IN THE SUPREME COURT OF BRITISH COLUMBIA

Date: 20120712

Docket: S114281

Registry: Vancouver

Between:

Dan Luft and Synergetic Search Inc.

Plaintiffs

And

Edward Ball, Christine Ball, Coast Industrial Maintenance & Machine (Canada) Ltd. and Coast Industrial Maintenance & Machine Ltd.

Defendants

And

Coast Industrial Maintenance & Machine (Canada) Ltd., Coast Industrial Maintenance & Machine Ltd., Edward Ball, Christine Ball and 0695844 B.C. Ltd.

Third Parties

Before: Master MacNaughton

Reasons for Judgment

[1]             The applicant defendants, Edward Ball and Coast Industrial Maintenance & Machine Ltd. (“Coast BC”), apply to vary my January 5, 2012 interim order (the “Order”) requiring Coast Industrial Maintenance & Machine (Canada) Ltd. (“Coast Canada”) to retain an auditor. The variance they seek would require the plaintiff, Synergetic Search Inc. (“Synergetic”), to pay for, or finance, one-half of the auditor’s fee. Coast BC has agreed to pay for the other half.

The January 5, 2012 Interim Order and the application to vary

[2]             Synergetic and Coast BC are each 50% shareholders of Coast Canada, a company which was incorporated on October 18, 2006. The plaintiff, Dan Luft, is a director and shareholder of Synergetic and the defendant, Mr. Ball, is a director and shareholder of Coast BC. Mr. Luft and Mr. Ball are the only directors of Coast Canada.

[3]             Coast Canada, which was the subject of the Order, was not represented by counsel on this application. Mr. Ball purported to represent it on January 5.

[4]             On this application, Christine Ball appeared through counsel. I did not permit her to make submissions as she had no legal or beneficial interest in Coast Canada and no standing to make submissions on its behalf.

[5]             I heard submissions from counsel on behalf of Coast BC, from Mr. Ball in his personal capacity, and from counsel on behalf of Synergetic and Mr. Luft. Synergetic and Mr. Luft objected to Coast BC’s standing to make submissions. I indicated that I would hear Coast BC’s submissions and then decide whether it had standing. I have decided that it is not necessary for me to determine the standing issue. In the interests of fairly considering this application, and in the absence of anyone representing Coast Canada, I have considered all of the submissions that were made.

The Litigation

[6]             In this action, the plaintiffs allege that the defendants have engaged in fraud, embezzled funds from Coast Canada, and engaged in corporate oppression of its shareholder Synergetic.

[7]             There is also an Alberta action between these parties and others. The status of the Alberta action is not explained in the materials. However, it appears that in it, in part, Mr. Ball alleges that Mr. Luft was diverting business from Coast Canada to his own companies. Apparently, an Anton Pillar order was obtained against Mr. Luft in that action.

[8]             From the proceedings in both actions, it is apparent that there is a deep mistrust between all of the parties and significant, unproven, allegations of wrongdoing on all sides.

[9]             When the parties appeared before me on January 5, 2012, the sole issue was whether Synergetic, as a shareholder of Coast Canada, was entitled to an order pursuant to the Canada Business Corporations Act, R.S.C. 1985, c. C-44 (“CBCA”), that Coast Canada retain an accountant to prepare audited financial statements. I made the Order on the basis that there had been no unanimous shareholders agreement to waive the audit requirements in the CBCA. I ordered that:

...within 21 days of this order, Coast Canada must retain a Certified General Accountant or Chartered Accountant...and direct them to prepare audited financial statements for the years 2008 through 2011.

[10]         I also directed Coast Canada to notify the shareholders of the name of the auditor, provide the auditor with a copy of the order, and distribute the  financial statements, once completed, to the shareholders.

[11]         According to the material filed on this application, pursuant to the Order Clearline Chartered Accountants have been appointed to conduct the audit of Coast Canada’s financial statements for the years ended June 30, 2008 - 2011.

[12]         Clearline required an initial retainer of $10,000. Coast BC agreed to fund its half of the cost and Mr. Ball proposed to Synergetic and Mr. Luft that they pay the other half of the cost. Synergetic and Mr. Luft did not agree which led to this application.

The parties’ arguments

[13]         Because the applicant defendants agree that an audit should be performed they do not challenge the terms of the Order. However, they seek to have it varied to provide that Coast Canada’s shareholders be responsible for sharing the costs of the audit.

[14]         The applicant defendants seek leave to rely on information which they say demonstrates that Coast Canada is impecunious; it has no active business operations, no business revenues or expenses for the year 2011, and no money in its bank account. They submit that it cannot pay for the audit that was ordered. They rely on their position that the only activity in Coast Canada’s bank account is a monthly $10,000 loan payment which it makes to the Royal Bank of Canada with money loaned to it by Coast BC. The applicant defendants submit that the loan payment is further to a forbearance agreement entered into between RBC and Coast Canada.

[15]         Mr. Ball’s April 4, 2012 affidavit exhibits Coast Canada’s banking statements for the twelve months ending December 2011. They show $10,000 coming in and out of Coast Canada’s account and little other activity.

