COURT OF APPEAL FOR BRITISH COLUMBIA

Citation:

Kwantlen University College Student Association v.
  Canadian Federation of Students  British Columbia,

2018 BCCA 16

Date: 20180117

Docket: CA44334

Between:

Kwantlen
University College Student Association,
Steven Button and Alex McGowan

Respondents

(Plaintiffs)

And

Canadian
Federation of Students  British Columbia

Appellant

(Defendant)

Before:

The Honourable Mr. Justice Donald

The Honourable Madam Justice Saunders

The Honourable Mr. Justice Groberman

On appeal from:  An
order of the Supreme Court of British Columbia, dated February 24, 2017 (
Kwantlen
University College Students Association v. Canadian Federation of Students
British Columbia
, 2017 BCSC 299, Vancouver Docket No. S146936).

Counsel for the Appellant:

M.G. Underhill

K.R. Phipps

Counsel for the Respondent:

D.B. Borins

J.P. Sullivan

Place and Date of Hearing:

Vancouver, British
  Columbia

September 18, 2017

Place and Date of Judgment:

Vancouver, British
  Columbia

January 17, 2018

Written Reasons by:

The Honourable Mr. Justice Groberman

Concurred in by:

The Honourable Mr. Justice Donald

The Honourable Madam Justice Saunders

Summary:

The respondents served a
petition on the appellant seeking a referendum on whether their students union
would withdraw from the appellant organization. Neither the appellant nor the
respondents had access to a list of their members, so the respondents asked the
registrar of the institution to verify the signatures on the petition. The
registrar confirmed that the petition was properly signed by the requisite
number of students. The appellant requested further information, and then
conducted its own verification of the petition, finding that the number of
valid signatures did not meet the required threshold. It refused to hold the
referendum. The respondents sued, seeking various forms of relief, and the
appellant sought judgment on a summary trial. The judge determined that the
only issue suitable for summary determination was who had authority to verify
the petition. He declared that the appellant was bound to accept the registrars
determination as to the validity of the petition. On appeal held: appeal
allowed in part. The declaration granted by the chambers judge is set aside.
While each side argued that it had exclusive authority to definitively
determine the validity of the petition, there was no basis for finding that
either side had such authority. The signature requirement was an objective one,
and the question of whether it was met could be determined by the courts if the
parties were unable to agree.

Reasons for Judgment of the Honourable
Mr. Justice Groberman:

[1]

In September 2013, students at Kwantlen Polytechnic University (Kwantlen)
circulated a petition asking for the holding of a referendum to decide whether
the Kwantlen University College Student Association (the KSA) would continue
to be a member of the Canadian Federation of Students  British Columbia (the CFS‑BC).
At that time, the bylaws of the CFS‑BC required the holding of a
referendum where 10% of its members at a member institution signed a petition
requesting one. The current appeal is concerned only with the question of who
was entitled to determine whether the 10% threshold was met.

The CFS‑BC Structure
and Bylaws

[2]

The CFS‑BC is an association of university and college students
unions. Students unions that are associated with the CFS‑BC are
described in its bylaws as local unions. The individual students who are
members of local unions are also members of the CFS-BC and described as individual
members in its bylaws. The directors of the CFS-BC are referred to as its Executive
Committee and manage the general affairs of the association.

[3]

The bylaws of the CFS‑BC allow an associated students union to
withdraw from the organization by way of a referendum. The appellant refers to
a withdrawal referendum as a disaffiliation referendum, while the bylaws use
the words defederation and decertification. It appears that all of these
expressions are interchangeable. In 2013 and 2014, the relevant bylaw provisions
included the following provision:

2.1       Full Membership

l. The individual members of the Federation collectively
belonging to a member local union will have sole authority to initiate, by
petition signed by not less than ten per cent (10%) of the individual members
and served to the Federations Executive Committee, a defederation referendum
as described in this Bylaw.

[4]

Subsequent provisions of the bylaw outlined procedures and rules for a
referendum. These other provisions are of limited importance to this appeal,
but are annexed to this judgment as an appendix.

The Petition and Verification
Processes

[5]

Individual students at Kwantlen collected signatures on a petition
calling for a decertification referendum in September 2013. On September 25,
2013, the petition was submitted to the Executive Committee of the CFS-BC. On
October 18, 2013, the CFS‑BC wrote to the KSA requesting the assistance
of the [KSA] in verifying the authenticity of the names appearing on the
petition, including the enrolment status (or membership status, if different).

