Konicek v Vantown Infrastructure Invesco Inc.

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

Konicek v. Vantown Infrastructure Invesco

Inc.,

2022 BCSC 1590

Date: 20220909

Docket: S189109

Registry: Vancouver

Between:

And

Ralph Konicek and Jennic #60 Holdings Ltd.

Plaintiffs

Vantown Infrastructure Invesco Inc.,

R.S.K. Excavating & Contracting Ltd.,

Paul Leung, Amy Hung Ying Leung,

The Crown in Right of Canada

Defendants

And

Ralph Konicek and Jennic #60 Holdings Ltd.

Defendants by Counterclaim

Before: The Honourable Madam Justice W.A. Baker

Reasons for Judgment

Counsel for Plaintiffs and Defendants by

Counterclaim:

M. Dew

J. Mackoff

Counsel for Defendants, Vantown

Infrastructure Invesco Inc. and R.S.K.

Excavating & Contracting Ltd.:

D. Taylor

C. Holloway

The Defendant, Paul Leung, Appearing in

Person:

Paul Leung

Amy Leung

The Defendant, Amy Hung Ying Leung,

Appearing in Person:

Konicek v. Vantown Infrastructure Invesco Inc.

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Place and Date of Trial:

Vancouver, B.C.

October 12-14, 18-22, 25, 27-29,

2021

November 1-5, 29-30, 2021

December 1-2, 2021

January 17-21, 2022

Place and Date of Judgment:

Vancouver, B.C.

September 9, 2022

Konicek v. Vantown Infrastructure Invesco Inc.

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Table of Contents

I. INTRODUCTION ................................................................................................ 4

II. BACKGROUND ................................................................................................. 4

III.

ISSUES......................................................................................................... 18

A. Credibility ...................................................................................................... 19

B. Did the plaintiffs breach the SPA and its associated agreements? ............... 25

1. Failed to satisfactorily maintain ongoing good faith relationships with

customers and clients....................................................................................... 28

2. Failed to qualify or register RSK for work projects..................................... 31

3. Failed to bid competitively/ Failed to pursue and secure projects.............. 33

4. Failed to pursue and secure “as and when” work...................................... 37

5. Failed to satisfactorily maintain key equipment ......................................... 37

6. Published his intention to retire and his belief Vantown would not complete

the transaction; ................................................................................................. 41

7. Failed to properly maintain and hand-over financial and business records43

8. Failed to deliver RSK as a “turn-key” operation......................................... 49

9. Conclusion on breaches of SPA................................................................ 51

C. Did Mr. Konicek make any fraudulent misrepresentations? .......................... 58

D. Are the plaintiffs liable in equitable fraud?..................................................... 61

E. Did the plaintiffs breach a duty of good faith owed to the defendants? ......... 61

F. Are the defendants entitled to any damages which must be set off against

amounts owing to the plaintiffs under the SPA and its associated agreements?.. 61

G. What amounts, if any, remain payable by Vantown to the plaintiffs under the

SPA and its associated agreements?................................................................... 63

H. Are the guarantees granted by RSK and Paul Leung, and the mortgage

granted by Paul and Amy Leung, valid?............................................................... 66

1. RSK/Paul Leung Guarantees .................................................................... 66

2. The Leung Mortgage ................................................................................. 69

IV.

CONCLUSION.............................................................................................. 74

V. COSTS ............................................................................................................. 75

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I.

INTRODUCTION

This action arises out of the sale of a business in Kitimat, British Columbia.

[1]

The plaintiffs, Ralph Konicek and Jennic #60 Holdings Ltd. (“Jennic”), sold their

shares in R.S.K. Excavating & Contracting Ltd. (“RSK”) to Vantown Infrastructure

Invesco Inc. (“Vantown”) pursuant to a share purchase agreement, dated April 27,

2016 (the “SPA”). The purchase price was partially paid on completion, and partially

paid by promissory notes secured with a deferred payment loan agreement

(the “DPLA”). The DPLA was guaranteed by RSK and was personally guaranteed by

Paul Leung. Mr. Leung and his wife, Amy Leung, granted a mortgage over their

family home in Vancouver as further security for the DPLA.

[2]

Vantown defaulted on the payments required under the DPLA. The plaintiffs

brought foreclosure proceedings to recover the outstanding amount, pursuant to the

security granted under the DPLA, including the Leung mortgage. The defendants

have defended this foreclosure proceeding on the basis that the plaintiffs defaulted

on various obligations and covenants they owed pursuant to the SPA, or made false

representations in the SPA, and that Vantown suffered resulting losses which must

be set off against any amounts owing under the DPLA, with the result being that no

amounts are due and owing to the plaintiffs under the SPA or the DPLA.

[3]

Vantown and RSK also counterclaim against Mr. Konicek and Jennic, seeking

damages sounding in fraudulent misrepresentation, breach of contract, breach of

duty of good faith and honest performance, and equitable fraud.

II.

BACKGROUND

[4]

Ralph Konicek lived in Kitimat virtually his entire life. He left high school to

start working in a paper mill in Kitimat, BC, where he worked until 1984. Mr. Konicek

started a small landscaping company shortly thereafter.

[5]

Mr. Konicek was successful, and gradually his residential landscaping

business grew to a commercial and industrial landscaping business. He acquired

heavy equipment as his business grew. By 1990 Mr. Konicek had 6–10 employees

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during his busy seasons. In the summer he did landscaping, and installed and

maintained irrigation systems and flower beds. In the winter he did snow removal,

site maintenance, and sanding/salting.

[6]

In 1991 Mr. Konicek incorporated his business as R.S.K. Excavating &

Contracting Ltd., and RSK purchased its first commercial property. On that property,

RSK built an office and a shop. RSK was able to store up to six pieces of heavy

equipment on the property.

[7]

While RSK had grown from a small proprietorship, Mr. Konicek continued to

do the accounting work for the company, with the assistance of his wife. It was an

unsophisticated system, entirely paper based. At the end of the year, he would send

all the documents for the business to his accountant, Mr. Brian Perry, who would

then prepare the annual financial statements and tax returns.

[8]

In the late 1990s and early 2000s, RSK developed what would become a

significant relationship with Alcan in the town of Kemano. The town of Kemano

existed to support the dam and power plant associated with Alcan’s operations. In

approximately 2000, the power generating plant was modernized and could be

operated remotely from the Alcan smelter in Kitimat. This resulted in the Kemano

town site being decommissioned. RSK obtained a contract to assist in

decommissioning the town site, including demolition of buildings, shortening sewer

lines, removing fire hydrants, cleaning up hazardous materials, and general clean up

work.

[9]

The Kemano town site decommissioning project was a significant one for

RSK, both in terms of scale and revenue. RSK received approximately $1,000,000 a

year, for two years, from this project.

[10] In 2001 RSK purchased a new commercial property at 266 Third Street,

Kitimat. This property was larger and could accommodate RSK’s 8-10 pieces of

heavy equipment, as well as smaller equipment.

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[11] RSK generally operated in the Kitimat/Terrace/Prince Rupert area. Before

2008, RSK performed a variety of work, including excavating, simple road

construction, material handling, heavy equipment services, and snow removal. The

work was low complexity, and fluctuated significantly year to year. Revenue

fluctuated from a high of approximately $1,000,000 in 2003, to a low of

approximately $350,000 in 2004. From 2006 to 2008, RSK’s revenues were

approximately $570,000 each year.

[12] In 2008 a very significant new project began in Kitimat—the Kitimat

Modernization Project (“KMP”). The Kitimat smelter was owned and operated by

Rio Tinto Alcan (“RTA”), and the decision was taken by RTA to upgrade the old

aluminum smelter. This was a unique mega project with a budget of $4.8 billion

USD. The project began with site preparation from 2008 to 2011. From 2012 to

2014, the project was in full swing and, by the fall of 2015, it was starting to wind up.

Bechtel was retained by RTA as the engineering, procurement and construction

manager from the inception of the KMP until the project started to wind down in

2015.

[13] RSK, and Mr. Konicek, had an excellent relationship with Bechtel and with

RTA. All of RSK’s contracts relating to the KMP were managed by Bechtel. Any work

with RTA unrelated to the KMP, was handled by RTA directly.

[14] RSK performed site preparation work for the KMP between 2008 and 2011,

and continued with four separate master agreements once the KMP got underway in

2012. Those agreements were the General Services Agreement, the As and When

Agreement, the Bussing Agreement, and the KMP Construction Site Snow Removal

Agreement. All were time and material contracts, and RSK was able to charge

premium rates under them. In addition, RSK continued to perform a lesser amount of

work for RTA unrelated to the KMP.

[15] As a result of the unique opportunity provided by the KMP, RSK’s revenues

soared. Annual revenue rose from $21 million in 2012 to $55 million in 2015.

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[16] By 2014, Mr. Konicek decided it was time to sell the company and retire. He

hired Sequoia Mergers & Acquisitions Corp., a company which assists vendors in

selling their businesses. Sequoia assisted in marketing RSK and represented

Mr. Konicek in any sale negotiations. The primary person at Sequoia dealing with

the RSK sale was Mr. Chris Larmer, although Mr. Andrew Blazenko and Mr. Brent

Cunningham were also involved.

[17] In September 2014, Sequoia prepared a confidential information

memorandum (“CIM”) which was intended to interest potential buyers in the

purchase of RSK. The CIM expressly stated on its face that it was intended to

convey preliminary information to potential buyers, and that all prospective buyers

were responsible for doing their own due diligence before any acquisition. Further,

the CIM confirmed that Sequoia took no responsibility for the accuracy of the

information in the CIM, and all representations and warranties “shall be made solely

by the Company [RSK] in a signed purchase and sale agreement”.

[18] Mr. John Gordon was introduced to the RSK opportunity in the fall of 2014

through Mr. Larmer, who is his cousin. Mr. Gordon’s father was a businessman with

experience in the oil and gas industry. In the fall of 2014, Mr. Gordon met with

Mr. Konicek, together with Mr. Gordon’s father, to discuss RSK. At that meeting,

Mr. Konicek showed the Gordons around Kitimat and the RTA sites, as well as the

RSK shop. By the end of November 2014, Mr. Gordon proposed to Mr. Konicek that

they work towards negotiating a sale of RSK for between $25,000,000 and

$28,000,000 to a buyer group called the Sibbick Group, comprised of Mr. Gordon’s

father and Glen Sibbick.

[19] In January 2015, a letter of intent was executed between NBC Servco, a

company owned by Mr. Gordon’s father, and RSK for a sale price of $25,000,000.

Mr. Gordon was actively involved in the due diligence conducted for NBC Servco.

[20] Following a request from Mr. Gordon, in February 2015 Mr. Konicek provided

Mr. Gordon with a letter setting out “current obligations on RTA site (possible

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opportunities) (snow removal, as & when, general services, bussing)”. In this letter,

Mr. Konicek stated the following potential opportunities with RTA:

a) There is a great deal of uncertainty about the exact end date for RSK on

the KMP site. RTA would perhaps issue a contract directly to RSK to

continue on, i.e. after Bechtel’s contract ended.

b) Ongoing maintenance to plant and equipment and grounds.

c) Possibility to secure plant-side snow removal through disgruntlement with

current snow removal provider (HEL).

d) Release of ongoing internal projects/tenders from RTA.

e) Decommissioning and remediation of the current operation portion of the

RTA smelter.

[21] In that same February 2015 letter, Mr. Konicek outlined possible opportunities

with Chevron/Apache’s anticipated LNG project in the area, and possible

opportunities with Prince Rupert LNG-Lelu Island-Petronas.

[22] Mr. Konicek stated that the “opportunities are endless and are only limited by

management’s position on which projects to pursue and what services to provide.”

Mr. Konicek also included the following critical qualifier:

Obviously, there are no guarantees past September 30 this year.

I [personally] am confident that there will be some sort of extension requested

past September 30 by RTA; the extent of which I cannot comment on. It is my

opinion that completion dates for all does not look realistic at this point in

time, and I am unaware of the contract limitations between RTA and Bechtel

so as to understand what factors or influences are at play.

The gearing down of this project will give RSK the opportunity to reassess its

equipment fleet, personnel (identify key personnel and circumvent others)

and begin to actively pursue other clients (up to and including now. We have

been unable to do this because we simply cannot take the chance of

disappointing future clients, by not being able to respond. We are still adding

manpower to satisfy RTA/Bechtel’s requirements. My own will to expand is

also not there).

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[23] Mr. Konicek testified that his intention in writing the February 2015 letter was

to outline the possibilities that existed for future owners, should they wish to pursue

them. He was not representing that he was intending, on behalf of RSK, to take RSK

in any particular direction.

[24] By March 2015 the NBC Servco deal had fallen apart. Through Mr. Larmer,

Mr. Gordon met with Brian Gessner. Mr. Gessner introduced Mr. Gordon to potential

investors who might be interested in RSK. Through this relationship, an investor

known as the Hillcore Group (“Hillcore”) became interested in RSK. Mr. Gordon was

engaged by Hillcore to provide operational due diligence in relation to RSK.

[25] Mr. Gordon met with Mr. Konicek in Salmon Arm in May 2015, on behalf of

Hillcore. Mr. Konicek candidly admitted that he has no recollection of this meeting,

but did not deny it took place. Mr. Gordon prepared a memo to file following the

meeting. This memo set out a number of key points.

[26] The memo discussed Mr. Konicek’s vision for a hand over the company,

which included showing Mr. Gordon the “ropes” and introducing him to staff and

clients, and guiding him through general processes and procedures currently

employed by RSK, followed by Mr. Konicek stepping back and shadowing

Mr. Gordon. Mr. Konicek and Mr. Gordon would work hand in hand doing business

development. The memo then summarized discussions about possible new

business, possible ISO accreditation, and the desire to retain Nathan Medeiros as a

key employee. In his evidence at trial, Mr. Gordon noted that the discussions were in

the vein of what Mr. Konicek would do if he was purchasing the company. The

plaintiffs submit, and I agree, that the nature of these conversations was not what

Mr. Konicek was planning to do himself with RSK in the future, but rather what a

purchaser itself could do with RSK.

[27] Sequoia prepared a virtual data room for potential purchasers, which

contained documents requested during the due diligence process. Mr. Gordon first

had access to such a data room when he was investigating RSK for NBC

Servco/Sibbick. He gained access to a new data room when he began conducting

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due diligence for Hillcore. Mr. Blazenko testified that with each new potential buyer,

a new data room was created, but his practice was to copy to the new data room the

documents which had been requested by previous potential buyers.

[28] Mr. Larmer testified that Sequoia does not suggest offer prices to prospective

buyers, or suggest what buyers should investigate as part of their due diligence.

Sequoia’s role is to facilitate a buyer’s due diligence by receiving requests for

information from the buyer, and passing those requests on the client/vendor or the

client’s consultants, such as lawyers or accountants, as directed by the client. The

information received by Sequoia is placed in the data room. It is up to the buyer to its

own assessment or verification of the data placed in the data room, and Sequoia

takes no responsibility for such data. Mr. Larmer was clear that due diligence is

buyer-driven process.

[29] For Hillcore, Mr. Gordon requested documents, including work requests and

purchase orders, for both Bechtel (i.e. KMP) work, and non-Bechtel work. The

plaintiffs submit, and I agree, that through such requests Mr. Gordon was aware of

the difference between such contracts.

[30] Mr. Gordon visited Kitimat in June 2015 to meet with Mr. Konicek. Mr. Gordon

documented the meetings he participated in. He was introduced to Mr. Medeiros to

discuss his future with RSK. He attended the Premier’s LNG working committee

meeting, and Mr. Konicek introduced Mr. Gordon to various union representatives.

Mr. Gordon observed signs around the RTA project indicating the KMP was 95%

complete, but noted that he felt the 95% figure was overstated. Mr. Gordon met with

the workforce services supervisor at Bechtel. Following that meeting, Mr. Gordon

made the following assessment: “My assessment is that there is a very minimum of

6-9 months work required to complete the KMP. As the catch all contractor RSK will,

in my opinion, be the last to leave. There is also the possibility that RSK will assume

further responsibility on site as and when Bechtel and Bantrel complete the project

and leave site.”