[16]         Mr. Luft and Synergetic oppose this matter being reopened. They submit that the Order was clear and that when Coast Canada was ordered to retain an auditor that meant appointing one and paying for its services. They dispute that Coast Canada is impecunious. Specifically, they say that the monthly $10,000 Coast BC deposits into Coast Canada’s account, to permit it to pay the RBC loan, is a repayment of a debt that Coast BC owes to Coast Canada as reflected in Coast Canada’s financial statements.

[17]         In response, in his November 10, 2011 affidavit, Mr. Ball deposes that the financial statements contain an error and that Coast Canada did not loan money to Coast BC. In submissions, counsel for Coast BC indicated that the financial statements would have been amended but Coast Canada has been unable to pay its former accountant’s outstanding invoices.

[18]         Whether Coast Canada is owed money by Coast BC is clearly in contention between the parties.

[19]         In addition, Mr. Luft and Synergetic refer to two cheques totalling close to $600,000 which were signed by Mr. and Ms. Ball, as officers of Coast Canada, and made payable to Coast BC. Mr. Luft and Synergetic submit that these cheques were not authorized and have not been explained in the materials before me.

[20]         This matter is also in contention between the parties.

[21]         Although the applicant defendants seek leave to rely on a shareholder’s agreement, they do not argue that had it been before me it on January 5, 2012 it would have changed the outcome because it waived the requirement for audited financial statements. Rather, they accept that the audit should have been ordered. They merely seek to rely on the shareholder’s agreement, as context, to explain the nature of the parties’ shareholder relationship.

[22]         The applicant defendants say that it was always the shareholders reasonable expectation that the cost of any audit, if conducted, would be shared proportionally in relation to the shareholdings of Coast BC and Synergetic. They submit that the court does not make an order that it knows cannot be complied with and that the fair and practical approach is to consider the impecuniosity of Coast Canada and vary the Order to require that the costs of the audit be shared.

The legal principles

[23]         The court may reconsider an issue, before the entry of an order, to prevent a miscarriage of justice. However, that discretion is to be exercised sparingly to prevent fraud and abuse of process. An issue may be reconsidered where new, relevant evidence is adduced that was not earlier available or where the original judgment is in error because it overlooked material evidence: Clayton v. British American Securities Ltd. et al., [1935] 1 D.L.R. 432 at pp. 440-441 (BCCA) and Sykes v. Sykes (1995), 6 B.C.L.R. (3d) 296 (BCCA).

[24]         These principals and others which apply to the exercise of discretion to admit fresh evidence were summarized in Zhu v. Li, 2007 BCSC 1467:

a)    Prior to the entry of the formal order, a trial judge has a wide discretion to re-open the trial to hear new evidence.

b)    This discretion should be exercised sparingly and with the greatest care so as to prevent fraud and abuse of the court’s process.

c)    The onus is on the applicant to show first that a miscarriage of justice would probably occur if the trial is not re-opened and second that the new evidence would probably change the result.

d)    The credibility of the proposed fresh evidence is a relevant consideration in deciding whether its admission would probably change the result.

e)    Although the question of whether the evidence could have been presented at trial by the exercise of due diligence is not necessary determinative, it may be an important consideration in deciding whether a miscarriage of justice would probably occur if the trial is not re-opened. (para. 20)

[25]         In this case, the shareholder’s agreement and the evidence of Coast Canada’s impecuniosity were matters which Mr. Ball, on his own behalf and on behalf of Coast Canada, attempted to raise in argument on January 5, 2012 without the necessary information being appropriately before the court.

[26]         I have determined that it would not be appropriate for me to exercise my discretion to reopen the proceedings to consider the shareholder’s agreement or the evidence of Coast Canada’s impecuniosity.

[27]         With respect to the shareholder’s agreement, that is because the applicant defendants are not truly relying on its terms as a basis for varying the terms of the Order. While it might have been open to them to argue that the shareholder’s agreement contained a unanimous provision waiving the audit requirement, they do not make that argument. They accept that it is in the interests of justice that the audit be carried out. They seek to rely on the shareholder’s agreement only with respect to context. It does not help them in that regard because it does not oblige the shareholders to contribute equally to Coast Canada’s expenses.

[28]          It is primarily the evidence with respect to Coast Canada’s impecuniosity on which the applicant respondents rely to vary the Order. This evidence was available to the applicant defendants before the Order was granted. However, accepting that Mr. Ball was self-represented, and may not have understood that not all the material in a file is before a decision-maker on an application, I have considered that evidence to determine whether, if admitted, it would probably have changed the outcome.

[29]         I conclude that it would not.  I cannot, on the material before me, meaningfully assess the credibility of that evidence.  The characterization of Coast BC’s advances to Coast Canada continues to be in issue between these parties. It is Coast Canada’s financial position which is central to the overall issues in dispute in this action. Further, while the applicant defendants say that the existing financial statements erroneously refer to a loan Coast Canada made to Coast BC that error is significant and I would have expected better evidence about it. The auditors who prepared the financial statements have not, for example, explained the error. Finally, Mr. Ball and Ms. Ball do not explain the two cheques which they signed on behalf of Coast Canada and issued to Coast BC.

[30]         As a result, I deny the applicant defendants’ application to admit fresh evidence and reconsider. The Order was directed to Coast Canada and required it to retain auditors. The meaning of “retain” was clear, Coast Canada was to secure and pay for the services of an auditor.

“Master MacNaughton”