[6]

The KSA responded, advising that the KSA does not have a copy of its
membership list as [Kwantlen] will not provide us with personal information of
students. The letter advised, however, that a copy of the petition had been
sent to the Office of the Registrar of Kwantlen, and that the Registrar had
agreed to verify the petition.

[7]

By letter dated December 10, 2013, the Registrar reported that there
were 1,505 signatures on the petition, of which 1,387 were valid. Of the 118
invalid signatures: 37 were found not eligible to vote or not on the student
list; 49 were cases where the student name did not match the student ID number;
13 were duplicate signatures; and 19 contained incomplete or illegible ID
numbers.

[8]

The letter stated that the number of eligible student voters was 13,501,
and that the number of valid signatures represented 10.27% of the total number
of students eligible to vote.

[9]

The KSA forwarded the letter to the CFC-BC on December 18, 2013. The CFS‑BC
executive was not satisfied with the Registrars letter, and responded to the
KSA in a January 11, 2014 letter:

As you are aware, the Executive Committee of the [CFS‑BC]
is responsible for determining whether a petition submitted by individual
members seeking a referendum on the question of continued membership in the [CFS‑BC]
is in order.

In order to consider the information that the Office of the
Registrar has provided, the Executive Committee requires a copy of the petition
that the Office used in its efforts to verity enrolment along with the Office
of the Registrars notes next to each name indicating its status (ie. valid,
invalid etc.) and a description of the criteria applied for the verification.
For those signatures deemed invalid, the Executive Committee will require an
explanation as to why the individual is not eligible (ie. incorrect student
number, not enrolled, etc.). Upon receipt of this basic supporting
documentation, the Executive Committee should be in a position to consider the
petition and determine whether it is in order.

Please advise me  if the [KSA]
is able to assist in this matter or if the Executive Committee should contact
the Office of the Registrar directly to make these arrangements.

[10]

The KSA responded on January 16, 2014:

You indicate in your letter that
the Executive Committee of the [CFS‑BC] is responsible for determining whether
a petition submitted by individual members seeking a referendum on the question
of continued membership in the [CFS‑BC] is in order. The CFS‑BC
bylaws contain no such provision

[11]

The response went on to state that the KSA was not in possession of the
information requested and expressed concern that the CFS‑BC was improperly
delaying the referendum process.

[12]

Over the following weeks, the parties exchanged letters, largely
reiterating their views and concerns. The CFS‑BC also wrote directly to
the Office of the Registrar of Kwantlen, requesting an up-to-date membership
list so that it could, itself, verify the petition. The CFS‑BC followed
up with several letters and voice messages to the Registrar.

[13]

On March 4, 2014, the Registrar provided a membership list to the CFS‑BC,
consisting of 16,262 individual student numbers, but without names. He invited
the CFS‑BC to return to him if it had any questions, but it did not do
so. On reviewing the list and the petition, the CFS‑BC concluded that
there were 1,507 signatures on the petition, but that only 1,342 of them were
valid.

[14]

On March 28, 2014, counsel for the CFS‑BC advised that the
referendum would not take place. Among the reasons given was that the petition
was signed by only 8.25% of the membership at Kwantlen.

[15]

In an affidavit sworn in November 2016, the Registrar explains the
efforts made by his office to verify the petition in 2013, and to produce a
list of voters for the CFS‑BC in 2014. He indicated that in 2013 his
office examined each name and student ID number on the petition. In order for a
signature to be considered valid, both the printed name on the petition and the
student ID number had to be clear, and both had to correspond with an
individual on the voters list.

[16]

With respect to the 2014 voters list, the Registrar states that the list
used in the original 2013 verification was not archived or retained. An effort
was made to recreate a voters list as of September 24, 2013, in response to the
CFS‑BCs request, but the Registrars office experienced some difficulty
in that endeavour. He states that the actual number of students registered at
Kwantlen in the fall of 2013 was 14,385, though not all would have been members
of the KSA. He concludes that the list his office provided to the CFS‑BC with
16,262 entries was obviously not accurate as it contained approximately 2,000
more student numbers than there were students enrolled at Kwantlen in the fall of
2013.

Proceedings in the Supreme
Court

[17]

In September 2014, the respondents commenced this action, alleging that
the CFS‑BCs actions in refusing to hold the referendum were in breach of
contractual and fiduciary obligations, and were oppressive. Among the remedies
sought was a declaration that the KSA was entitled to, and did, treat the CFS‑BCs
failure to hold a referendum in April 2014 as a fundamental breach of contract.