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[31] Mr. Gordon noted that Mr. Konicek arranged a meeting with RTA to discuss

direct contracts after KMP. Mr. Sylvain Lemay, the procurement manager, was

supposed to attend this meeting, but had a family emergency and was unable to

attend. Mr. Konicek was able, instead, to arrange a meeting with Mr. Dwight Magee,

from RTA corporate relations. At that meeting, and as confirmed in his testimony at

trial, Mr. Magee stated that RSK performed well during the KMP. Mr. Magee testified

that in his role with RTA, he was kept apprised of any difficulties or problems with

major contractors. He testified that he was never notified of any difficulties with

respect to RSK. He further confirmed that RTA continued to retain RSK for work

after the KMP was complete. Mr. Konicek testified that RSK received three

unsolicited work orders from RTA during the meeting with Mr. Magee. At the

meeting, Mr. Magee was told that Hillcore would become an equity partner in RSK.

[32] Mr. Gordon met with Mr. Ritchie, a representative of Bechtel, who discussed

both the KMP and an upcoming project with Petronas in Prince Rupert.

[33] Mr. Gordon met with a representative from Shell Canada regarding a planned

LNG facility. Mr. Gordon was of the view that RSK was well positioned for work with

Shell.

[34] Following his meetings in Kitimat in June 2015, Hillcore withdrew its interest

due in part to its “inability to confirm the outlook for revenues for RSK beyond the

imminent contract”.

[35] By September 2015, Mr. Gordon was again conducting due diligence on

RSK, this time for a group called Orestone. In October 2015, Orestone expressed

interest in purchasing RSK for $8,500,000. The opportunity with Orestone did not

proceed.

[36] In October 2015, Mr. Gordon was also in communication with a

representative of Adaptable Investments regarding the potential purchase of RSK.

On behalf of Adaptable, Mr. Gordon sought information from Mr. Larmer regarding

the value of opportunities for RSK, and the competitors with RSK. Mr. Larmer replied

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to Mr. Gordon, “If they are focussing on RTA as the upside for the future of RSK,

they’re barking up the wrong tree. I would say that Shell would be a better place to

focus energy.” On October 30, 2015, Mr. Kai Chen of Adaptable wrote to Mr. Gordon

indicating that it was not likely that either Shell or PetroChina would have interest in

mega projects in the LNG sector, and that there was a 14-year oversupply of LNG

around the globe which would create financial stress on LNG players. As a result,

Adaptable declined to make an offer for RSK.

[37] In December 2015, Mr. Gordon was introduced to Mr. Leung through contacts

of Mr. Gessner. Mr. Leung described Mr. Gessner as a senior vice president of

private banking at the Bank of Montreal, and a person for whom he had a great deal

of respect and admiration. Mr. Gessner had passed away by the time of trial.

Mr. Leung had a background in accounting and computer science. He was looking to

RSK as an investment which would create a revenue stream for him and his family.

He was not knowledgeable about the kind of business RSK was engaged in.

[38] On December 17, 2015, Mr. Gessner emailed a letter of intent to Mr. Larmer,

copied to Mr. Leung and Mr. Gordon. Mr. Gessner, Mr. Leung, and Mr. Gordon

would ultimately form Vantown for the purpose of purchasing the shares in RSK. The

highlights of the proposed letter of intent were summarized by Mr. Gessner in his

email as follows:

Here is the final LOI for presentation to Ralph. Ralph should know:

1. We will have $600,000 working capital.

2. We hope to close earlier than February 28 if possible.

3. Our due diligence in principle is complete.

4. We will cover Ralph’s closing costs.

5. The $3 million VTB is well secured with Residential Home consisting of

$5M equity plus tail end equity on Equipment and Land & Building value

about $1.8 M. VTB $3M vs asset valuation $7.8M : LTV 39%

6. VTB could be repaid as early as 6 months from completion date.

Hope everyone is onside let me know. Chris would like to present to Ralph on

Friday before he goes out of town.

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[39] Negotiations on the letter of intent carried on through January and February

2016. Key information was exchanged, as follows:

a) On January 11, 2016, Mr. Larmer advised Mr. Leung that “RSK has never

recorded financial data (in an accounting program) on a monthly basis, to

produce monthly income statements and balance sheets”.

b) On January 11, 2016, Mr. Leung asked for RSK’s monthly operating

expense summary for October to December 2015. Mr. Larmer advised

Mr. Leung that RSK “historically had to send the physical data (i.e. bill

statements, invoices, etc.) to their accountant in Terrace for review and

reporting.”

c) On January 18, 2016, Mr. Leung asked Mr. Larmer how RSK’s

performance was warranted, and whether Mr. Konicek would warrant the

RSK would have at least $1,800,000 in monthly revenue. Mr. Larmer

responded:

Per our conversation just now, Ralph makes no warranties about

future revenue for the company. Given that you are getting the

business for just over its orderly liquidat-able value, financial

performance wouldn’t be a determinant in a valuation for the

company. If it were and we were basing it on revenue of $1.8MM per

month (at 20% EBITDA margins), the value of the company would far

exceed what is being paid.

There are many opportunities to drive revenue up in the area and

RSK has a good reputation, so I expect that you should do very well.

d) On January 20, 2016, Mr. Leung wrote to Mr. Larmer confirming, “we have

done only limited due diligence on RSK and like you said there is no

warrants on performance from revenue to EBITDA.”

e) On January 28, 2016, Mr. Leung wrote to his business partners,

Mr. Gessner and Mr. Gordon, copy to his wife, setting out his concerns

including:

Here are the concerns from my wife and myself as well:

Konicek v. Vantown Infrastructure Invesco Inc.

1. There is no warrant on the revenue and EBITDA from the

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vendor.

2. The accounting system cannot provide monthly financials

for us to analyse their monthly revenue vs expense, business

cycles and trends.

3. There are no contracts with any customers to guarantee

some amount of revenue over a period of time.

4. We rely on the due diligence from the other buyers that

failed to close the deal.

[40] On January 29, 2016, Mr. Leung wrote to Mr. Larmer regarding issues with

the letter of intent. In this email he acknowledged, “I hope Ralph can also see it from

our perspective, there is no protection on our end that his business will maintain

certain minimum revenue and EBITDA.”

[41] On February 18, 2016, the plaintiffs signed a letter of intent wherein Vantown

would purchase all the shares in RSK for $7,900,000. $5,000,000 would be paid on

closing, and the remaining $2,900,000 would be secured by a vendor take back

loan, to be paid in six equal quarterly installments, bearing interest at 4.5% (the

DPLA). The DPLA would be further secured by a personal guarantee from Mr.

Leung and a mortgage on Mr. and Mrs. Leung’s home.

[42] The letter of intent contained a condition precedent that RSK would retain

Mr. Gordon to provide business development services until the closing date or the

termination of the letter of intent.

[43] The letter of intent proposed that a definitive agreement would be entered into

by March 31, 2016, and the closing date would be April 15, 2016. If the definitive

agreement was not executed by March 31, 2016, the letter of intent would terminate.

Vantown also had the right to terminate the letter of intent if on or before March 31,

2016, it advised the plaintiffs that “the results obtained from its due diligence review,

including the review of RSK’s financial statements, 2015 tax returns and Notice of

Assessment from CRA, demonstrate that the actual business, operations, assets or

financial condition of RSK are different from its understanding”.

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[44] On March 2, 2016 Vantown was incorporated. Mr. Gordon, Mr. Leung and

Mrs. Leung were directors on incorporation.

[45] On March 8, 2016, Vantown and Mr. Leung executed the letter of intent to

purchase the shares of RSK.

[46] Vantown had access to the data room maintained by Sequoia throughout

2016 prior to the SPA being executed. The data room was updated with new

information requested by Vantown, including a 2016 list of receivables. The 2016

receivables list and invoice log were provided to the lawyers for Vantown, and

Mr. Leung confirmed under cross-examination that he received these documents.

[47] On April 2, 2016, Mr. Gordon wrote to Mr. Konicek seeking to restructure the

deal to allow for adequate working capital during “this downturn period”. Essentially,

he sought to reduce the payment on closing, and to defer a further $1,900,000 for

approximately six months. Mr. Gordon acknowledged under cross-examination that

he made this proposal in light of the fact that RSK’s revenue had dropped below the

operating expenses of $250,000 per month. In an email dated April 3, 2016,

Mr. Gordon acknowledged that revenue had diminished so much that they were

concerned they were undercapitalized.

[48] Mr. Konicek testified that he had numerous discussions with Mr. Gordon in

which he confirmed that the revenues in RSK were dropping off and there was not

much work on the horizon, and in which Mr. Gordon confirmed that he was buying

RSK for its future potential, not its present work.

[49] Mr. Larmer had a conversation with Mr. Leung on April 4, 2016, where

Mr. Leung expressed concern with the financial status of RSK in January, February,

and March 2016, and stated his view that RSK was not a going concern. Mr. Larmer

told Mr. Leung that he had been told all along that the buyers could not rely on any

revenue from any of the existing projects of RSK. Mr. Leung testified that he had no

recollection of this conversation. However, I accept the evidence of Mr. Larmer and

find that this conversation did take place.

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[50] On April 4, 2016, Mr. Leung wrote to Mr. Larmer acknowledging that revenue

in RSK dropped to $60,000 in March 2016, and that the buyers would need a

nine-month runway to rebuild the business of RSK. Mr. Larmer replied to Mr. Leung

the same day, with the following:

As discussed and agreed on the phone this morning, we were transparent

with you all the way along that the business revenue was on a steady decline

and that at some point soon, the RTA project would come to a conclusion.

You accepted this from the beginning and nothing has changed on our end.

[51] In the same email to Mr. Leung dated April 4, 2016, Mr. Larmer told the

buyers that the SPA was not signed by March 31, 2016 and, therefore, the letter of

intent had expired. Nevertheless, he expressed Mr. Konicek’s willingness to close

the transaction on the terms set out in the letter of intent, by April 15, 2016, and

asked Mr. Leung to respond if the buyers wished to proceed.

[52] On April 10, 2016, Mr. Gordon wrote to Mr. Larmer proposing the first DPLA

payment under the DPLA should be deferred until December 31, 2016. Mr. Larmer

responded that Mr. Konicek would agree to defer the first payment until

December 31, 2016, provided the SPA was signed that week (of April 10, 2016).

[53] On Monday, April 12, 2016, Mr. Larmer wrote to Mr. Leung, Mr. Gessner, and

Mr. Gordon advising them of RSK’s position at that time with respect to future work.

In particular, Mr. Larmer advised:

Ralph said that RSK is not on the list for the RTA plant decommissioning

project, since he didn’t think the deal was going to happen with you guys. If

he had put in for the tender, he would have been obligated for future work

and since he is retiring, this wasn’t in line with his personal objectives.

…

Ralph mentioned to me again this morning to make clear to you guys that he

has plans put in place that will not be reversible after Friday and that this deal

will not be possible after this Friday if we do not have a signed SPA. This is

not a posturing, it is a fact and he wants to make sure that you know this is

the case.

[54] The SPA was not finalized and signed by the parties by Friday, April 15,

2016.

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[55] On April 22, 2016, Mr. Gessner wrote to Mr. Larmer regarding financing

issues, and confirmed that he understood that they were buying a business with no

customers, “just forecasts and future considerations”, and that there would be no

revenue for the first six months after closing.

[56] On Monday, April 25, 2016, Mr. Gordon wrote to Mr. Larmer confirming that

he had spoken to Mr. Konicek the previous Saturday. Mr. Konicek was frustrated

and described his options to Mr. Gordon as including a sale to Vantown, liquidating

the company and winding it up, or allowing the key employees of RSK to operate the

company to see if they could manage it. Mr. Gordon stated to Mr. Larmer:

The reality is that RSK is a difficult sale due to the economic downturn in

Kitimat. The entire north-west BC region is in a state of flux and waiting on

LNG or another major project to kick off. The local commercial and residential

real estate market are very soft for this same reason. Every lender but one

has turned down the mortgage opportunity due to the location being Kitimat.

[57] Mr. Gordon also told Mr. Larmer that he had no doubt that Mr. Konicek would

realize more value on the disposal of the equipment but it would take considerable

time and energy to do so. Mr. Larmer stated in his email that he believed $600,000

was enough capital to run the company with zero revenue for approximately

six months.

[58] On April 27, 2016, Mr. Konicek and his holding company, Jennic, entered into

the SPA with Vantown and Mr. Leung, pursuant to which they sold all their RSK

shares. The closing date was May 13, 2016. The first payment under the DPLA was

required on January 1, 2017.

[59] Following the execution of the SPA, the plaintiffs continued to provide

information to buyers regarding the business and operations of RSK.

[60] On June 10, 2016, the parties entered into an extension agreement,

extending the closing date to June 22, 2016.

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[61] Over the fall of 2016 and the first half of 2017, the parties exchanged email

regarding the accounting with respect to working capital and amounts payable post

closing, which were required to confirm the final amount owning under the SPA.

[62] No payment was made under the DPLA in January 2017, or at all. On

February 2, 2017, counsel for the plaintiffs gave notice of default to counsel for

Vantown, in accordance with the DPLA.

[63] On February 14, 2017, Mr. Konicek wrote to Mr. Leung confirming that

$2,900,000 pursuant to the DPLA was due and payable, and that he expected a

payment proposal from Vantown’s lawyer within the next two days. Also on February

14, 2017, Mr. Gordon replied to Mr. Konicek’s email confirming that their lawyers

were preparing a formal proposal, which Mr. Konicek could expect by February 17,

2017.

[64] On February 17, 2017, counsel for Vantown wrote to counsel for the plaintiffs

setting their client’s proposal, namely:

1. The VTB of $2.9m would be paid out in full and Ralph would release all

existing security.

2. The receivable note would be amended or replaced to be payable in full (to

the extent collected as at such date) on what would have been the final

payment date of the VTB and would be secured against the Kitimat Land &

Buildings.

[65] This proposal was not accepted.

[66] On June 19, 2017, almost a year after the deal closed, Vantown took the

position with the plaintiffs that they had breached the representations, warranties

and conditions which required RSK to remain a going concern in continuous

operation at times material to the sale and, as a result, the defendants owed nothing

under the DPLA.

III.

ISSUES

[67] In this litigation, the plaintiffs seek declarations that the DPLA is in default and

as to the amount owing pursuant to the loan, together with various remedies in

Konicek v. Vantown Infrastructure Invesco Inc.

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relation to the alleged breach of loan. The defendants seek judgment on various

losses which they say arise from the plaintiffs’ breach of covenants and

misrepresentations in relation to the SPA, and seek to set off such losses against

any amounts owing to the plaintiffs.

[68] I will address the issues raised by the defendants first, before determining the

loan amounts, if any, owning to the plaintiffs. As such, this litigation raised for

determination the following issues:

a) Did the plaintiffs breach the SPA and its associated agreements?

b) Did the plaintiffs make any fraudulent misrepresentations in relation to the

SPA and its associated agreements?

c) Are the plaintiffs liable in equitable fraud?

d) Did the plaintiffs breach a duty of good faith owed to the defendants?

e) Are the defendants entitled to any damages which must be set off against

amounts owing to the plaintiffs under the SPA and its associated

agreements?

f) What amounts, if any, remain payable by Vantown to the plaintiffs under

the SPA and its associated agreements?

g) Are the guarantees granted by RSK and Paul Leung, and the mortgage

granted by Paul and Amy Leung, valid?

h) Are any costs payable to any of the parties?

A.

Credibility

[69] Credibility issues were raised by all parties in this litigation. For the reasons

discussed below, and as referenced throughout my reasons, I found the witnesses

for the plaintiffs to be credible witnesses. I found the evidence of Mr. Gordon,

Mr. Leung, and Mr. Medeiros to raise significant adverse credibility issues.

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[70] The law as it relates to the assessment of the credibility and reliability of the

evidence of a witness is not controversial. In Bradshaw v. Stenner, 2010 BCSC 1398

at paras. 186–187, Madam Justice Dillon provides a very useful summary of the

principles engaged in a credibility analysis. Some of these factors include the

witness’ “. . . ability and opportunity to observe events, the firmness of his memory,

the ability to resist the influence of interest to modify his recollection, whether the

witness’ evidence harmonizes with independent evidence that has been accepted,

whether the witness changes his testimony during direct and cross-examination,

whether the witness’ testimony seems unreasonable, impossible, or unlikely,

whether a witness has a motive to lie, and the demeanour of a witness generally”.

[71] I have governed my assessment of the credibility of the witnesses in

accordance with the principles summarized in Bradshaw.

[72] In addition, it is important to consider the reliability of a witness’ evidence. For

example, there may be instances where a witness is an honest credible witness, but

specific pieces of evidence are not reliable due to the passage of time, or other

factors affecting the witness’ memory.

