted was lost long before the defendant attempted to rely on it as a defence to this lawsuit. The defendant is liable for nonpayment of the principal balance outstanding to the plaintiff of $202,053.90, plus court order interest. I am not satisfied that any agreement to pay interest at the rate arbitrarily imposed on the plaintiff’s statements of account was established.
[39] The defendant’s claim that the Logs were misrepresented by the plaintiff, or not of merchantable quality, or unfit for the purpose could still form the basis of a breach of contract claim by the defendant for damages from the plaintiff. However, the onus was on the defendant to prove these allegations as they formed the basis of its counterclaim.
[40] Ms. Dizon alleged that Mr. Guy Lennea of the plaintiff “represented” that 30% of the logs were saw logs. Even if the representation was untrue, the defendant could not show any reliance on it because Ms. Dizon said this statement was purportedly made by Mr. Lennea in March 2012, months after the contract had been signed and the Logs delivered and partially utilized. It is trite law that to prove negligent misrepresentation a claimant must show negligence in making the representation and reasonable, detrimental reliance on it.
[41] In any event, the defendant did not prove that the representation, if made, was untrue.
[42] It became patently obvious as the trial progressed that Ms. Dizon’s understanding of the term “saw logs” was different than the literal meaning of the word or the meaning the word bears in the lumber industry. Ms. Walker, expert scaler, explained that “lumber”, “wood”, “timber”, “fibre”, and “saw log” are all interchangeable terms used to refer to a product from a tree, as distinct from the product of a pellet. “Saw log” simply means a felled tree that can be sawed into measured boards such as 2x4s or 4x6s, or into larger squared off boards known as “cants”. Referring to timber as saw logs has nothing to do with the quality of the log which is defined by grade of lumber.
[43] Ms. Walker opined in her report dated April 30, 2013, that the representative sample of wood with which she was provided by the defendant would not be able to produce any merchantable lumber due to the burnt portions and heavy splitting of the logs. However, on cross-examination she admitted that she had no experience with burnt logs. She was aware that if the burn could be removed, the logs could be used for some things, depending on the grade. They could be used for shavings and industry pellets and cants, depending on the size of the log.
[44] More importantly, Ms. Walker was not involved in choosing the 1% sample of logs with which she had been provided, did not personally know the source of the logs, when they were cut, who cut them, or what happened to the logs after they were cut.
[45] If the sample logs did come from the Logs, Ms. Walker attended the site to scale them on April 15, 2013, some 17 months after the Logs had been delivered. Ms. Walker was concerned that the Logs had been sitting in the hot Kamloops sun and subject to weather extremes before she had been asked to appraise their quality and quantity. She explained that logs lose weight quickly in the sun; moisture wicks from the ends and causes logs to deteriorate. She could not determine whether the Logs had contained 50% saw logs back in November 2011, because there had been so much deterioration since then. She could not determine when the logs she scaled experienced “checking” (splitting). The weight of the sample logs was low because the wood was so dry.
[46] In my view, although Ms. Walker tried to be helpful, it was obvious that she could not speak to the quantity or quality of the Logs as delivered in November 2011. By the time she saw them, the Logs had dried out, and their quality had deteriorated. Some of them had already been utilized for shavings. She could not see any timber marks and could not even be sure if what she had been asked to inspect came from the ITSL in question. Finally, she initially assumed that because 30% of the Logs were burnt, they could never have been used for cants, but later agreed they could have been cantable depending on the size of the log and the extent to which the burn could have been removed.
[47] In any event, the contract referred to “burnt pulp” quality fibre which was suitable for the defendant’s existing pellet mill and shavings mill. The contract made no mention of saw logs. The defendant had no cant mill, only plans to install one on the site. Once again, if the defendant had procured the funds to operate the pellet mill and install the cant mill, it is likely that the Logs would have been utilized in a timely fashion for the purpose for which they were purchased.