[73] Mr. Konicek candidly admitted that his memory of certain events was not

entirely accurate or reliable. He explained that he was getting older and was taking

some medication which, he suggested, may have affected his memory of specific

dates and some events. As an example of his memory difficulties, Mr. Konicek

admitted that he did not have a memory of a meeting held between him and

Mr. Gordon at his home in Salmon Arm in May 2015. He did not deny the meeting

took place, and he agreed that Mr. Gordon prepared a memo of that meeting that

likely reflected what was discussed. I am satisfied that Mr. Konicek was an honest

forthright witness, who readily admitted when his memory of specific events was

unreliable. However, I also accept that when his memory of an event was clear, his

evidence was credible and reliable.

[74] Mr. Gordon, on the other hand, gave evidence which was exaggerated and at

times at odds with the documentary evidence and evidence of other reliable

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witnesses. Examples of credibility concerns with Mr. Gordon are detailed throughout

my reasons. However, specific examples are set out below.

[75] At trial, Mr. Gordon testified he was shocked that prior to the closing

Mr. Konicek sold two trucks that were part of the inventory of assets of RSK. In his

direct evidence, Mr. Gordon stated that he was only told days before the closing that

Mr. Konicek had sold the trucks, and Mr. Konicek only let him know in a throw away

line.

[76] In fact, the documents show that Mr. Gordon and Mr. Konicek had discussed

the sale of this retired equipment as far back as April 2016 and, in fact, Mr. Gordon

supported the idea as the proceeds from the sale of the trucks would reduce the

financing needed by the purchasers. On May 17, 2016, Mr. Larmer wrote to Mr.

Gordon and Mr. Leung confirming the following:

Thank you for your confirmation that Ralph (on behalf of RSK) is authorized

to sell the two pieces of equipment (specifically, D250E Articulated End

Dump Truck with serial #4P500740 and D250E Articulated End Dump Truck

with serial #5TN01623) prior to the Closing Date for not less than $120,000

plus any applicable taxes.

Pertaining to this potential sale of the two D250 Articulating Rock Trucks, you

agree that should this sale of equipment take place, the Share Purchase

Agreement (SPA) is amended by deleting these Vehicles from the Equipment

set out in Schedule 3.35 of the SPA.

Both you (as Purchaser) and Ralph (as Vendor) agree that the proceeds of

the sale of the Vehicles will be held by RSK and, upon Closing, will be paid

by RSK to Travelers Finance Ltd. in partial repayment of the loan from

Travelers Finance Ltd. to RSK.

[77] The plaintiffs submit that Mr. Gordon’s evidence of being shocked about the

sale of the trucks, and only learning about the sale days before the closing at the

end of June 2016 demonstrated “a willingness to misreport events in an effort to cast

a bad light on Mr. Konicek.” I agree.

[78] Mr. Gordon testified that the plaintiffs received a general security agreement

over the property of the corporate defendants. This statement was not supported by

any documents at trial, and the SPA does not refer to any such agreement as a form

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of security. I find Mr. Gordon was careless in testifying, rendering his evidence less

reliable.

[79] Mr. Gordon testified at trial that he made only two or three trips to Kitimat prior

to the closing date. On discovery he agreed that he made at least six trips to Kitimat,

and possibly more. The email and other documents entered at trial support a finding

that he made more than three trips to Kitimat. The plaintiffs argue that Mr. Gordon

was attempting to minimize knowledge of and familiarity with RSK. I agree and find

that he was either careless or untruthful in his evidence, both of which impact his

credibility.

[80] In addition, throughout his testimony Mr. Gordon asserted his understanding

of commercial issues, such as costing formulae, pre-qualification processes,

accounting practices, and equipment maintenance records, as examples of what

was expected and agreed to between the parties. However, he did so in the absence

of any evidence that such matters were raised with Mr. Konicek before the sale (or

after the sale), or were even the subject of the due diligence by Vantown. I find this

evidence of Mr. Gordon to be a gross exaggeration of the mutual understanding of

the parties to the SPA, which severely undermined his credibility.

[81] Mr. Medeiros overstated his evidence in chief. Under cross-examination he

admitted the limited personal knowledge he had of certain broad statements he had

made. In addition, Mr. Medeiros swore an earlier affidavit in these proceedings,

which was the subject of cross-examination. In the affidavit, Mr. Medeiros similarly

overstated his personal knowledge and made a number of exaggerations and mis-

statements. While many of the mis-statements were not material, such as the

incorrect date set out for the commencement of the KMP, others were significant

and material. Mr. Medeiros made material mis-statements with respect to the

profitability of RSK, Mr. Konicek’s efforts to obtain work, the competitiveness of bids

made by RSK, the alleged termination of the working relationship between RTA and

RSK, the state of the equipment in the yard, the number of hours worked by Mr.

Konicek v. Vantown Infrastructure Invesco Inc.

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Johnstone, and Mr. Konicek’s alleged free and open conversations with clients about

liquidating the company.

[82] Under cross-examination, it became clear that Mr. Medeiros simply had no

direct knowledge of most of these material mis-statements, or his actual knowledge

contradicted the statements made in his affidavit. In the result, I have serious

credibility and reliability concerns with the evidence of Mr. Medeiros in chief. To the

extent his evidence was tested under cross-examination, I do accept some of his

evidence as is referred to in these reasons.

[83] Mr. Coleman’s testimony must also be approached with caution. Like

Mr. Medeiros, he swore an affidavit previously in this litigation, large portions of

which he resiled from at trial. Like Mr. Medeiros’ affidavit, the affidavit of

Mr. Coleman contained inaccuracies, exaggerations, mis-statements, and

generalizations for which Mr. Coleman had no personal knowledge. Mr. Coleman

testified that he continued working for RSK after the sale, and felt pressured by the

management of RSK to swear the affidavit and so he did, even though it was not

accurate. I accept this evidence of Mr. Coleman.

[84] The defendants subpoenaed Mr. Coleman, and sought leave to cross

examine him as an adverse witness. While being cross-examined by counsel for the

defendants, Mr. Coleman would often agree to things he did not recall. He would

give answers like “I am not sure, so I will say yes”. I place no weight on such

answers which appeared to me to be brought about by the stress he felt under

cross-examination, and not because the answers were in fact true.

[85] I am satisfied that under cross-examination by counsel for the plaintiffs, where

he was given an opportunity to answer questions without pressure, using his own

words and to the best of his recollection, Mr. Coleman gave credible and reliable

answers, which evidence I generally accept as referred to in these reasons.

[86] Mr. Leung’s evidence was often not credible and entirely self serving. His

evidence must also be approached with caution. For the most part, unless his

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evidence was corroborated by documentary evidence, or the evidence of a credible

witness, I have placed little weight on it.

[87] Examples of Mr. Leung’s unreliable evidence include his testimony that the

buyers did not know until late in the process that Mr. Konicek had insufficient

insurance on the equipment, which was contradicted by an email from Mr. Gordon in

June 2016 stating that they knew all along Mr. Konicek was self insured and carried

no insurance. Another example was Mr. Leung’s evidence that Mr. Konicek was

rushing them to complete the transaction, which was contradicted by the

documentary evidence which established that the letter of intent was signed two

months later than Mr. Leung originally intended, the SPA was executed almost one

month after the date specified in the letter of intent, and the closing happened more

than two months after the date specified in the letter of intent.

[88] The more significant areas where I find Mr. Leung lacked credibility relate to

the execution of the agreements associated with the SPA, including the promissory

notes, the guarantees and the DLPA, and the information he shared with his wife

regarding their obligations under the agreements.

[89] At trial, Mr. Leung gave specific evidence of what happened during the

meeting with the lawyers when the agreements were executed, testifying that the

documents were not explained to him and his wife and they were not given an

opportunity to seek legal advice. However, when he was discovered, Mr. Leung

stated that he could not remember anything about the meeting. The documentary

evidence at trial, including email sent before and after the meeting, supports a

finding that the documents were explained to Mr. and Mrs. Leung, and they were

given an opportunity to seek independent legal advice. Frans Lotz, one of the

lawyers who witnessed the execution of the documents, had an independent

memory of the meeting and confirmed the documents were explained to the Leungs,

and they were given an opportunity to seek legal advice. I find the evidence of

Mr. Leung at trial with respect to this meeting is not credible or reliable.

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Page 25

[90] With respect to whether he had discussions with his wife prior to the

execution of the documents, Mr. Leung at trial denied he had any discussions about

the guarantees and mortgage granted over their home. The documentary evidence

produced from that time frame, including many email, contradicts Mr. Leung’s

testimony at trial. I do not accept Mr. Leung’s testimony in this respect as credible.

B.

Did the plaintiffs breach the SPA and its associated agreements?

[91] The SPA contains the following clauses, which are relevant to the issues

raised in this litigation:

1.6 Entire Agreement

This Agreement and the agreements entered into between the Parties and

delivered in connection with Closing constitute the entire agreement between

the Parties with respect to the subject matter hereof and supersedes all prior

agreements, understandings, negotiations and discussions, whether written

or oral. There are no conditions, covenants, agreements, representations,

warranties or other provisions, express or implied, collateral, statutory or

otherwise, relating to the subject matter hereof except as herein provided.

3.32 No Changes

Except as set out in Schedule 3.32 and Schedule 3.37 (and, as contemplated

herein, RSK is proposing to enter into the RSK Guarantee and RSK

Mortgage, and, as contemplated in Section 2.4(e), RSK may declare and pay

dividends, or repay loans owed to the Vendors), since the Interim Statement

Date, the Business, as conducted by RSK, has been carried on only in the

ordinary and normal course consistent with past practice and there has not

been:

(a) any material adverse change in the condition (financial or otherwise),

assets, liabilities, operations, earnings or Business of RSK;

. . .

3.37 Customers and Suppliers

(a) Schedule 3.37 sets out all customers of RSK since March 31, 2014 which

have purchased $25,000 goods or services from RSK and, except as

disclosed in Schedule [3.37], since March 31, 2014:

(i) there has not been any material change in the business

relationship between any such customer and RSK and to the

knowledge of the Vendors no such customer intends to materially

change its business relationship with RSK;

(ii) there have been no material disputes between RSK and any such

customer; nor is RSK involved in any material disputes with other

customers which would reasonably be expected to be material; to the

knowledge of the Vendors there are no disputes between RSK any

Konicek v. Vantown Infrastructure Invesco Inc.

such customers or any other customers which would reasonably be

Page 26

expected to be material; and

(iii) no such customer has terminated, cancelled, materially modified

or altered, or notified RSK or, to the knowledge of the Vendors,

otherwise intends to terminate, cancel, materially modify or alter its

relationship with RSK or to effect a change in its operations and/or

facilities which would reasonably result in the termination or material

alteration of the such customer’s relationship with RSK.

(b) Schedule 3.37 sets out all suppliers of RSK since March 31, 2004 which

have provided supplies to RSK in excess of $5,000 and, except as disclosed

in Schedule [3.37], since March 31, 2014:

(i) there has not been any material change in the business

relationship between any such supplier and RSK and to the

knowledge of the Vendors no such supplier intends to materially

change its business relationship with RSK;

(ii) there have been no material disputes between RSK and any such

supplier; nor is RSK involved in any disputes with other suppliers

which would reasonably be expected to be material; to the knowledge

of the Vendors there are no disputes between RSK any such

suppliers or any other suppliers which would reasonably be expected

to be material; and

(iii) no such supplier has terminated or materially altered, or notified

RSK or, to the knowledge of the Vendors, otherwise intends to

terminate or materially alter its relationship with RSK or to effect a

change in its operations and/or facilities which would reasonably

result in the termination or material alteration of the such supplier’s

relationship with RSK.

[92] Schedule 3.37 sets out the following information regarding customers:

Customers

Subsequent to March 31, 2014, RSK provided goods and services to the

following customers. RSK currently has no ongoing commitments to provide

goods or services to the following customers or any other person.

1. ABB Inc.

2. Bechtel Canada Co.

3. Lander Gen. Power

4. Rio Tinto Alcan

[93] With respect to suppliers, Schedule 3.37 states:

Suppliers

Subsequent to March 31, 2014, RSK acquired supplies from the following

suppliers. RSK currently has no commitments to purchase supplies from the

following suppliers or any other person.

Konicek v. Vantown Infrastructure Invesco Inc.

Page 27

[94] Following the above prefatory statements, Schedule 3.37 then lists

53 different suppliers to RSK.

[95] The defendants submit that the plaintiffs breached the following

representations:

a) RSK had been operated only in the ordinary and normal course consistent

with past practice (clause 3.32);

b) There had been no material adverse change in the condition (financial or

otherwise), assets, liabilities, operations, earnings or business of RSK

(clause 3.32(a)); and

c) There has not been any material change in the business relationship

between any customer listed in Schedule 3.37 of the SPA and RSK

(clause 3.37).

[96] The defendants argue that RSK ceased operating in the ordinary and normal

course consistent with past practice. In particular, they submit that RSK essentially

“downed tools” and stop taking on new work. The defendants argue that rather than

obtaining a “turn key” operation, they obtained a mothballed shop with few

employees and no work. The defendants make the following specific allegations of

breaches on the part of Mr. Konicek:

a) Failed to satisfactorily maintain ongoing good faith relationships with

customers and clients;

b) Failed to qualify or register RSK for work projects;

c) Failed to bid competitively;

d) Failed to pursue and secure projects;

e) Failed to pursue and secure as and when work;

f) Failed to satisfactorily maintain key equipment;

Konicek v. Vantown Infrastructure Invesco Inc.

Page 28

g) Published his intention to retire and his belief Vantown would not complete

the transaction;

h) Failed to properly maintain and hand-over financial and business records;

and

i) Failed to deliver RSK as a “turn-key” operation.

[97] Many of these allegations relate to opinions held by Mr. Gordon or Mr. Leung

as to what they felt ought to have been the state of RSK at the time of transfer.

However, the difficulty with many of these propositions is that they are either

unsupported by any evidence, or are directly contradicted by the evidence and the

contract documents themselves.

1.

Failed to satisfactorily maintain ongoing good faith

relationships with customers and clients

[98] Mr. Gordon testified that Mr. Konicek had soured relations with many of

RSK’s customers and clients at some point before the transfer. However, he

produced no actual evidence of this. He referred to various hearsay comments about

how RSK had not maintained relationships in the community, but gave no specifics

as to who made the comments and no witnesses were called to corroborate such

statements.

[99] The only specific example Mr. Gordon gave of Mr. Konicek’s alleged

destruction of a relationship was with respect to RTA. Mr. Gordon referred to a big

disagreement Mr. Konicek had with RTA regarding a snow removal contract, which

resulted in RTA not wanting to do business with RSK any longer. The difficulty with

this evidence is that it is hearsay. No representative of RTA testified to the

breakdown of the relationship between RSK and RTA. To the contrary, Mr. Magee,

who was employed by RTA before and after the sale of RSK, testified that there

were no ongoing problems with RSK from the perspective of RTA, and RSK

continued to get work from RTA in 2016 and following. This is echoed in a memo to

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Page 29

file Mr. Gordon prepared following his meeting with Mr. Magee in 2015, where he

wrote:

It was explained to me that RSK have performed well during the KMP and

had provided a solid backbone to the project as a whole. Dwight [Magee]

mentioned that RSK had been one of the most reliable and professional

contractors on site. While we were in the meeting Dwight gave Ralph three

work orders that had been unsolicited. It was clear that RSK are leaned on by

RTA to 'get it done'.

[100] Mr. Gordon had no personal knowledge of the alleged meeting regarding the

snow removal contract, and relied on what he was told by an RSK employee,

Mr. Medeiros, who also was not present in the meeting. Mr. Gordon suggested that

the meeting happened after March 31, 2014, and therefore Mr. Konicek was in

breach of Article 3.37(a) of the SPA.

[101] Mr. Konicek agreed that he had a disagreement with RTA regarding a snow

removal contract, where he felt RTA underpaid him for work completed prior to a

purchase order being issued. However, he also testified that the disagreement

happened in 2013, and did not result in any disruption in the normal pattern of work

RSK continued to do for RTA. Mr. Konicek testified that he and a member of his

staff, Mr. Coleman, went to a meeting at RTA to discuss Mr. Konicek’s concerns.

The value of the disputed work was $200,000, and was significant to RSK. Both

Mr. Konicek and Mr. Coleman testified about the meeting. Mr. Coleman agreed that

Mr. Konicek was assertive and upset, but testified that Mr. Konicek was not

disrespectful. He agreed that Mr. Konicek did not demand payment “on the spot”.

Mr. Coleman said he would not describe the meeting as an explosive argument.

Mr. Coleman also confirmed that the meeting happened in 2013 and stated that his

affidavit evidence in which he placed the meeting in 2015 was incorrect.

[102] Following the meeting, RTA invited RSK to bid on the operating plant snow

removal contract for the three-year period of 2013-2016. In that invitation, RTA

stated to Mr. Konicek that “RTA would like to reiterate that your excellent

performance of the services during the contract term had been highly commended

by RTA management and employees”, and that RTA looked forward to a continued

Konicek v. Vantown Infrastructure Invesco Inc.

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working relationship. RSK did bid on that contract, but the contract was awarded to

Hoban Construction.

[103] In June 2015 RTA approached RSK regarding back-up support for Hoban’s

snow removal work. Mr. Konicek expressed his concern that, because his staff was

not involved in marking hazards on the site, his staff would not have the required

familiarity with the hazard locations to safely provide services. In addition, his

equipment would have to be insured and ready to be mobilized on an emergency

basis, which was not financially viable for RSK. Mr. Konicek testified that he had an

amicable conversation with RTA regarding his concerns and that he advised

Mr. Gordon of the outcome of his meeting with RTA.

[104] Mr. Medeiros and Mr. Gordon testified that after the sale they met with

Mr. Lemay from RTA. Mr. Gordon testified that Mr. Lemay referred to contentious

moments with Mr. Konicek, made it clear that he would not work with Mr. Konicek,

and wanted to know that Mr. Konicek was no longer with RSK. This evidence was

contradicted by Mr. Medeiros. Under cross-examination, Mr. Medeiros confirmed

that Mr. Lemay asked them if Mr. Konicek was still with RSK, but made no

statements beyond that. Mr. Lemay was not called to confirm the content of any

conversation with Mr. Gordon, or to confirm the suggestion that he was dissatisfied

with Mr. Konicek. I reject the evidence of Mr. Gordon with respect to the hearsay

evidence of Mr. Lemay regarding RTA’s dissatisfaction with Mr. Konicek.

[105] I accept the evidence of Mr. Konicek, and find that the dispute with RTA about

the snow removal occurred in 2013, and also did not interrupt the ongoing business

relationship between RTA and RSK.

[106] I find that the defendants have not proven that Mr. Konicek failed to maintain

good faith relationships with customers and clients.

Konicek v. Vantown Infrastructure Invesco Inc.

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2.

Failed to qualify or register RSK for work projects

[107] Similar to the allegation regarding failed business relationships, the

defendants produced no evidence to support the allegation that Mr. Konicek failed to

qualify or register RSK for projects.

[108] Mr. Gordon testified that RSK was not preregistered with Chevron, LNG

Canada/Shell, or Coastal Gas Link, but that after the sale Mr. Gordon took steps to

complete preregistrations with these companies.

[109] Mr. Konicek testified that for many potential projects, the opportunity to

pre-qualify had not arisen before the closing date under the SPA. With respect to

Shell, RSK did produce an early introductory letter to LNG Canada (Shell) sent on

April 7, 2015. Mr. Konicek testified that after he provided preliminary documentation

to RSK, employees began performing work on the LNG Canada (Shell) site in

January, February and May 2016.

[110] Mr. Konicek testified that not every big client required pre-qualification before

bids could be submitted, and this was confirmed by Mr. Medeiros.

[111] Ms. Crewe was the office administrator for RSK both before and after the

sale. Her responsibilities included general administration, payroll, maintaining

contracts, and dealing with receivables and payables. Ms. Crewe testified that in

2015 and 2016 RSK received approaches from Fluor and Petronas, seeking

confidential information exchange in relation to proposed projects. RSK responded

with the requested information, but the opportunities fizzled out, which I understood

to mean the companies did not proceed with the anticipated projects. Ms. Crewe

testified that the companies did not express dissatisfaction with the paperwork

submitted by RSK. Copies of the paperwork submitted remained in the office of RSK

after the sale. Ms. Crewe also testified that the financial investment announcement

for the Fluor project did not occur until 2019, well after the sale.

[112] Mr. Gordon testified that he met with Graham Cambray at RTA who told him

he had only met Mr. Konicek once. Mr. Gordon said he had to re-introduce RSK to

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RTA and let it be known RSK was still operating, not liquidated, and Mr. Gordon was

intent on growing the company. Mr. Gordon testified that after the meeting, work

began to snowball with RTA. Mr. Gordon agreed under cross-examination that after

the sale of RSK, because there had been a change in ownership, RTA required RSK

to requalify again.

[113] It was not clear when the conversation with Mr. Cambray was alleged to have

taken place, and Mr. Cambray was not called to testify. Therefore, I cannot attribute

much weight to the statements attributed to Mr. Cambray. What I do take from this

evidence is that because RSK had new ownership, it was required to requalify with

RTA, and that once that requalification with RTA was complete, RSK began

receiving ample work from RTA.

[114] With respect to the suggestion that RTA did not know much about RSK and

thought it was not operating, I do not accept that to be a truthful statement in

accordance with the evidence of Mr. Magee of RTA, who did testify, and the

evidence that RSK continued to receive tenders from RTA and work from RTA in

2015 and 2016.

[115] The defendants produced no evidence that, before the closing date, bid

opportunities were available to RSK, to which RSK failed to respond. The

defendants produced no evidence that RSK failed to get work because RSK did not

pre-qualify with any company prior to the closing date.

[116] During the due diligence period Mr. Gordon did not ask to review any of the

pre-qualification documents RSK prepared for any potential projects, and did not ask

to review any pre-qualification documents RSK had prepared on previous projects.

[117] Mr. Gordon testified that pre-qualification documents were complicated and

when he took over it was a lengthy process to assemble the required documents to

support a pre-qualification package. However, at trial Mr. Konicek was not

questioned about whether the pre-qualification package prepared by Mr. Gordon

was anything like the package he would have prepared for RSK.

Konicek v. Vantown Infrastructure Invesco Inc.

Page 33

[118] Further, pursuant to the letter of intent, Mr. Gordon had the right to provide

RSK with business development services during the due diligence period.

Mr. Gordon agreed that this right allowed him to go out and speak to people in the

community, and allowed him to pre-qualify RSK for projects. Mr. Gordon did not take

any steps pursuant to this right given to him under the letter of intent.

[119] I find that the defendants have not proven that Mr. Konicek failed to qualify or

register RSK for work projects.

3.

Failed to bid competitively/ Failed to pursue and secure

projects

[120] There is no evidence that RSK failed to bid competitively from March 2014 to

the closing date. RSK did get work in 2015 and 2016. Mr. Konicek testified that

historically RSK did not bid on every project that came along. In the data room kept

by Sequoia for the benefit of Vantown’s due diligence process, Vantown was

advised that RSK’s marketing approach was to pursue opportunities that were within

RSK’s capabilities and desired profit margins. Mr. Konicek testified that his preferred

contracts were time and material based, rather than fixed price. RSK continued to

work for RTA on such contracts up until the closing date.

[121] Mr. Medeiros testified that RTA and the District of Kitimat put out many

tenders, and RSK made no efforts to bid for them in late 2015 and 2016. However,

he gave no specifics of what opportunities were available that RSK did not bid on.

His evidence is contradicted by the documentary evidence from RTA. Mr. Medeiros

obtained a list of four tenders released by RTA to RSK in 2015 and 2016. In January

2016, RSK responded with a bid for the crucible cleaning project. Mr. Konicek could

not confirm whether the last two tenders were issued prior to the closing date. The

defendants produced no evidence to establish when the last two tenders were

released.

[122] Ms. Crewe testified that she did not recall Mr. Konicek refusing to tender on

projects that were suitable for RSK. She did not recall any opportunities coming from

the District of Kitimat in 2016 prior to the closing date. Ms. Crewe also testified that

Konicek v. Vantown Infrastructure Invesco Inc.

Page 34

RSK continued to look for bid opportunities on the “Ariba” bidding system used by

RTA as the work on KMP reduced.

[123] While Mr. Medeiros initially testified that Mr. Konicek was reluctant to bid

competitively, under cross-examination he agreed that he had no knowledge of the

rate structure used by RSK or what rates would be competitive.

[124] The allegation that RSK did not bid competitively was not borne out in the

evidence at trial. For the RTA crucible cleaning project, which RSK bid on at the end

of the KMP, RSK proposed rates which were approximately 82% of the rates RSK

received on the KMP. Similarly, on an excavator contract in the fall of 2015, RSK

received rates well below the rates it was able to charge on the KMP. I find the

evidence does not support the allegation that RSK failed to bid competitively on jobs

once KMP started to wind down.

[125] Mr. Gordon discussed a project to decommission the RTA site as something

RSK could have done. However, the defendants produced no evidence as to

whether that project had been made available to bidders prior to the closing, or

whether the scope of work would have been suitable for RSK, or whether the project

in fact proceeded.

[126] The letter of intent expired because the SPA was not completed by March 31,

2016. On Monday April 12, 2016, Mr. Larmer wrote to Mr. Leung, Mr. Gessner and

Mr. Gordon advising them that RSK was not on the list for the RTA decommissioning

plant because he did not think the SPA with Vantown would be completed. The

deadline for completing the SPA pursuant to the letter of intent had been almost two

weeks prior. Mr. Larmer advised that taking on the responsibility of the

decommissioning project did not align with Mr. Konicek’s personal objectives. In

other words, Mr. Konicek made it clear that he was not prepared to take on work he

was not able to perform and, because the parties still had not reached terms on a

SPA, he was not prepared to put RSK on the list as he could not be sure that a sale

to Vantown would actually be completed.

Konicek v. Vantown Infrastructure Invesco Inc.

Page 35

[127] In the face of the information provided by Mr. Larmer as to the RTA

decommissioning project, namely that because the SPA was not completed by the

deadline set out in the letter of intent, RSK did not ask to be put on the list for the

project, Vantown continued to work with Mr. Konicek to complete the SPA. It is

simply not open to Vantown to complain now that RSK’s failure to put itself on the list

for the RTA decommissioning project is a breach of the SPA.

[128] In any event, the defendants have not established that the RTA

decommissioning project was ever tendered or awarded. Ms. Crewe provided

photographic evidence that in the summer of 2021, some five years after the RSK

deal closed, the buildings on the old RTA site remain standing.

[129] The defendants rely heavily on the CIM in arguing that the CIM set out all

kinds of opportunities that RSK failed to pursue. However, the CIM was not a

contractual document in this deal. It was intended to introduce potential buyers to

the opportunities that might be available to them in operating RSK. It cannot be read

as a commitment by RSK to pursue all such opportunities for the benefit of potential

buyers. It expressly states that all representations and warranties shall be solely

made by RSK in a signed purchase and sale agreement.

[130] The CIM sets out major projects that, in 2014, were planned for the Kitimat

area. There is no guarantee that any or all of them would proceed, or that any of the

projects would make work available to RSK at all, or on any specific timeline. Rather,

it is intended to provide some background to potential buyers to assist them in their

own due diligence.

[131] Mr. Gordon was very argumentative under cross-examination in respect of

potential work opportunities in the Kitimat area. However, he did agree that the

Petronas project ultimately did not happen. When presented with the negative

comments regarding the future of LNG in the Kitimat area made by Adaptable, a

potential buyer Mr. Gordon was assisting, Mr. Gordon made it clear that the

opportunities he saw in the area were based on his own experience and

assessment, not on anything being told to him by others.

Konicek v. Vantown Infrastructure Invesco Inc.

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[132] Mr. Coleman confirmed the evidence of Ms. Crewe and Mr. Konicek, namely

that as KMP shut down there was a dearth of work in the Kitimat area. While some

new projects may go forward at some point in the future, such projects had not

developed to the point of creating opportunities which could keep RSK working at

anywhere close to the levels it had been working in 2014 or 2015.

[133] Mr. Gordon was critical of Mr. Konicek’s failure to register with the chamber of

commerce. He testified that when he went to a meeting at the chamber of commerce

after the sale and met with (unnamed) representatives of various (unnamed)

companies, the representatives told him that RSK had not pre-qualified with them or

expressed any interest in their work, and they did not know who RSK was. This

evidence of Mr. Gordon is entirely unreliable hearsay. No specifics of who made the

alleged statements was provided, and no representatives of any companies testified

that they had projects available to RSK in 2016 which RSK failed to express interest

in. There is no evidence that Mr. Konicek ever registered RSK with the chamber of

commerce during the history of the company, and there was no obligation under the

SPA for Mr. Konicek to change his historical business practices to comply with what

Mr. Gordon felt was appropriate.

[134] The defendants have not proven that there was work available to RSK, which

RSK failed to bid on, or on which RSK failed to bid competitively. The argument of

the defendants seems to be nothing more than: we thought RSK would have more

work, and because it doesn’t have the work we thought it should have, it must follow

that RSK failed to pursue such work properly. I do not agree. If there is no work to be

had, RSK cannot be faulted for not having more contracts than it did, particularly in

light of the express representations in the SPA that RSK had no ongoing contracts.

[135] I find the defendants have not proven that Mr. Konicek failed to cause RSK to

bid competitively on projects available to it prior to the closing date, or failed to

pursue and secure projects in the ordinary course.

Konicek v. Vantown Infrastructure Invesco Inc.

4. Failed to pursue and secure “as and when” work

Page 37

[136] The defendants argue that RSK historically received significant revenues from

“as and when” relationships with clients, which they argue is work done without a

pre-existing contract in place. They argue that Mr. Konicek failed to pursue such

work and, due to his “misconduct”, was no longer approached for such work. The

allegations with respect to the “as and when” work appear to be directed primarily

towards work with RTA.

[137] For the reasons already expressed, I do not accept that RSK failed to obtain

work that was available to it, or that Mr. Konicek had acted in a way that disinclined

RTA to hire RSK.

[138] Mr. Konicek agreed that RSK would be approached to do work prior to a

purchase order being issued. Once RSK agreed to do the work, a purchase order

would be issued and that purchase order would govern the work. For example, the

work done by RSK for RTA in 2016 was generally work done under purchase orders.

This was explained by Ms. Crewe who reviewed the multiple invoices issued in 2015

and 2016 and confirmed that they were not one-off invoices, but were in fact issued

pursuant to specific overarching purchase orders for barge ramps, janitorial work,

support services for the mobile cool room and L16 complex, and janitorial services at

the support office.

[139] The defendants argue that RSK took on work historically without a formal

contract in place. I do not agree. A purchase order is a form of contract which

controls the work undertaken.

[140] I find the defendants have not proven that RK failed to pursue and secure “as

and when” work on behalf of RSK.

5.

Failed to satisfactorily maintain key equipment

[141] Mr. Gordon testified that when he went to the RSK site following the sale, he

was surprised to see all of the heavy equipment “stacked” in the yard, and difficult to

access due to the large volume of equipment. He testified that the equipment was

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Page 38

not in working order, had not been maintained, and no service or maintenance

records were kept.

[142] Mr. Gordon gave extensive evidence about what maintenance he assumed

would be done on the equipment, based on his experience in other companies.

However, he confirmed that he had no discussions with anyone at RSK about the

kinds of records they kept. He simply assumed they kept maintenance records in

line with his prior personal experience.

[143] Mr. Leung testified that when he saw the equipment shortly after the sale

closed, he saw rust on the tracks of some equipment and felt that only cosmetic

work had been done on the machinery.

[144] The evidence of the defendants was vague and generalized regarding the

state of the equipment. The defendants produced no evidence of repairs they were

required to do on the equipment after the sale. They produced no photographs of the

equipment at the time of sale demonstrating that it was not in a proper or expected

state. Neither Mr. Gordon nor Mr. Leung are mechanics and they cannot speak to

the mechanical state of the equipment. Mr. Gordon testified that they had to go

through each piece of equipment to assess the operability and state of repair. No

records of this assessment were produced in evidence. Therefore, I cannot conclude

that the assessment performed by the defendants, if it happened at all, established

that the equipment was not in an expected state at the time of sale. Mr. Konicek and

Ms. Crewe testified that they were not notified by the purchasers of any concerns

relating to the equipment after the sale completed, which I find is consistent with a

finding that the equipment was in an acceptable state at the time of transfer.