[48] When I consider the totality of the evidence, including the Lenneas’ and Brent Wiren’s evidence that the Logs made ideal cants and shavings and good pellets, the trucks were “bursting full”, and the price was lower than the price of similar logs sold to other mills, it is my opinion that the defendant has failed to prove that the quality of the Logs was misrepresented, that the Logs were not of merchantable quality or that they were unfit for the purposes of pelletizing, shaving or canting.
[49] Accordingly, I find that the counterclaim should be dismissed against the plaintiff.
[50] The claims by the defendant against the third parties were difficult to comprehend because they confused a number of general legal principles, and because they kept changing throughout the trial and throughout the defendant’s lengthy written submissions. Furthermore, the defendant did not specify which claims were against the personal third parties and which were against the corporate third party.
[51] As best as I could decipher, the defendant’s complaints about the third parties appear to be along these lines:
1. The third parties were negligent and/or in breach of the Consulting Agreement with the defendant because:
(a) the third parties did not have the authority to order the Logs, or incur other expenses on behalf of the defendant;
(b) the third parties were premature in ordering the Logs, as the pellet mill was not operational and no cant mill had yet been installed;
(c) the City of Kamloops would not allow the defendant to store all the Logs on the mill site and some of the Logs had to be delivered to a temporary location down the road and later returned to the site, at a cost to the defendant; and
(d) the third parties should have rejected the Logs on behalf of the defendant due to misrepresentations and their poor quality.
2. The third parties breached their fiduciary duty to the defendant by acting in their own best interests, before those of the defendant;
3. The third parties were liable for the intentional torts of fraud and conversion because:
(a) the Logs never contained 50% saw logs, as represented;
(b) the load slips were fabricated; and
(c) Mr. Wiren stole equipment from the site before the defendant took possession of it.
[52] The allegations set out in 1(a) through 1(d) above can only be directed at the corporate third party, FMI, because Messrs. Wiren and Adams were not parties to the Consulting Agreement and had no other contract, verbal or otherwise, with the defendant. The evidence did not disclose any duty of care towards the defendant on the part of Messrs. Wiren and Adams, nor were there any material facts to support such a duty pleaded in the third party notice.
[53] I have already found that FMI had the actual authority to enter into the Log Purchase Agreement by virtue of the Consulting Agreement. That latter agreement also authorized FMI to act on behalf of the defendant to establish “commitments to satisfy the defendant’s ongoing needs”. The plain meaning of this wording is that FMI was authorized to incur expenses on behalf of the defendant for items required to run the mills.
[54] Ms. Dizon complained that FMI failed to obtain signed purchase orders from the defendant and thus FMI entered into unauthorized transactions. Ms. Dizon, Mr. Wiren and Mr. Adams all agreed in their testimony that they, along with Mr. Fung, had met a few days after October 28, 2011, to discuss implementing a purchase order system for the defendant. Mr. Adams set up a purchase order system which was described in an email to Ms. Dizon and Mr. Fung dated November 2, 2011. In that email, Mr. Adams outlined the new purchase order system that he had set up, and attached purchase orders relating to transactions that had previously been made with the defendant’s prior approval.
[55] Subsequently, Mr. Adams set up a purchase order system for future expenses to be approved and paid by the defendant using a Cloud account and drop box software. He sent email invitations to Ms. Dizon and Mr. Fung so that they could access the drop box account and download the purchase orders for approval. Ms. Dizon never accepted the invitation to access the drop box account. Mr. Fung did accept the invitation, but never acknowledged the purchase orders. In fact, the purchase orders were ignored by the defendant.
[56] None of this evidence was negated and once again, this allegation of “no purchase orders” appears to have been raised long after the fact to try and justify the third party claim. The alleged unauthorized expenses that Ms. Dizon complains about were included in the capital and operating budgets that she approved on behalf of the defendant; they were referred to in planning and scheduling emails to which the defendant never responded negatively. The defendant was aware of the upcoming expenses, when they would be incurred, and why they were necessary. Most importantly, the defendant never objected to any of these items. The only objection came long after the fact because the defendant could not pay for them.