[145] Mr. Medeiros testified that during Mr. Konicek’s ownership, RSK did not keep

any real records for repairs or maintenance, other than a checklist which was kept in

most pieces of equipment and was filled out by the operators. He agreed under

cross-examination that nothing changed at RSK with respect to paper work for the

equipment from the time before the sale until the sale completed in June 2016.

Konicek v. Vantown Infrastructure Invesco Inc.

Page 39

[146] Mr. Medeiros testified that Mr. Konicek had no desire to spend money on the

equipment doing routine maintenance. He testified that Mr. Johnstone, a mechanic

hired by RSK, did low level work on the equipment, such as oil changes, light bulb

changes, and cosmetic work. He testified that Mr. Johnstone worked part-time, only

three days a week, and there was no urgency to the work he was doing. I do not

accept this evidence of Mr. Medeiros which was contradicted by himself under

cross-examination, by financial, employee, and other records, and by the evidence

of Mr. Coleman and Mr. Konicek, whose evidence I do accept.

[147] Mr. Medeiros confirmed under cross-examination that he did not personally

monitor the work that was done on the equipment, did not know any details about

what work was done, had no documents that demonstrated the required work was

not done, and did not know how much money was spent on equipment maintenance

before the closing date of the sale in June 2016.

[148] Mr. Medeiros testified that the equipment returned to the RSK site after the

KMP wound down was “stacked” in the yard. Some were operational on short notice,

but some were not. Under cross-examination, Mr. Medeiros agreed that RSK

equipment was in active use on jobs in 2016, including in June 2016. He also agreed

that loaders, trucks and excavators were ready to be mobilized at the time of the

sale. He stated that 25% of the equipment were ready to be used on jobs, and the

rest were “stacked” in the yard and would take some effort to bring them out.

[149] Ms. Crewe and Mr. Coleman agreed that the yard was very crowded, due to

the wind up of the KMP and equipment being returned to the RSK site.

[150] Mr. Coleman testified that he did not remember maintenance logs being kept

for the equipment, but said he did do repair work on the equipment. Mr. Coleman

agreed that by June 2016, some of the equipment had been in the yard since it

came off the KMP. He stated that some equipment needed work, and some did not.

RSK had equipment ready to be used, including loaders, excavators, and rock

trucks. Mr. Coleman agreed that some equipment showed signs of rust, but

explained that due to the amount of sulphur in the air from the smelter, exposed

Konicek v. Vantown Infrastructure Invesco Inc.

Page 40

metal rusts within days of exposure. He confirmed that signs of rust are not

indicative of a lack of maintenance.

[151] Under cross-examination, Mr. Coleman testified that he observed

Mr. Johnson doing maintenance on heavy equipment. He understood Mr. Johnson

was qualified to clean out the cabs, grease the machines, perform oil changes,

replace fan belts, lights, and broken mirrors, and do anything else that did not

require a heavy-duty mechanic ticket. Mr. Coleman disagreed that Mr. Johnson was

performing only cosmetic work on the equipment.

[152] Mr. Konicek testified that as KMP wound down, equipment was returned to

the RSK site and RSK continued its normal practice of performing maintenance and

repairs. He testified that Mr. Johnstone was a mechanic hired by RSK to do

servicing and minor repairs on the equipment, and that such work was also done by

Mr. Konicek himself and others such as Mr. Coleman and other operators.

Mr. Johnstone worked approximately 30 hours per week from March 24, 2016 to the

closing date performing maintenance and repair work on the equipment.

[153] Mr. Konicek testified that any major repairs were set out to external shops for

servicing, including Kitimat Iron, Zanron, John Deere, and Finning. Mr. Konicek

testified that RSK’s highway trucks were inspected biannually by an independent

certified inspector.

[154] In the fiscal year ending May 31, 2016 RSK spent $203,036 on repairs and

maintenance, and in the period June 1, 2016 to June 24, 2016, RSK spent $38,882

on repairs and maintenance. Mr. Konicek testified that these amounts excluded

labour provided by employees of RSK.

[155] Mr. Konicek confirmed that the practices of RSK with respect to maintenance

and repairs did not change following the SPA. Mr. Konicek testified that a

handwritten notebook was kept to document service done on the equipment. In

addition, a daily inspection clipboard was kept in each machine where the operators

recorded their daily inspections. This was confirmed by Mr. Coleman and Mr.

Konicek v. Vantown Infrastructure Invesco Inc.

Page 41

Medeiros, although Mr. Medeiros stated the operators were not always diligent in

filling out the reports.

[156] Mr. Gordon admitted he did not review equipment maintenance records prior

to the sale. He testified as to what he thinks good practice is for record keeping in

the industry. However, the SPA does not warrant that the maintenance records for

the equipment will be kept in accordance with the standards suggested by

Mr. Gordon.

[157] Mr. Gordon was on site in the week leading up to the closing date. Mr.

Konicek testified that Mr. Gordon was on site and that they walked through the

“stacked” equipment. Mr. Gordon did not express any concern with how the

equipment was stored. Ms. Crewe also testified that she did not recall Mr. Gordon

expressing any concern with the equipment in the week before the sale closed.

[158] I find the defendants have not proven that RSK failed to maintain key

equipment prior to the closing of the transaction, and have failed to prove that RSK’s

approach to maintenance and record keeping changed at any time during

Mr. Konicek’s ownership right up to the closing date.

6.

Published his intention to retire and his belief Vantown

would not complete the transaction;

[159] The defendants argue that Mr. Konicek published within the local construction

industry and the local Kitimat community that he was intending to retire, that

Vantown was unlikely to complete the purchase, and that he was contemplating

liquidating RSK’s assets and closing down the business. There was simply no

admissible evidence called by the defendants to support such a proposition.

[160] There is no question that Mr. Konicek was intending to retire and was trying to

sell RSK. Mr. Konicek took Mr. Gordon, on behalf of Hillcore, to meet with RTA in

2015 and advised RTA that Hillcore was intending to be brought into the business.

Mr. Konicek introduced Mr. Gordon to various contacts in the months leading up to

the SPA. There is also no question that Mr. Konicek considered that he had three

Konicek v. Vantown Infrastructure Invesco Inc.

Page 42

options when deciding how he could retire. He described these options as selling the

business to a new purchaser, turning the operations over to existing employees, or

liquidating the business entirely. However, it is also clear from all of the evidence

that Mr. Konicek’s first choice was to sell the business to a new purchaser, and from

January 2016 onwards that purchaser was Vantown.

[161] Mr. Gordon testified that evidence of Mr. Konicek’s intention to liquidate the

company was Mr. Konicek’s decision to sell two trucks prior to the closing. I have

already expressed my finding that Mr. Gordon’s evidence in relation to the sale of

the trucks is not credible and I do not accept it.

[162] On April 22, 2016, Mr. Konicek expressed his frustration to Mr. Gordon that

the parties had still not finalized the SPA. The letter of intent expired on March 31,

2016, but the parties were still trying to agree on wording for a sale of RSK. At that

point, Mr. Konicek told Mr. Gordon that he had the three options of selling to

Vantown, turning the business over to the employees, or liquidating the assets.

However, I do not agree that the fact Mr. Konicek acknowledged these options at a

time where he must have wondered if he would be able to reach agreement with

Vantown on the terms of the sale is the same as Mr. Konicek telling people all over

town that he was planning to liquidate the company.

[163] The defendants rely on the vague, generalized evidence of Mr. Medeiros, to

the effect that he spoke to (unnamed) colleagues, friends and competitors, that

many people knew Mr. Konicek was selling RSK, and that he had overheard Mr.

Konicek say he was getting out of the business. Mr. Medeiros also points to the fact

that he and Mr. Konicek had discussed how Mr. Konicek would be selling everything

and moving to Salmon Arm. I find that the hearsay evidence proffered by Mr.

Medeiros is not reliable, and I decline to accept it.

[164] With respect to Mr. Medeiros’ evidence that he overheard Mr. Konicek

speaking about his plans, under cross-examination it became clear that this

conversation was much more limited than suggested in his direct evidence. Mr.

Medeiros agreed that he heard Mr. Konicek and a close friend, Barry Nedland, have

Konicek v. Vantown Infrastructure Invesco Inc.

Page 43

a discussion once where Mr. Konicek told his friend he was tired, wanted to retire

and was looking at his options. This was the only conversation Mr. Medeiros actually

overheard. Mr. Nedland owned Lander General Power, a company which did

business with RSK. Mr. Medeiros agreed he did not hear Mr. Nedland say Lander

would not do business with RSK in the future. In fact, the 2017 financial statements

of RSK show that by May 31, 2017 Lander General Power was under common

control with RSK, along with a number of other companies. Mr. Medeiros could not

point to any other conversation Mr. Konicek had with any other person regarding his

plans for RSK.

[165] Mr. Konicek was clear in his testimony that he did not broadcast around the

community that he was intending to liquidate the company. His testimony was clear

that if someone asked him directly, he would have told them that he had a buyer

lined up to purchase RSK, but if that sale did not complete for some reason, he

would consider liquidating the company. He said he did not volunteer that

information, but would not be untruthful if asked directly. He also could not identify

any person he made such a statement to. He did not agree that he knew of any

customers switching to the competition because of any statements he made.

[166] Mr. Konicek agreed that if he told customers he was planning to liquidate, it

would have had a chilling effect on them. However, he did not agree that he actually

told customers that he was planning to liquidate.

[167] I find the defendants have not proven that Mr. Konicek published within the

local construction industry and the local Kitimat community that he was intending to

retire, that Vantown was unlikely to complete the purchase, and that he was

contemplating liquidating RSK’s assets and closing down the business.

7.

Failed to properly maintain and hand-over financial and

business records

[168] The defendants argue that Mr. Konicek improperly removed from the RSK

offices financial and business records, including equipment service records,

business performance records, and costing records.

Konicek v. Vantown Infrastructure Invesco Inc.

Page 44

[169] The plaintiffs agree Mr. Konicek took certain records on or around the closing

date, but say they did so with the consent of Mr. Gordon.

[170] Pursuant to Article 8.1 of the SPA, the vendors are responsible for pre-closing

liabilities. Therefore, Mr. Konicek understood that he was liable for all payables,

including tax liabilities, arising before the closing date. CRA could audit RSK for tax

filings in the previous six years, for which Mr. Konicek would be responsible. As a

result, Mr. Konicek testified that he preferred to keep the financial records with him

and make them available to Mr. Gordon if he needed them. Mr. Konicek testified that

Mr. Gordon agreed to this.

[171] Mr. Konicek testified that he took with him accounting records, such as

receipts, invoices, and other documents related to CRA filings. He testified that he

left all other documents at the RSK office, including daily maintenance logs,

insurance documents, safety records, hard copies of contracts from the KMP, and

paper files relating to Petronas business opportunities. Mr. Konicek testified that no

request for any documents was made to him by the purchasers after closing.

[172] Mr. Gordon agreed that he consented to Mr. Konicek taking the financial

records with him. Mr. Gordon expressed surprise that Mr. Konicek took close to 40

boxes of documents with him.

[173] Mr. Konicek explained that the invoices for the KMP were often extremely

lengthy. Ms. Crewe confirmed that the invoices on the KMP could be up to six inches

thick as they included all backup documents, including sub contractor and supplier

invoices.

[174] In this litigation, the defendants had access to all 35 boxes of documents

retained by Mr. Konicek. No evidence was led by the defendants to contradict the

evidence of Mr. Konicek that he only took accounting records.

[175] Ms. Crewe testified that due to occasional power surges that could damage

computers, she occasionally made backups of data from her computer onto CDs.

She confirmed that she did not delete the data from the computer when she took the

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Page 45

snapshot backups. Ms. Crewe would make two backups and would leave one in her

desk and would take one home for safekeeping. Ms. Crewe testified that the data on

the computer, which were also found on the CDs, covered the period from 2009 up

to the closing date. Ms. Crewe continued working for RSK until 2018. The data on

the computers and CDs was available to RSK following the closing date. Ms. Crewe

testified that she gave the office copies of the CDs to Mr. Medeiros in 2018 when

she stopped working for RSK. This was denied by Mr. Medeiros; however, where the

evidence of Mr. Medeiros and Ms. Crewe is in conflict, I prefer the evidence of Ms.

Crewe.

[176] Mr. Gordon testified extensively about the costing documents he expected to

find in the RSK files. He testified that costing is made up of costs which are common

to all bidders, such as union rates and government burdens like EI and CPP, but the

“secret sauce” developed by companies when developing bids is what is important.

A company will have its own calculation as to what goes into the rates which form

part of the bid and these will include the costs of consumables, indirect costs, fixed

operational costs, and the profit margin. Through that formulation, the company is

able to establish a profitable bid. Mr. Gordon testified that in his practice he creates

a detailed spreadsheet to develop rates. Mr. Gordon testified that he could not find

any documents related to how RSK developed its rates when he looked through the

documents left behind by Mr. Konicek. The defendants allege that Mr. Konicek

deliberately destroyed or took with him the documents which would have assisted

RSK in creating the rates it set in its contracts.

[177] The difficulty with the argument advanced by the defendants is that there is

no evidence that Mr. Konicek ever used the sophisticated kind of system in

developing rates which Mr. Gordon described. Mr. Konicek was not cross-examined

on his method to develop rates. Neither Mr. Medeiros or Mr. Coleman were involved

in developing rates for RSK contracts. Ms. Crewe testified that paper copies of the

four KMP agreements RSK had were moved to the RSK main office from the KMP

site office in the fall of 2015, and they were still there after the closing. Ms. Crewe

Konicek v. Vantown Infrastructure Invesco Inc.

Page 46

recalls the binders being placed in boxes when the RSK office moved to trailers

behind the shop at some point after the closing date.

[178] There is no actual evidence that Mr. Konicek withheld anything from Vantown

as it relates to costing. There is simply an assumption on the part of Mr. Gordon that

Mr. Konicek must have done his costing in the same way Mr. Gordon did. In the

absence of any evidence that Mr. Konicek did an elaborate costing analysis, I am

not prepared to make a finding that Mr. Konicek withheld such costing documents

from the defendants. In my view, it is just as likely and, having seen Mr. Konicek

testify for a number of days, perhaps more likely, that Mr. Konicek had been

developing costing in his mind for 30 years, had a good idea about what he needed

to charge to make a profit, and simply translated his instinct and experience into a

rate on a job proposal, without undertaking any kind of elaborate costing exercise.

[179] I find the defendants have not proven that Mr. Konicek took any RSK

documents without the consent and knowledge of Mr. Gordon, and have not proven

that Mr. Konicek failed to disclose any financial or other business records.

[180] The defendants also argue that Mr. Konicek wrongfully continued to operate

an RSK bank account after the closing date, and wilfully retained a significant CRA

refund that ought to have been received by RSK after the sale completed.

[181] Mr. Konicek continued to operate Envision account 189001 after the closing.

Mr. Konicek testified that Mr. Gordon agreed that Mr. Konicek could operate the old

account to allow him to pay pre-closing supplier invoices. Mr. Konicek opened a new

bank account for the new operators to use for the ongoing business of RSK, and

made sure that they had cheques ready for use on that account when they took

over.

[182] Mr. Gordon testified that he did not agree Mr. Konicek could continue to

operate an RSK bank account. He said that it was not appropriate for Mr. Konicek to

have access to an RSK account after the closing, when he was no longer a director

or shareholder of the company. Mr. Gordon testified that he contacted the account

Konicek v. Vantown Infrastructure Invesco Inc.

Page 47

manager at Envision numerous times in an attempt to get the account shut down

and ultimately, he had to threaten Mr. Konicek with legal action in order to get it shut

down. The account manager was not called as a witness to corroborate this

evidence, and no documents were produced which corroborated this evidence.

[183] Mr. Leung testified he also spoke to the Envision account manager, but again

his evidence was not corroborated by the account manager or any documentary

evidence.

[184] The version of events recounted by Mr. Konicek, however, is corroborated by

documentary evidence. In July 2016, Mr. Leung wrote to Mr. Larmer expressing

concern that if RK continued to use the RSK account, Mr. Leung would have

difficulty accounting for activities in the account and making adjustments. In an email

dated July 7, 2016, Mr. Larmer replied to Mr. Gordon and Mr. Leung as follows:

If you remember, Ralph had left the original RSK bank account in operation

and opened a separate new checking account for you, so as to simplify the

accounting for old vs new AR and AP, taxes payable/ receivable, etc.

Is this something that the bank has an issue with? If we can discuss, in order

that I can properly explain the issue to Ralph, I will be happy to help.

[185] The email from Mr. Larmer supports Mr. Konicek’s evidence that his use of

the account was discussed with Mr. Gordon, and Mr. Gordon agreed with it. Further,

there were no more email or other documents produced indicating that either Mr.

Gordon or Mr. Leung had an issue with Mr. Konicek using the account, following Mr.

Larmer’s explanation in July 2016. The only other email in evidence which mentions

the Envision account is from Mr. Konicek to Mr. Gordon on October 19, 2016, where

Mr. Konicek advises he has closed the old Envision account, which had a zero

balance and no further transactions as of the latest bank statement.

[186] With respect to the CRA refund, on September 21, 2016 a CRA refund in the

amount of $549,697.23 was deposited to the Envision account 189001. At trial the

defendants raised an issue with respect to Mr. Konicek’s receipt of this tax refund.

No issue was raised in the pleadings regarding the tax refund, and Mr. Gordon

Konicek v. Vantown Infrastructure Invesco Inc.

Page 48

under cross-examination could not identify any documents where a concern about

the tax refund had been raised at any point.

[187] Mr. Konicek testified that he understood the tax refund related to pre-closing

tax and he was entitled to receive it. On June 24, 2016 the parties entered into a

further agreement with respect to issues arising on the closing of the transaction. In

that agreement, the parties acknowledged that RSK would declare a dividend

payable to the plaintiffs in the amount of $427,029, which would be payable either 90

days after closing or on the date RSK received its tax refund for the year ended May

31, 2016.

[188] In the final days before closing, the parties exchanged email discussing

various matters, including tax liabilities and pre-closing liabilities. Mr. Larmer

indicated to Mr. Leung and Mr. Gordon that the 90-day true-up period was intended

to give time for all pre-closing liabilities and receivables to be addressed, and any

final adjustments to the purchase price to be made.

[189] On June 22, 2016 Mr. Gordon wrote to Mr. Larmer, copying Mr. Leung and

the accountants Wolrige Mahon, stating:

Should the 90 day post closing figures (or any bills presented prior to the 90

days) reveal there is a liability for pre-closing activities then Ralph will be

responsible for their immediate payment. If there is a surplus then in the

same manner Ralph will receive the refund.

[190] The email from Mr. Gordon is consistent with an understanding that the tax

refund would be available to Mr. Konicek as part of the reconciliation process.

[191] It is clear that the defendants knew the tax refund had been deposited, at

least by November 21, 2016. On that date, Wolrige Mahon, the accountants

engaged to assist in the true-up calculations required under the SPA, sent draft

calculations to Mr. Leung which reflected the deposit of the tax refund to the

vendors’ bank account. On December 22, 2016 Mr. Gessner wrote to Mr. Konicek

attaching draft true-up calculations which included the same information about the

tax refund. Mr. Gessner did not take issue with Mr. Konicek’s receipt of the tax

Konicek v. Vantown Infrastructure Invesco Inc.

Page 49

refund. Rather, it was simply added to the calculations whereby the parties agreed to

make any adjustments to the purchase price as set out in the SPA.

[192] On February 3, 2017 Mr. Konicek wrote to Mr. Leung and Mr. Gordon

regarding the net amount owing and stated:

(d) I received the tax refund that was paid to RSK post closing, in the amount

of $549,697.23, which exceeded the dividend payable ($427,029) and

shareholder loan ($6,359) (total $433,388) which was payable to me or

Jennic #60.

(e) I understand that a total of $374,852 of closing date accounts receivable

have been collected by RSK since Closing, and should have been paid to

me. I have not received any of those amounts receivable. However, as the

tax refund amount I received exceeded the dividend payable and shareholder

loans payable to me (including my additional post-closing loan of $19,376),

the excess amount of the tax refund can be set off against some of these

accounts receivable, reducing the total amount of accounts receivable still

payable to me.

As a result, Vantown Invesco currently owes me $247,509. Also, once the

additional $37,738 accounts receivable is collected by RSK, Vantown Invesco

and RSK will owe me a net amount of $285,247, as set out in the "Schedule

1" spreadsheet attached.

[193] This email makes it clear that the receipt of the tax refund by Mr. Konicek was

accepted by the parties and was added to the mix in determining the exact amounts

owing to the plaintiffs under the SPA.

[194] There is nothing in the evidence to support the assertion of Mr. Gordon and

Mr. Leung that RSK was entitled to take the tax refund and add it to the working

capital of RSK after the closing.

[195] I find the position of the defendants in relation to the tax refund to be

unsupported by the evidence, and simply a red herring introduced at trial.

8.

Failed to deliver RSK as a “turn-key” operation

[196] The defendants argue that Mr. Konicek failed to deliver to Vantown a turn-key

operation, and that RSK was not in a position to respond to even “as and when”

enquiries for work, due to unsatisfactory maintenance of key equipment, lack of

records, and the way the equipment was stored in the yard.

Konicek v. Vantown Infrastructure Invesco Inc.

Page 50

[197] For the reasons already expressed, I do not agree that the defendants have

proven the equipment was not in a reasonable state at the time of closing. I am also

not satisfied the defendants have proven Mr. Konicek failed to ensure appropriate

records were available for the new owners. I am not satisfied the defendants have

proven the equipment was stored in an unreasonable manner, given the large

volume of equipment returned to the site following the wind down of the KMP.

[198] Work was being done by RSK, albeit at a much lesser volume than in years

previously. However, that fact was known to the defendants at the time of purchase.

RSK had a business office, a yard, a large volume of equipment, a strong

relationship with RTA and other companies in the area, a small core of full-time

employees, and access to a large number of staff which could be engaged if

needed.

[199] Mr. Leung testified that in the CIM, RSK was described as a turn-key

platform, which he understood to mean the buyers would just walk in the door and

“turn up the heat”. I do not accept that representations in the CIM are binding on the

plaintiffs. The CIM expressly states that all representations will be made by RSK

solely in a signed SPA. There is no reference to the term “turn-key” in the SPA or

any of the associated contractual documents.

[200] Further, Mr. Leung appears to have had no understanding of the business he

was investing in. He appears to have assumed he was buying an operation not

unlike a sandwich chain, with a ready market and customers lining up. What he was

buying was a company that had the ability to bid on contracts in the future, in

industries and regions where no business was guaranteed. RSK provided a platform

for new business, but the new owners had to go out and get that new business. At

no time did Mr. Konicek represent that any work was guaranteed for RSK.

[201] I find that there was no enforceable representation made to the defendants

that Mr. Konicek would deliver RSK as a “turn-key” operation. I am satisfied that

RSK was a functioning business at the time of transfer.

Konicek v. Vantown Infrastructure Invesco Inc.

9. Conclusion on breaches of SPA

Page 51

[202] As discussed above, the defendants have not proven the facts necessary to

support a finding that the plaintiffs breached the SPA.

[203] Pursuant to Article 3.32 of the SPA, the plaintiffs warranted that, since the

interim statement date (defined in the SPA as February 29, 2016) they carried out

the business in the ordinary and normal course consistent with past practices, and

there has not been a material adverse change in the business of RSK. This

provision, however, is subject to the representations set out in Schedules 3.32 and

3.37.

[204] Article 3.37 of the SPA states that Schedule 3.37 sets out customers of RSK

which purchased $25,000 of good or services, and suppliers which have provided

supplies to RSK in excess of $5,000, all since March 31, 2014, and except as

disclosed in Schedule 3.37 there has not been any material change in the business

relationships with RSK.

[205] Schedule 3.37 is the critical schedule with respect to the issues in this lawsuit.

It sets out the customers and suppliers of RSK since March 31, 2014. This schedule

clearly and unequivocally states:

Customers

Subsequent to March 31, 2014, RSK provided goods and services to the

following customers. RSK currently has no ongoing commitments to

provide goods or services to the following customers or any other

person.

1. ABB Inc.

2. Bechtel Canada Co.

3. Lander Gen. Power

4. Rio Tinto Alcan

Konicek v. Vantown Infrastructure Invesco Inc.

Page 52

Suppliers

Subsequent to March 31, 2014, RSK acquired supplies from the following

suppliers. RSK currently has no commitments to purchase supplies from

the following suppliers or any other person.

[List of 53 suppliers]

[206] In addition to Schedule 3.37, Article 3.31 of the SPA expressly stated that

RSK had no contract or arrangement for the provision or purchase of materials,

supplies, equipment or services involving more than $5,000.

[207] I find that the SPA was explicit on its face that RSK had no ongoing work with

any person or customer at the time of sale.

[208] The defendants seek to argue that the SPA can be read to represent to the

buyers that there had been no material adverse change to the relationships RSK

had with ABB Inc., Bechtel Canada Co., Lander General Power, and RTA since

March 31, 2014. This is simply a construction of the SPA which cannot be borne out

on the plain language of the agreement. Schedule 3.37 identifies those four

companies as companies RSK worked with since March 31, 2014, but it also

explicitly states that RSK has no current ongoing commitments to provide goods or

services to any of them.

[209] The defendants rely on Sattva Capital Corp. v. Creston Moly Corp., 2014

SCC 53 [Sattva] for the proposition that the modern approach to contractual

interpretation allows the court to look to the surrounding circumstances, or factual

matrix, in which the contract was entered into. In particular, the defendants argue

that the court ought to take into consideration the following in interpreting the SPA

a) The SPA was for the purchase of the shares in RSK, not for the purchase

of the assets of RSK;

b) The Purchase Price significantly exceeded the value of the RSK assets;

c) Mr. Konicek was expressly made aware that the Transaction was a highly

leveraged acquisition;

Konicek v. Vantown Infrastructure Invesco Inc.

Page 53

d) The underlying rationale behind the structure of the payment of the

Purchase Price and the Deferred Payment Loan Agreement was that after

the Closing Date, RSK would be generating enough revenue to enable

Vantown to pay the Balance;

e) RSK was promoted and represented as being a going concern and a

turn-key operation, ideally positioned to take advantage of upcoming work

projects;

f) In the Vantown Letter of Intent, the purchase was subject to the condition

precedent that there would be no material adverse change in the affairs of

RSK after February 17, 2016;

g) It was known to both parties that while Vantown did not expect KMP level

revenues, they expected and would rely on revenues in the amount of at

least pre-KMP levels;

h) It was known to both parties that RSK had historically generated

significant revenue from “as and when” work and that Vantown intended to

rely on the same after the Closing Date.

[210] While the court may look to the surrounding circumstances and

considerations in the creation of an agreement, this does not mean that the court

can elevate the subjective understandings and expectations of one party to the point

that they override the plain language of the agreement. The court must strive to

determine the mutual and objective understandings of the parties as expressed in

the words of the agreement.

[211] There is no dispute that the parties agreed to a share purchase, and not an

asset purchase. However, there is no evidence that the purchase price far exceeded

the asset value of RSK. While RSK was actively working on the KMP, it entered into

preliminary discussions with a number of potential buyers, all of which engaged

Mr. Gordon in one way or another. Mr. Gordon would have known that the purchase

price offered by Sibbick Group in November 2014 of $25,000,000 to $28,000,000,

Konicek v. Vantown Infrastructure Invesco Inc.

Page 54

followed by an offer from NBC Servco in January 2015 of $25,000,000, which then

dropped to $18,000,000 with Hillcore in May 2015, and then dropped to $11,500,000

in August 2015 with Orestone, and dropped further with Orestone in October 2015 to

$8,500,000.

[212] When Vantown made the offer of $7,900,000 it was a fraction of the value of

the offers from Sibbick and NBC Servco in 2014 and early 2015 when RSK was

earning significant revenue from the KMP.

[213] Mr. Konicek testified that in his opinion the value of the RSK assets was

approximately $7,900,000. He referred to an asset list he prepared on March 1,

2016 which valued the assets at $7,890,000, and a December 1, 2015 asset list

which valued the assets at $7,880,000. The defendants produced no evidence to

contradict the values asserted by Mr. Konicek. The reasonableness of the

equipment values Mr. Konicek set out on the asset list was demonstrated by the sale

of two large trucks in 2016 for amounts slightly higher than the values attributed by

Mr. Konicek on his asset list.

[214] The defendants have not proven that the purchase price under the SPA

significantly exceeded the value of RSK assets.

[215] The circumstances which the defendants outline relating to the highly

leveraged nature of the transaction, and the rationale under the DPLA that RSK

would earn sufficient revenue to pay the remainder of the purchase price when it

became due are, in my view, considerations internal to the buyers. It is not

incumbent on the vendor to protect the buyers from the financial decisions they

made when buying the business. The vendor is entitled to assume that the buyer

has done its due diligence and assessed it has the ability to make good on its

obligations. I do not agree the evidence supports a finding that the plaintiffs agreed

they had an obligation to ensure that RSK had sufficient future revenue to allow the

defendants to meet the financial obligations they agreed to in the SPA.

Konicek v. Vantown Infrastructure Invesco Inc.

Page 55

[216] I have earlier dismissed the defendants’ allegation that RSK was represented

as a “turn-key” operation in the SPA.

[217] The defendants rely on language in the letter of intent to argue that there was

a representation that there was no material adverse change in the operations of

RSK since February 17, 2016. However, the letter of intent expired March 31, 2016

and is not a relevant agreement for that reason alone. In addition, the letter of intent

is expressly superseded by the SPA pursuant to Article 1.6 of the SPA, and the clear

language of the SPA states that there is no work with any of the four large

companies RSK previously contracted with, and no arrangements for any provision

of goods and services over the value of $5,000. I find the defendants are not entitled

to rely on the letter of intent to override the clear language of the SPA.

[218] With respect to the circumstances outlined by the defendants in relation to

their reliance on revenue at pre-KMP levels, and significant “as and when” work,

such assertions are contradicted by the plain language of the SPA, and I decline to

give any weight to them.

[219] I conclude that the plain language of the SPA governs the obligations

between the parties. In coming to this conclusion, I reject the circumstances relied

on by the defendants which are either purely the subjective understandings and

intentions of the defendants, or are contradictory to the plain language of the SPA. I

also take into consideration the relevant circumstances which are consistent with the

plain language of the SPA and the clear objective understandings and intentions of

all parties to the agreement. These circumstances are referred to throughout these

reasons, and include the following:

a) On January 18, 2016 Mr. Larmer wrote to Mr. Leung, Mr. Gessner and

Mr. Gordon advising:

Ralph makes no warranties about future revenue for the company. Given

that you are getting the business for just over its orderly liquidat-able

value, financial performance wouldn’t be a determinant in a valuation for

the company. If it were and we were basing it on revenue of $1.8MM per

month (at 20% EBITDA margins), the value of the company would far

exceed what is being paid.

Konicek v. Vantown Infrastructure Invesco Inc.

Page 56

b) On January 20, 2016 Mr. Leung wrote to Mr. Larmer, copying Mr. Gessner

and Mr. Gordon, stating:

…we have done only limited due diligence on RSK and like you said

there is no warrants on performance from revenue to EBITDA.

c) On January 26, 2016 Mr. Leung wrote to Mr. Gessner and Mr. Gordon,

copying his wife, stating:

1. There is no warrant on the revenue and EBITDA from the vendor.

2. The accounting system cannot provide monthly financials for us to

analyse their monthly revenue vs expense, business cycles and trends.

3. There are no contracts with any customers to guarantee some amount

of revenue over a period of time.

4. We rely on the due diligence from the other buyers that failed to close

the deal.

d) On April 2, 2016 Mr. Gordon wrote to Mr. Larmer seeking to restructure

the deal to “allow adequate working capital to grow the company in this

downturn period.”

e) On April 3, 2016 (three weeks before the SPA was made) Mr. Gordon

wrote to Mr. Konicek and Mr. Cunningham of Sequoia, copying

Mr. Gessner and Mr. Leung, stating,

Due to recently learning that the revenue has diminished so much we now

feel that we are undercapitalized. We could not have anticipated this

before seeing the figures when the SPA schedules were presented.

We need to keep our immediate repayments to a minimum to close the

gap over the next six months, hence the need for us to present the new

structure to you.

f) On April 12, 2016 (two weeks before the SPA was made), Mr. Leung

wrote to Mr. Larmer, copying Mr. Gordon and Mr. Gessner expressing his

view that Mr. Konicek violated the letter of intent (which had expired on

March 31, 2016) because revenues had fallen so dramatically, stating that

the “RSK lawyer disclosed the operation basically is shut”, and stating,

It was through the disclosure requirements from our lawyer to know RSK

revenue dropped to a meagre $60,000 revenue figure from $400K+ in

Feb.