[57] Ms. Dizon submitted that the defendant relied on the expertise of the third parties to advise the defendant as to the timing of fibre purchase, and that the third parties should never have obligated the defendant to purchase fibre before the pellet mill was operational. She admitted that installing a cant mill was always something to be done in the future, not right away.
[58] The background to the purchase of the Logs is as follows. The defendant and the third party met in April 2011. In May 2011 Ms. Dizon toured the mill site with Mr. Wiren and examined financial information with a view to purchasing the property from Farm Credit Canada. Farm Credit Canada had foreclosed on the previous owner Fire Master Gold Standard, the former employer of Mr. Wiren and Mr. Adams. During this on- site visit, Mr. Wiren advised Ms. Dizon that there had been some vandalism, but the pellet mill could be made operational once the electricity was restored, consumables replaced, and spare parts purchased.
[59] Before FMI entered into the Consulting Contract, Mr. Adams provided the defendant with a capital budget of approximately $6.2 million. The budget included $3.6 million for the expansion of the existing pellet mill, $2 million for the acquisition of a cant mill, and an initial operating budget of $600,000, which included $200,000 for purchasing fibre and $150,000 for the purchase of spare parts for the pellet mill. FMI also provided the defendant with an initial operating budget of approximately $775,000 for items required for the immediate start-up of the pellet and shavings operations, including the repair and upgrade of the electrical system at the pellet mill for $12,500.
[60] After executing the Consulting Agreement, Ms. Dizon created a Feasibility Study, using the information and budgets from FMI. The purpose of the Feasibility Study was to attract investors who would contribute up to $10 million of capital funding to finance the defendant’s business plan. This plan included the expansion of the existing pellet mill and shavings operation and future acquisition of 40 acres of adjacent property to install a cant mill. Ms. Dizon consistently told the third parties that the funding was imminent and that they should begin making the necessary arrangements for the commencement of operations and implementation of the business plan. According to Mr. Wiren and Mr. Adams, Ms. Dizon also wanted to ensure that any potential investors who visited the site would see logs stockpiled there and know that the defendant was in business.
[61] In an email dated September 9, 2011, Mr. Wiren warned Ms. Dizon that there was a chance that the defendant could lose both its shavings business and log supplier unless they got started. The Logs needed to be harvested and delivered before the plaintiff’s timber licence expired and the plaintiff wound up operations for the winter. In an email later the same day, Mr. Wiren stated that although the defendant had “an opportunity to get some good quality logs for the long term” through the plaintiff, he would only commit to as many logs from the plaintiff as could be used for the shavings operation.
[62] In my view, the purchase and delivery of the Logs was not premature. In fact it had been delayed from what was contemplated at the time the Feasibility Study was prepared by Ms. Dizon. However, as a result of difficulties with the purchase of the property through foreclosure and a court supervised selling process, the transaction did not complete until October 5, 2011. The defendant did not enter into the Log Purchase Agreement, or Parts and Components Sales Agreement until October 8. By November 7, the defendant still had not approved the amount of $12,500 for repair and upgrade of the mill’s electrical system, plus other items. Most importantly, the defendant never paid the outstanding amount under the Parts and Component Sales Agreement, so the spare parts were not delivered, and the pellet mill could not be made operational.
[63] Once again, through the third parties’ efforts the Logs were in place, the agreement for parts and labour to render the pellet mill operational was in place, but the money was not in place to pay for these items. I have no doubt that if the money had been available and the recommendations of the third parties followed, the mill would have been up and running and processing the Logs voraciously.
[64] At no time did Ms. Dizon suggest to the third parties that she might not be able to raise the capital required and that FMI should hold off completing the steps required to commence operations. If Ms. Dizon is to be believed, she herself had no idea that her funding would never materialize.
[65] The alleged premature timing of purchase of the Logs overlaps with another of the defendant’s complaints concerning its inability to store the Logs on site.