Konicek v. Vantown Infrastructure Invesco Inc.

Page 57

g) On April 21, 2016 (six days before the SPA was made), in discussing the

anticipated revenue from the sale of the two trucks and the freeing up of

$300,000 in capital, Mr. Gordon stated to Mr. Larmer,

The extra $300k gives us an essential addition to our working capital pool

and thus more stability for the company in these slower months.

h) On April 22, 2016 (five days before the SPA was made), Mr. Gessner

wrote to Mr. Larmer addressing some last-minute negotiations regarding

where the proceeds of the sale of the trucks would be directed, and

whether the whole deal was no longer on the table. Mr. Gessner ended

the email chain stating,

If the equipment was off the table before I can't see why it can't be off

again. I guess you are dealing with principles but I'm dealing with

business [survival]. It's scary business no customers just forecasts [and]

future considerations. I [am] trying to get us through for the first 6 months

with an assumption of no income ‐ hence it means we all [inject] personal

cash resources.

[220] I also take into account the undisputed evidence that at no time before June

19, 2017, almost one year after the defendants took over RSK, did any of the

defendants raise any concerns with the operations of RSK, the records of RSK, the

process of the true-up accounting, or the obligation of the defendants to pay the

outstanding purchase price.

[221] I find that the defendants knew before they entered into the SPA that the

volume of work with RSK had dramatically dropped off since prior years, that there

were no ongoing agreements or arrangements to provide services to any person,

including the major prior customers of RSK, that there were no arrangements in

place to provide services over $5,000 to any person, and the defendants executed

the SPA knowing that there was a possibility of no revenue from the business at all

for at least six months.

[222] I find that the plaintiffs did not breach the SPA as alleged by the defendants,

or at all.

Konicek v. Vantown Infrastructure Invesco Inc.

C. Did Mr. Konicek make any fraudulent misrepresentations?

Page 58

[223] The defendants allege numerous false representations of fact in their closing

submissions. The plaintiffs argue that the defendants are foreclosed from raising

many of the allegations as they were not pleaded by Vantown. The plaintiffs refer to

an agreement reached between counsel wherein they agreed that, following delivery

of demands for particulars, the scope of the defence and counterclaim would be

narrowed as set out in the responses to those demands. I was provided with an

exchange between counsel which I agree confirms the agreement reached.

[224] I find that the defendants cannot raise in argument any allegations of false

representations which were not articulated before trial in accordance with the

agreement of counsel. While counsel for the defendants made a valiant attempt to

bring the alleged false misrepresentations within the pleadings, I cannot agree with

most of his submissions. As a result, the defendants may only raise the following

allegations of false representations of fact:

a) RSK had been operated only in the ordinary and normal course consistent

with past practice (SPA Article 3.32),

b) There had been no material adverse change in the condition (financial or

otherwise), assets, liabilities, operations, earnings or Business of RSK

(SPA Article 3.37),

c) There has not been any material adverse change in the business

relationship between any customer listed in Schedule 3.37 of the SPA and

RSK (SPA Article 3.37), and

d) RSK’s equipment was ready to roll on short notice.

[225] As I have already determined that the plaintiffs did not breach the above

noted provisions of the SPA, it follows that I also find that the plaintiffs did not make

the alleged false representations of fact.

Konicek v. Vantown Infrastructure Invesco Inc.

Page 59

[226] With respect to the allegation that RSK’s equipment was not “ready to roll on

short notice”, I have already found that the defendants have not proven the

equipment was not in a proper state of at the time of sale. The evidence was that the

equipment was being maintained in the ordinary course, and equipment was

operational and being used on jobs at the time of closing. I find that the plaintiffs

made no false representations of fact in relation to the equipment.

[227] The defendants also argue that the plaintiffs were required to disclose a

number of specific facts to correct a false impression. These submissions relate to

the allegation that the plaintiffs made fraudulent misrepresentations through

omission. Again, the defendants are restricted in raising new issues that were not

raised in their pleadings. In argument the defendants allege the following facts which

could arguably fall within their pleadings:

a) Mr. Konicek had not taken, and did not intend to take, any steps to have

RSK pre-qualified or pre-registered for projects advertised as potentially

available in the CIM and the Current Obligations/Opportunities Letter,

b) In 2016, not only did RSK only have 3 “employees”, RSK also did not have

any craft labourers or any personnel qualified to operate machinery, and

c) Generally, that RSK would not be a turn-key operation at the Closing

Date.

[228] I have already addressed the allegation that Mr. Konicek did not take steps to

pre-register for projects and I determined that Mr. Konicek did in fact pre-register for

opportunities that were available to RSK.

[229] The SPA clearly stated that there were only three employees in RSK at the

time of the sale. Two weeks before the SPA was made, Mr. Gordon was sent the

employee list for RSK which identified 3 daily workers, 14 “sporadic” workers, and up

to 40 workers that were available to be brought back to operate equipment and

provide labour as required. Mr. Konicek testified that his normal practice was to hire

for jobs as they came up from his list of past workers, and RSK did not maintain a

Konicek v. Vantown Infrastructure Invesco Inc.

Page 60

large full-time staff. I find that Mr. Konicek properly disclosed the employees of RSK

to the defendants.

[230] There is no allegation in the pleadings that RSK would be a “turn-key”

operation. However, the pleadings allege that the plaintiffs represented RSK was a

“going concern” operation.

[231] The defendants rely on several answers given by Mr. Konicek in his

examinations for discovery where he agreed with a question put to him to the effect

that as of the closing date RSK was not a going concern. Mr. Konicek explained at

trial that he understood the phrase “going concern” to mean a “profitable” company.

Mr. Konicek agreed at trial that “the business of the company was not going in the

direction of being profitable at the time of the sale” to Vantown. This admission by

Mr. Konicek does not negate the fact that the financial situation of RSK in 2016 was

made clear to Vantown repeatedly, as documented in the many email which discuss

the downturn in revenue and the fact that the SPA was explicit that there were no

contracts for ongoing work.

[232] While the exact intended meaning of “going concern” in the pleadings is not

clear, I have determined that RSK was a functioning business at the time of the

transfer. It was a company which had just completed a substantial project and was

available for new work. I am satisfied that RSK provided the buyers with a strong

platform to grow their business, but that the responsibility of obtaining work

consistent with their vision fell to the buyers, and not the vendors. RSK and

Mr. Konicek had no control over which third-party projects would proceed, or how

quickly such projects would proceed. There was no evidence that work that was

available to RSK was not pursued by Mr. Konicek.

[233] While I have not addressed many of the failures to disclose alleged by the

defendants, I agree with the submission of the plaintiffs to the effect that the due

diligence process managed by Sequoia was driven by the buyers. It was up to the

buyers to ask Sequoia to obtain all the information they deemed necessary to

assess the history and performance of RSK. There was no evidence that the

Konicek v. Vantown Infrastructure Invesco Inc.

Page 61

plaintiffs withheld any information when such requests were made during the due

diligence process.

[234] I find that the defendants have not established that any fraudulent

representations were made by the plaintiffs, either by commission or by omission. A

finding that a party made a representation which is false in fact is a prerequisite to

any finding of fraudulent misrepresentation. Having found that no such false

representations were made by the plaintiffs, it is not necessary to engage in an

analysis of the remaining elements of the claim.

D.

Are the plaintiffs liable in equitable fraud?

[235] The defendants alleged no additional facts to support a claim in equitable

fraud beyond those facts alleged in relation to fraudulent misrepresentation. I find no

basis upon which the defendants have established a claim in equitable fraud.

E.

Did the plaintiffs breach a duty of good faith owed to the

defendants?

[236] The defendants argue that the plaintiffs breached the duty of good faith owed

to them as a contracting party by failing to disclose material facts and by deceiving

or misleading Vantown with respect to the status of the ongoing operations of RSK.

The particulars of the alleged dishonesty are the same as have already been

referred to in relation to the other claims discussed above. For the reasons I have

already given, I find the defendants have not proven any of the allegations which are

foundational to the claim of breach of duty of good faith. As such, I find no basis

upon which the defendants have established a claim in a breach of duty of good

faith.

F.

Are the defendants entitled to any damages which must be set off

against amounts owing to the plaintiffs under the SPA and its

associated agreements?

[237] Having found no breaches of the SPA, no fraudulent misrepresentations, no

equitable fraud, and no breach of a duty of good faith, there is no basis upon which

the defendants would be entitled to damages.

Konicek v. Vantown Infrastructure Invesco Inc.

Page 62

[238] In addition, the defendants have failed to provide any evidence which would

support a claim in damages. The defendants have not established the revenue

earned from RSK operations in the year following the transfer. Mr. Medeiros

confirmed that RSK continued to get work after the transfer, and Mr. Gordon testified

that the work from RTA “snow balled”. No documents relating to such work were

provided in evidence. Without knowing what RSK earned, the court is not in a

position to determine if RSK suffered any loss.

[239] The defendants did provide financial statements prepared by Mr. El-Bakri of

Ernst & Young, but these financial statements were produced on a

review-engagement basis, attaching management-prepared financial statements. I

was not satisfied with the answers provided by Mr. El-Bakri as to the work he did. He

was not responsive to questions asked regarding the steps he took to review the

management-prepared information. He was unable to comment on the accuracy of

the figures set out in the financial statements.

[240] The business of RSK was described on the financial statements as

“excavation rentals, providing the other companies within the Servco Canada Group

access to a large, modern and well-maintained fleet of equipment”, which

Mr. El-Bakri understood to describe the business of RSK from June 24, 2016 to May

31, 2018.

[241] Further, the financial statements describe Lander General Power &

Equipment Ltd., along with the Servco entities, as related parties such that the value

of transactions between them are not necessarily at fair market value.

[242] Given that the business of RSK is described as providing services to related

parties, and there is no requirement that related party transactions reflect fair market

value, the usefulness of the RSK financial statements post the transfer is limited.

[243] No witnesses for the management of RSK testified as to the actual revenue or

contracts entered into by RSK, or the truth of the management-prepared financial

Konicek v. Vantown Infrastructure Invesco Inc.

Page 63

statements. As such, if damages were to be assessed, I would place little to no

weight on the financial statements prepared by Ernst & Young.

[244] The defendants produced a schedule of monthly revenue and gross profit for

the 12 months after closing. No back up documents were provided and, therefore,

an assessment of the sources of revenue, including the underlying contracts or

projects, cannot be assessed. Further, the revenue and profit figures are subject to

the same frailties discussed above in relation to the financial statements. However,

even if these figures were accepted on their face, they show monthly revenues

exceeded $200,000 by December 2016, and by April 2017 monthly revenues were

close to $600,000. These figures do not support the assertions of the defendants

that there was no work at all for RSK following the transfer to the new owners.

[245] The defendants also failed to prove that there were market opportunities

which RSK ought to have bid for, but did not, due to a failure on the part of

Mr. Konicek, or as a result of not having the manpower, equipment, or any other

feature of the business which the defendants say they bargained for.

G.

What amounts, if any, remain payable by Vantown to the plaintiffs

under the SPA and its associated agreements?

[246] Pursuant to the SPA, the consideration payable by the purchaser was:

a) $7,900,000, and

b) An amount equal to the Accounts Receivable at the Closing Time.

[247] The consideration was subject to a further adjustment on account of working

capital and indebtedness of RSK on the closing date, and on account of accounts

receivable assigned to the vendors.

[248] $5,000,000 was paid on the closing date. The remaining $2,900,000, plus any

working capital adjustment, would be the “deferred payment amount” which would

be payable under a deferred payment promissory note (“Note”) and DPLA. The Note

confirmed the obligation of Vantown to pay $2,900,000 plus interest of 4.5% per

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annum, compounded monthly, and it was subject to the DPLA. A second promissory

note secured the accounts receivable owing to the plaintiffs.

[249] The DPLA was executed by both plaintiffs, and Vantown, RSK and

Mr. Leung. It required six quarterly payments of principal in the amount of

$483,333.33, beginning on January 1, 2017. Accrued unpaid interest was payable

with each quarterly payment of principal.

[250] Vantown made no payments of principal or interest under the DPLA at any

time.

[251] At trial, the parties agreed that the working capital adjustment under the SPA

resulted in an additional payment to the plaintiffs of $69,021.75. They also agreed

that RSK owed the plaintiffs $427,029 in relation to a dividend declared prior to the

closing, and $6,359 in relation to a shareholder loan amount owing to the plaintiffs.

[252] The plaintiffs claim $1,575 is owing to them in relation to costs incurred in

preparing the June 24, 2016 financial statements. The purchaser had the obligation

under the SPA to deliver a final statement pursuant to Article 2.4(f). The final

statement referred to in the SPA was to set out a detailed calculation of all

adjustments to the purchase price. I am satisfied that the creation of financial

statements as at the date of closing were necessary to complete the final statement

referred to in Article 2.4(f). I agree with the plaintiffs that this cost is to be borne by

Vantown.

[253] On May 17, 2016 Vantown and the plaintiffs agreed that Mr. Konicek/RSK

was authorized to sell two trucks which had been listed as assets of RSK. The

parties agreed that the two trucks would be removed from the list of equipment in

Schedule 3.35 of the SPA. The parties agreed that the plaintiffs would pay to

Vantown the values for the trucks as listed in the SPA, namely $120,000, plus 5%

representing GST, for a total of $128,325. The plaintiffs would assume the risk on

the sale of the trucks and receive the full value received on the sale. I agree with the

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plaintiffs that $6,675 on the sale of the trucks, as received by RSK on the completion

of the sales, was owed to the plaintiffs.

[254] The closing accounts receivable balance under the SPA, owing to the

plaintiffs as of April 12, 2021 was $311,362.32, as agreed between the parties.

[255] Following the closing, Mr. Konicek maintained the RSK account 189001 at

Envision until November 2016. Over that period of time, RK received a net amount

of $557,717.91 on account of post-closing transactions. The plaintiffs agree that

these funds must be taken into account in determining the final amounts owing.

[256] The plaintiffs argue the following amounts totalling $510,659.75, owing to the

plaintiffs by the defendants, ought to be credited against the $557,717.91 received in

account 189001. I agree. From the $557,717.91 the following will be credited:

a) Working capital: $69,021.75

b) Dividend declared in favour of Jennic prior to closing: $427,029

c) Shareholder loan payment: $6,359

d) Cost of preparing the June 24, 2016 financial statements: $1,575

e) Outstanding payment in relation to the two trucks: $6,675

[257] Once these deductions have been made, $47,058.16 remains owing to

Vantown from the $557,717.91 received by the plaintiffs into the Envision account.

[258] The accounts receivable balance owing by Vantown to the plaintiffs is agreed

to be $311,362.32. The plaintiffs submit that the $47,058.16 owing to Vantown ought

to be credited against the accounts receivable balance. I agree. This leaves

$264,304.16 in accounts receivable owing by Vantown to the plaintiffs.

[259] In the result, Vantown is liable to pay the following to the plaintiffs:

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a) $2,900,000 plus interest at 4.5% per annum, compounded monthly, from

June 24, 2016 to the date of judgment; and

b) $264,304.16 of accounts receivable, plus interest pursuant to the Court

Order Interest Act, R.S.B.C. 1996, c. 79, from January 1, 2017 to the date

of judgment (the “Redemption Amount”).

H.

Are the guarantees granted by RSK and Paul Leung, and the

mortgage granted by Paul and Amy Leung, valid?

1.

RSK/Paul Leung Guarantees

[260] Both RSK and Mr. Leung executed separate, but identical guarantees

containing the following language:

1.01 Guarantee

The Guarantor hereby unconditionally and irrevocably guarantees payment of

all the debts and liabilities, present or future, direct or indirect, absolute or

contingent, matured or not, at any time owing by the Obligor [Vantown] to the

Lenders [the plaintiffs] or remaining unpaid by the Obligor to the Lenders

pursuant to the deferred payment loan agreement made as of June 24, 2016,

as amended from time to time (the "Deferred Payment Loan Agreement"),

between, inter alia, the Obligor and the Lenders and pursuant to each of the

security documents and other documents from time to time delivered to the

Lenders in connection with the Deferred Payment Loan Agreement (together

with the Deferred Payment Loan Agreement, the "Finance Documents"),

including the amount of any judgment or award made against the Obligor for

the benefit of the Lenders in connection with the Finance Documents

(collectively, the "Obligations").

[261] It is clear that the SPA is a document delivered in connection with the DPLA.

The DPLA secures an obligation set out in the SPA itself, the DPLA is a schedule to

the SPA, the recitals in the DPLA refer to the SPA, and the DPLA adopts terms from

the SPA. Any other interpretation would be nonsensical. I find the SPA is a “Finance

Document”, as defined in s. 1.01 of the RSK and Leung guarantees.

[262] RSK did not argue that the RSK guarantee was invalid, or secured some

obligation unrelated to the SPA. I find RSK is liable to pay the Redemption Amount.

[263] Mr. Leung argues that the solicitors for the plaintiffs prepared the guarantee,

and had an obligation to obtain a certificate of independent legal advice ensuring

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that Mr. Leung understood the nature of the obligations contained in the guarantee.

In the absence of such a certificate, Mr. Leung argues the guarantee is not valid. In

addition, Mr. Leung argues that he was induced to enter into the transaction by the

fraudulent misrepresentations made by Mr. Konicek, and therefore the entire

transaction including the guarantee should be invalidated and cancelled by the court.

Mr. Leung made a number of submissions in relation to unconscionability and undue

influence. Other than the allegation that Mr. Konicek made false representations,

none of these submissions are founded on Mr. Leung’s pleadings. Parties are not

entitled to raise entirely new defences at trial. Nevertheless, the evidence at trial

would not support these submissions, even if they could be advanced.

[264] In June 2016 Mr. Leung was directly involved in reviewing the guarantee with

the solicitors for Vantown. He reviewed drafts of both the RSK guarantee and the

Leung guarantee. At no point did he appear to misunderstand what was being

presented to him. He raised concerns and received black lined documents reflecting

various changes.

[265] On June 21, 2016, Mr. and Mrs. Leung attended at the offices of the solicitors

for Vantown to execute all documents required by the transaction, including the

guarantee signed by Mr. Leung. The senior lawyer was Mr. Gangji, and the junior

lawyer was Mr. Lotz. Mr. Lotz testified that at that meeting, the need for independent

legal advice was raised with the Leungs by Mr. Gangji. Both lawyers confirmed they

acted for Vantown, and not the Leungs personally. Mr. Lotz recalled Mr. Gangji

advising the Leungs that they should get independent legal advice, but if they did not

a waiver would be required.

[266] Mr. Leung testified that he did not recall any discussion at the meeting about

independent legal advice. He initially testified about various memories about the

meeting, but then when presented with his discovery transcript where he stated he

had no memory of the meeting, Mr. Leung conceded that he remembered no details

about the meeting.

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[267] On June 22, 2016, Mr. Ganji wrote an email to Mr. Leung stating:

Paul and Amy,

As we have discussed, while we have been involved in the negotiation of the

Deferred Payment Loan Agreement, the Leung Guarantee and the Leung

Mortgage and other matters related to the Deferred Payment Loan

Agreement we have only represented Vantown Infrastructure Invesco Inc.

(the “Company”) and the interests of the Company. We have not represented

either of you in this transaction personally. As a result, and as has been

previously discussed (including yesterday) and included on the Agenda,

Vendors’ counsel would like for both of you to obtain certificates of

independent legal advice. This would involve having both of you sit down with

another lawyer, whom we can connect you with, and having them walk you

through what you are agreeing to as a part of the transaction involving the

purchase of RSK by the Company. We understand that you would like to

push back on this front and not obtain a Certificate of Independent Legal

Advice and would instead like to sign a waiver. Please confirm this is your

position and that you would like us to convey this to Vendors’ counsel.

As we have discussed before, you should obtain independent legal advice

before entering into the Deferred Payment Loan Agreement, the Leung

Mortgage and the Leung Guarantee in order to make sure their terms are

reasonable, and to among other things, ensure that you are familiar with the

rights and liabilities thereunder. We can prepare waivers indicating that you

have been advised as such and that you have had the opportunity to seek

independent legal advice and have either done so or decided to proceed

without doing so.

Happy to discuss should you have any questions.

[268] In a second email the same day, Mr. Ganji wrote to Mr. Leung sending forms

of waivers of independent legal advice, and advising that it was still open to the

Leungs to seek independent legal advice before signing the waivers.

[269] On June 23, 2016, Mr. Leung wrote to the plaintiffs’ representative, Mr. Chris

Larmer, the following:

There is no need for independent advice. Amy and I both are on the board of

director of Vantown, the acquisition vehicle. Also she is the director and CFO

and I am the Chairman and CEO of Empower Technologies Corporation, a

TSXV listed company. Thanks.

[270] I am satisfied that Mr. Leung was well aware of the opportunity to obtain

independent legal advice, having been advised of that right in various email and by

the Vantown lawyers before the documents were signed on June 21, 2016.

Mr. Leung chose to waive that opportunity. While he did not sign the form of waiver

prepared by counsel, I am satisfied that in his email of June 23, 2016 Mr. Leung

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clearly expressed his waiver of independent legal advice on his part and on the part

of Mrs. Leung.

[271] For the reasons already expressed, I do not find that Mr. Konicek obtained

Mr. Leung’s consent to the transaction through fraudulent misrepresentations or

equitable fraud. I find the Leung guarantee is enforceable against Mr. Leung for the

Redemption Amount.

2.

The Leung Mortgage

[272] The Leung guarantee is secured by a mortgage over the family home owned

in joint tenancy by Mr. and Mrs. Leung.

[273] Mrs. Leung did not provide a personal guarantee for any obligations

contained in the SPA or its related financial documents. Her only obligation in this

litigation arises from the mortgage she executed on June 21, 2016 before Mr. Lotz.

The only recourse the plaintiffs have against Mrs. Leung is with respect to her

interest in the family home.

[274] Mrs. Leung argues that she was not provided with all relevant documents at

the time she executed the mortgage, that she was under undue influence when she

signed the mortgage, and that she did not have the opportunity to seek independent

legal advice. Mrs. Leung did not plead that she was unduly influenced to sign the

mortgage, or that she did not have the opportunity to seek independent legal advice,

and she cannot raise these issues for the first time at trial. Nevertheless, the

evidence would not support such defences.

[275] Mrs. Leung has a bachelor’s degree in accounting, and speaks and

understands English. After she obtained her degree, she worked in accounting for a

number of years at different companies, although she does not have an accounting

designation. In 2003 she was appointed a director of a company known as Empower

Technologies Corporation. On March 2, 2016 she became a director of Vantown,

along with Mr. Leung and Mr. Gordon.

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[276] Mrs. Leung admitted she understood what a mortgage was, and had

executed a Scotiabank mortgage in 2011 which was registered on the title to the

family home.

[277] Mrs. Leung testified that she understood that if she signed legal documents,

people may rely on those documents, and if she signed documents as a director of a

company, people would understand she was a director, knowledgeable about the

business of the company, and would rely on that information in making decisions.

She also agreed that signing documents without reading them could have

consequences.

[278] While at trial both Mr. Leung and Mrs. Leung attempted to downplay their

knowledge and understanding of the financial documents they executed in relation to

the SPA, the email communication entered in evidence and the answers given by

Mr. Leung on discovery support a finding that they both read and understood the

implications of the mortgage and the guarantee.

[279] In January 2016, Mr. Leung wrote to Mr. Gordon, copying Mrs. Leung, a

lengthy email setting out the conditions under which he would provide his personal

guarantee along with security against his property. He set out his wife’s detailed

concerns. In January 2016, the plaintiffs’ representative wrote to Mr. Leung

regarding the importance of the family home as security. On February 1, 2016,

Mr. Leung was sent a draft agreement which specified that security against the

family home would be provided, and Mr. Leung responded to the plaintiffs’

representative that he “will have a talk with my wife and then hopefully I get pass her

and have the signed copy to you late tonight”. On the same night he sent another

email raising the issue of additional security being provided in place of the mortgage

specifically because of his wife’s concerns in granting the mortgage. On February 2,

2016 Mr. Leung again raised with the plaintiffs’ representative his wife’s concern with

granting the mortgage.

[280] Mr. Lotz testified that at the meeting with the Vantown lawyers on June 21,

2016 both Mr. and Mrs. Leung were advised by Mr. Ganji that they could and should

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seek independent legal advice with respect to the documents. They were also

advised that if they did not wish to seek independent legal advice, they could sign a

waiver. Both Mr. and Mrs. Leung stated they would like to waive the right to obtain

independent legal advice.

[281] Mr. Lotz testified that the documents had been sent to Mr. and Mrs. Leung

prior to the meeting, and the documents were reviewed with them both in the

meeting. Email communication between Mr. Lotz and Mr. Leung in the evening of

June 21, 2016 confirms that Mr. Lotz discussed the mortgage, and the limited

guarantee contained in the mortgage, with Mrs. Leung on June 21, 2016. He

testified that in the meeting on June 21, 2016, both Mr. and Mrs. Leung appeared to

understand the nature of the obligations created by the documents. Mr. Lotz testified

that Mrs. Leung was not upset or agitated during the meeting, she did not appear to

be in disagreement with her husband, and did not appear to have any concerns

about what she was signing. Both Mr. and Mrs. Leung signed an acknowledgement

of receipt of mortgage terms at the meeting with Mr. Lotz.

[282] Mrs. Leung testified that she did not remember any lawyer saying anything to

her at the meeting, and that she just signed what her husband put in front of her. I

find the evidence of Mrs. Leung to be unreliable. Under cross-examination, she was

presented with an affidavit she swore on October 18, 2018 in which she stated that

she was asked by Mr. Leung in June 2016 to sign the Leung mortgage. In response,

Mrs. Leung denied the truth of her affidavit, saying the affidavit was not prepared by

her. I do not accept this testimony. Rather, I find she was less than truthful in her

evidence at trial. Under cross-examination, Mrs. Leung admitted that she had no

recollection of what happened at the meeting on June 21, 2016.

[283] I am satisfied that Mr. Lotz’s memory of the June 21, 2016 is reliable and I

accept his evidence as to what was discussed in the meeting, including the

mortgage terms, the limited guarantee provided by Mrs. Leung in relation to the

mortgage, his advice that she should obtain independent legal advice, and her

waiver of that right.

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[284] Under cross-examination, Mrs. Leung agreed that she knew what the word

“borrower” meant, and she could see that she was listed as a borrower on the

mortgage document she signed. She agreed she knew what a mortgage is. She

agreed that if she had taken the time to read the document before she signed it, she

would have understood what it meant. While she stated she was used to signing

documents without reading them, she did not have any doubt about what she was

signing and so did not need any details about what she was signing.

[285] Following the June 21, 2016 meeting, the lawyers for Vantown sent the email

discussed above to both Mr. and Mrs. Leung, again advising they had the

opportunity to seek independent legal advice. Mrs. Leung agreed in evidence that

the email was sent to one of her email addresses; however, she argued that she did

not access that email address and only Mr. Leung saw it. When examined for

discovery, Mrs. Leung agreed that she had access to the relevant email address.

Further, I note that on at least one of the relevant email written by Mr. Leung in

relation to the mortgage, he copied his wife’s email address. It is difficult to

understand why he would do that if she had no access to that email address.

[286] I am satisfied that Mrs. Leung was provided with all relevant documents at the

time she executed the mortgage, and prior to the mortgage being signed. Further,

she received a full explanation of the effect of the mortgage documents from the

lawyers for Vantown, both in writing and orally. Mrs. Leung was advised orally and

by email that she had the opportunity to seek independent legal advice in relation to

the security she was granting, and she waived her right to seek such advice orally in

the meeting June 21, 2016. The fact that the waiver was not in writing is not

material, given the extensive information and repeated advice she was given.

Further, Mr. Leung represented to the plaintiffs’ representative, in writing, that both

he and Mrs. Leung did not require independent legal advice. On balance, I am

satisfied that Mrs. Leung waived her right to seek independent legal advice in

relation to the mortgage.

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[287] Mrs. Leung suggested that she was simply doing what her husband told her

to do. I do not agree that suggestion is borne out on the evidence. There was

nothing in her behaviour in the meeting on June 21, 2016 that would have suggested

to the lawyers for Vantown that she was being forced to execute the required

documents against her will.

[288] The email leading up to the execution of the mortgage suggest Mrs. Leung

was actively engaged in the decision to grant the mortgage. While these email do

suggest she was initially unwilling, there is nothing in the evidence which allows me

to conclude that the plaintiffs, or the lawyers for Vantown, would have any reason to

believe that Mrs. Leung was an unwilling mortgagor at the time she signed the

mortgage documents. Mrs. Leung was a director of Vantown, which was a party to

the SPA. It was reasonable for the plaintiffs to understand that Mrs. Leung, as a

director of one of the contracting parties, would have an understanding of the

security required to complete the transaction. Further, that security was explained to

Mrs. Leung and she expressed no concerns. As a director of the principal party to

the SPA, it cannot be said that it was obvious that executing the mortgage was a

disadvantage to Mrs. Leung. Nothing in the evidence suggests the plaintiffs ought to

have been alerted to any undue influence exerted by Mr. Leung. As such, I find the

plaintiffs had no notice, constructive or otherwise, of any undue influence exercised

by Mr. Leung over her which would allow me to set aside the mortgage.

[289] Mrs. Leung relied on a number of cases, none of which have application to

the case before me:

a) Bertolo v. Bank of Montreal, (1986), 57 O.R. (2d) 577: this case does not

stand for the proposition that legal advice must always be provided, or that

a waiver of legal advice must always be signed. The court held that it was

open to the trier of fact in each case to determine whether the party

understood the nature of the transaction, notwithstanding no legal advice

being given.

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b) MacKay v. Bank of Nova Scotia (1994), 20 O.R. (3d) 698 (S.C.): in this

case the court found the bank knew the underlying agreement was

unconscionable, the plaintiff was being pressured to execute it, and there

was unequal bargaining power between the parties. The presumption of

undue influence can be rebutted by independent legal advice.

c) May v. Dunster, 1996 3453 (B.C.S.C.): the court found that the

parent who provided security for a loan to the benefit of her son had no

ability to understand the nature of the transaction, the transaction itself

was unconscionable, and she had no legal advice.

[290] In all of these cases, the issue arose between the lender and the person

obliged under the security instrument: did the lender act unconscionably towards the

party who offered security? In the case before the Court, no pleading of

unconscionability of any kind was made by Mrs. Leung. Further, to the extent her

submissions can be understood, they are that her husband placed pressure on her

or that her husband acted unconscionably towards her. I do not agree that claims

between Mr. and Mrs. Leung as co-mortgagors can defeat the valid claim of the

plaintiffs under the security instruments provided.

[291] In any event, I am satisfied that Mrs. Leung, with a university education and

over 13 years as a corporate director, who acknowledged understanding what a

mortgage was and had signed one in the past, who had had the documents

reviewed with her by the lawyers for Vantown, and was repeatedly offered the

opportunity to seek independent legal advice, fully understood what she was signing

and freely waived her right to independent legal advice.

IV.

CONCLUSION

[292] I made the declarations of rectification sought at paras. 1 and 2 under Part 2

of the second amended notice of civil claim, both of which were consented to at trial.

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[293] With respect to the claims for relief in relation to the Leung Mortgage, I make

the declarations set out at paras. 3, 4, and 5 under Part 2 of the second amended

notice of civil claim.

[294] I order the “Amount Required to Redeem” as reflected in these reasons and

as set out in para. 6 under Part 2 of the second amended notice of civil claim may be

amended to include any order for costs made following submissions of the parties

and, if no such application for costs is filed within 45 days of this decision, I make the

declaration set out in para. 6 under Part 2 of the second amended notice of civil

claim.

[295] I make the orders set out at paras. 7, 10, and 11 under Part 2 of the second

amended notice of civil claim.

[296] I order that, on the Leung Defendants or any of them paying into Court, or to

the lawyers for the plaintiffs, prior to the pronouncement of an order absolute or an

order approving a sale of the Lands, the Amount Required to Redeem, then the

plaintiffs shall re-convey the Lands free and clear of encumbrances in favour of it or

by any person claiming by, through, or under it, and shall deliver up all documents in

the plaintiffs’ custody relating to the Lands to the Leung Defendants or the Leung

Defendant who made the payment.

[297] I order judgment, jointly and severally, against Vantown, RSK, Mr. Leung, and

Mrs. Leung pursuant to the Mortgage and Associated Agreements, for the Amount

Required to Redeem, with all recovery against Mrs. Leung being strictly limited to

her interest in the Lands pursuant to the Mortgage.

V.

COSTS

[298] My decision on costs is deferred pending a further application being brought

to determine that issue in accordance with the orders made above.

“W.A. Baker J.”