[66] Part way through the plaintiff’s delivery of the Logs, the City of Kamloops objected that there were too many logs piled on the site and that they were visible from the highway. The City ordered the defendant to cease stockpiling and the plaintiff was told to stop delivery for a few days. Meanwhile FMI arranged on behalf of the defendant for the rest of the Logs to be delivered down the road to a temporary yard owned by someone else.
[67] Ms. Dizon submitted that the third parties were negligent in failing to determine whether the zoning would allow the delivery of the Logs to the defendant’s site, thereby causing damage to the defendant in the form of costs for storing the Logs at the Woodco site and subsequently moving them back to the defendant’s site.
[68] Unfortunately, the defendant led no evidence to establish negligence or breach of contract in this regard. Mr. Wiren testified that there had been a sawmill or pellet mill on the defendant’s property since the 1960s and there had never been an issue with the City. The problem raised by the City was in connection with the long term storage of the Logs without processing them. Once again, if the defendant had received funding from its investors to enable it to pay for the parts and labour required to render the pellet mill operational and install the cant mill, the Logs would have been quickly processed and there would have been no need to store the Logs long term.
[69] Even if Ms. Dizon had led some evidence establishing conduct on the part of any of the third parties that amounted to breach of a duty of care, any such breach was not the cause of the additional expense incurred by the defendant in moving the Logs elsewhere and later retrieving them. The cause was the failure of the defendant to fund the commencement of operations on the property.
[70] I have already found that the Logs were not defective, were fit for the purpose and of merchantable quality, and that their quality was not misrepresented by the plaintiff.
[71] Ms. Dizon submitted that the quality of the Logs was also misrepresented by the third parties. Mr. Adams described them as being 50% saw log grade and 50% pulp wood, and Mr. Wiren described them as 50% good saw log, or maybe up to 70%+ saw log quality. The difficulties with these alleged misrepresentations are twofold:
1. there is no way of determining that the Logs were otherwise than described by Messrs. Guy and Eli Lennea in their testimony – that is, they had delivered to the defendant Logs that were 50% cantable (i.e. sawable); and
2. there is no evidence to suggest that the defendant relied on any representations by the third parties (or the plaintiff) before entering into the Log Purchase Agreement.
[72] Finally, with respect to all the breach of contract and negligence claims, the defendant has not proved that the third party caused it any losses. In fact, the defendant led no evidence at all of any damages, except the cost to move the Logs back to the site. Even this evidence was suspect because upon closer examination it was shown to have included costs of cleaning up the defendant’s site, which was entirely unrelated to the need to move the Logs and would have been on the defendant’s account in any event.
[73] It was clear that Ms. Dizon did not understand the legal concept of breach of fiduciary duty. The essential elements of a cause of action for breach of fiduciary duty are neatly summarized in F.A. v. Henley, 2006 BCSC 1008 at para. 69:
It appeared to be common ground that a fiduciary relationship will exist where the following three elements are established (as laid down in Frame v. Smith, [1987] 2 S.C.R. 99 at 136, and confirmed in several later decisions):
(a) The fiduciary has scope for the exercise of some discretion or power;
(b) The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests;
(c) The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.
[74] Instead of leading evidence to support a finding of the above essential elements, the defendant put forward a very convoluted theory to the effect that Mr. Wiren and Mr. Adams had conspired with the plaintiff to sell inferior fibre to the defendant to make up for the plaintiff’s loss as a creditor of Mr. Wiren’s and Mr. Adams’ former employer, Firemaster Gold Standard which was insolvent. Initially the defendant also maintained that Mr. Wiren, or his company, was indebted to the plaintiff and this was a means of paying the plaintiff back. Frankly, the claim made little sense on the pleadings, even less on the evidence, and none on the submissions. There was no evidence of a debt owed to the plaintiff by Firemaster Gold Standard, Mr. Wiren, or any company in which he may have held a beneficial interest. The claim of breach of fiduciary duty is dismissed.
[75] The claim of fraud seems to be rooted once again in the allegedly defective nature of the Logs. Ms. Dizon submitted that the third parties knowingly entered into a contract for 50% sawmill quality logs and 50% lower quality logs at current market prices, and instead received 85 loads of burnt, low value logs at a price about 50% above market prices. I have already decided that the Logs were as represented, of merchantable quality and fit for the defendant’s purposes. Furthermore, Mr. Lennea’s evidence established that given the costs of transporting the Logs from the location where the Logs were cut to the location where they were delivered, their price was below market value.
[76] The claim that the plaintiff had fabricated the load slips was not made out. The truck drivers who filled out the load slips did not always illustrate the finest of penmanship, but the load slips were legible and contained the necessary information.
[77] The basis of the claim in conversion is against Mr. Wiren, who is accused of having removed or damaged critical components of the pellet mill in or around July 2011. Firstly, the defendant did not own the property in July 2011, therefore it cannot accuse the third party of having interfered with its ownership or title to the chattels. Secondly, Mr. Wiren gave evidence that copper wires were stolen from the pellet mill in May or June 2011 and that a “cyclone” was removed during 2010 by a former millwright. This was pointed out to Ms. Dizon during her initial attendance at the property on May 23, 2011: it was as a result of the theft of the copper wire that there was no electricity at the pellet mill and she was told the copper wires would need to be replaced in order for electrical service to be restored and the mill functioned better with one less cyclone. In my view, it is highly improper to accuse Mr. Wiren of conversion tantamount to theft when the defendant had no evidence nor the legal right to claim damages for the loss of these items.
[78] Thus the defendant’s claim against the third parties in fraud and conversion is dismissed.
[79] The plaintiff and the third parties all seek special costs against the defendant, and against Ms. Dizon and Mr. Fung personally.
[80] As the authority to award special costs involves the exercise of broad judicial discretion, and as the rationale of awarding special costs is to punish for reprehensible conduct, each case must be decided on its own unique facts. However, some important principles to keep in mind that are relevant to this case are:
1. The reprehensible conduct for which punishment is sought can be in the circumstances giving rise to the cause of action, or during the proceedings, or both: Stiles v. B.C. (W.C. B.) (1989), 38 B.C.L.R. (2d) 307 (C.A.).
2. “Reprehensible” conduct includes any misbehaviour, ranging from outrageous and scandalous conduct to milder forms that deserve reproof or rebuke: Garcia v. Crestbrook Forest Industries Ltd. (1994), 119 D.L.R. 4th 740 at para. 17 (B.C.C.A.).
3. The fact that an action “has little merit” is not in itself a reason for awarding special costs: Young v. Young, [1993] 4 S.C.R. 3 at para. 251 per McLachlin J. (as she then was).
4. The failure to prove allegations of fraud will not automatically result in special costs: 307527 B.C. Ltd. v. Langley, 2005 BCCA 161. However, if the allegations of fraud have been made frivolously, are without foundation, or have been made in circumstances where sufficient information was available to conclude that the claim could only be one of negligence or breach of contract, the allegations can be described as “reprehensible”, warranting an order of special costs: Hamilton v. Open Window Bakery Ltd., [2004] 1 S.C.R. 303 at para. 26.
5. Baseless allegations of conspiracy may be susceptible to an order for special costs: World Wide Treasure Adventures Inc. v. Ralph, [1996] B.C.J. No. 154 at para. 19 (S.C.).
6. Deliberate attempts to mislead the court through contrived, concocted or fabricated evidence can always form the basis for an order for special costs.
[81] The plaintiff submits that Ms. Dizon and the defendant meet all the criteria outlined above to attract an award for special costs. The plaintiff lists innumerable examples of misconduct by Ms. Dizon and the defendant: some pertaining to allegations made in the response to civil claim and counterclaim which were unproven or disproven, some pertaining to Ms. Dizon’s evidence, and some pertaining to her conduct of the case.
[82] In my view, the most significant steps of misconduct by the defendant toward the plaintiff are the unfounded claims of conspiracy and fraud, and the refusal to disclose documents.
[83] In the response to civil claim and the counterclaim the defendant pleaded that “… the plaintiff conspired with FMI to provide false information to the defendant”. Ms. Dizon advised on the first day of trial that the defendant was abandoning this allegation, but then she proceeded to accuse the plaintiff of fraudulently misrepresenting the quality of the Logs prior to contract, or alternatively, defrauding the defendant by knowingly delivering logs of inferior quality to those for which the defendant had contracted.
[84] I have already found that the defendant did not prove the Logs were misrepresented or of inferior quality at the time they were delivered, and that there was no reasonable basis for saying so. In fact, the defendant has utilized a portion of the Logs, but has failed or refused to disclose how many Logs have been used.
[85] Further, the defendant pleaded that the plaintiff was a creditor of a company in which the third parties held an interest. This company became insolvent in 2011. The theory of the defendant was that Mr. Wiren induced or caused the defendant to enter into a contract for the supply of the Logs at a price which exceeded their value, to make up for the plaintiff’s losses from the aforementioned insolvency.
[86] Once again there was no evidence of any indebtedness between Mr. Wiren and the plaintiff, or of any form of undisclosed benefit received by Mr. Wiren or FMI from the plaintiff.
[87] Finally, despite admonition from the Court and despite a subsequent court order, the defendant failed to disclose the records relating to the processing of the Logs into shavings and the profits received by the defendant therefrom.
[88] I agree that Ms. Dizon’s obvious inability to efficiently conduct the defendant’s defence and claims prolonged the trial unnecessarily, resulting in increased costs to the other parties. I would not order special costs on this factor alone, nor would I order them solely on the lack of merit to the defendant’s defence and counterclaim. However, when taken together with the unfounded claims of fraud and the noncompliance with court orders – not to mention the contradictory evidence led by the defendant – I see no alternative but to award the plaintiff special costs of these proceedings.
[89] The claim of the third parties for special costs is even stronger. Mr. Wiren and Mr. Adams were joined as third parties in their individual capacities because they were accused of conversion, conspiracy and breach of fiduciary duty. The conspiracy claim was withdrawn at the beginning of trial, but then the same fraud allegations were made against them as the ones against the plaintiff.
[90] I have dismissed all the allegations of intentional breaches by the third parties out of hand because there was never any foundation for them. I have dismissed the claims of breach of contract and negligence on a number of grounds, and found that the real cause of any losses suffered by the defendant, which were never properly put in evidence, was the defendant’s inability to fund the project it had so blithely entered into without adequate financial resources and preparation.
[91] The third parties, and particularly the individual third parties, should never have been obliged to participate in this lawsuit. The claim of the plaintiff was a simple one of debt, and any evidence relating to delivery, acceptance and quality of the Logs could have been led in a fraction of the time this trial took to complete.
[92] Thus I order special costs to the third parties as well.
[93] Although it is tempting to accede to counsel’s argument to award costs against Ms. Dizon personally, on a closer analysis I am not satisfied that her conduct as a non-party to the litigation can support what is a very rare and special exercise of judicial discretion. The cases cited by plaintiff’s counsel in support of such an order involved testimony which was proved to be knowingly fabricated. In other words, the parties therein were shown to have perjured themselves. Notwithstanding the inconsistencies and reconstructions running through Ms. Dizon’s evidence that rendered her an unreliable witness, I have not gone so far as to find she knowingly lied on the witness stand and therefore would not punish her personally. She is not the only person involved in the defendant’s affairs and I do not know the full extent for which she was responsible for the mistakes, errors in judgment, ill conceived positions and poor advocacy illustrated throughout the conduct of the defendant’s case. Similarly, I do not know the extent to which Mr. Fung was involved in this poor outcome. Thus I decline to award costs against either of them.
[94] The plaintiff is entitled to judgment against the defendant in the sum of $202,053.90 plus court order interest and special costs.
[95] The counterclaim and third party claims are dismissed with special costs payable by the defendant.
[96] The claim for special costs against Ms. Dizon and Mr. Fung is dismissed.
“Madam Justice Kloegman”