[18]

The CFS‑BC eventually proposed to have the matter disposed of by
way of a summary trial under R. 9-7 of the
Supreme Court Civil Rules
;
the KSA contended that the matter was not suitable for summary trial, and
brought an application to dismiss the summary trial application under R.
9-7(11).

[19]

The matters proceeded on February 6 and 7, 2017, but there was
insufficient time for full argument. The CFS-BC presented its full arguments on
the merits, but the KSA only presented its argument on suitability of the
matter for summary trial.

[20]

Despite the incomplete hearing, the judge considered it clear that the
claim was not, generally, suitable for a summary trial. He did consider,
however, that one discrete issue raised by the CFS‑BC was suitable for
summary determination: whether [the] Executive Committee [of the CFS-BC] had
implied authority under its bylaws to take such steps as it consider[ed]
appropriate to verify that the petition submitted to it had indeed been signed
by at least 10% of the members of the local union.

[21]

With respect to factual issues, the judge accepted the Registrars conclusion
that the list provided to the CFS‑BC was inaccurate, and contained almost
2,000 more student numbers than there were students at Kwantlen. He also
accepted the Registrars explanation as to why the earlier list contained only 13,501
names, even though Kwantlen reported total student enrollment at the time of
14,385.

[22]

The CFS-BC, however, argued that its own verification of the petition
determined that it contained only 1,342 valid signatures so that even if the
number of eligible voters was only 13,501, the number of signatures still fell
short of the 10% threshold. The CFS-BC contended that its Executive Committee
had ultimate authority to determine whether or not a signature was valid.

[23]

The judge rejected that contention. He noted that there was no express
provision in the bylaws giving the Executive Committee such authority. Further,
he found that past practice did not support the existence of such authority:

[56]      On the evidence before
me, there has been no past practice of the executive committee taking steps on
its own to verify the signatures on a petition, whereas it accepted several
previous petitions (at Kwantlen University College, Simon Fraser University, and
the University of Victoria) with verification by the Universitys registrar
such as Dr. Hensley provided in this case. This makes sense, given that
the Office of the Registrar can reliably be assumed to have no interest in the
politics of student associations, and alone has access to all of the relevant
information.

[24]

The judge, referring to clause 2.1(l) of the CFS-BC bylaws, considered
that the CFS-BC had no authority to verify a petition:

[60]      [T]he requests [for documentation from the Office
of the Registrar] are not consistent with the bylaw conferring on [individual
members] sole authority to initiate, by petition a defederation referendum. Note
that the sole authority that the bylaw confers is to initiate a defederation
referendum. The only means for doing so is through the initiating petition.
That petition must therefore come within and be subject to the sole authority
conferred upon the individual members.

[61]      Viewed in context, I can see nothing about this
grant of authority that requires me to imply the grant of a competing or
additional sole authority to the executive committee to verify the petition.
To imply such a division of sole authority would be inconsistent with Bylaw
2.1(l). It cannot be said that business efficacy requires such an implication,
given that the parties got along without it quite handily before this petition
was presented. Indeed, the chair of the executive committee, when examined for
discovery, was unable to refer to any previous instance of this type of
verification process being employed, and none was advanced in the affidavits.
The past practice where results were typically verified by the registrars of
the universities involved at the behest of the individual members (in
accordance with their sole authority) appeared to be sufficient until this
occasion.

[63]      CFS-BC maintains that such a power must necessarily
be implied because otherwise it would be left unable to determine whether a
petition actually met the required threshold. But that is how the bylaws
developed. Presumably it was to avoid this difficulty that members submitting
these petitions developed the practice of having them verified by the relevant
Office of the Registrar, a neutral party with all of the necessary information
at hand. What authority it might have been necessary to imply in the absence of
such verification need not be decided. Given that verification, it is
impossible to say that the parties must have intended that the executive
committee have a further and superseding authority to investigate and verify
the results.

[64]      I conclude that the
executive committee had no implied authority to investigate and verify the
petition forwarded by Mr. McGowan and confirmed by the [Kwantlen]
Registrars Office. That came within the sole authority of the individual
member (Mr. McGowan) and ought to have been accepted as satisfying the
threshold for the holding of a referendumsubject, of course, to other
prerequisites such as the payment of fees.

[25]

The formal order with respect to the verification issue contains the
following declaration:

[T]his court declares that the
Defendants Executive Committee had no  implied authority [to investigate and
verify the results of the petition] and that the Defendant ought to have accepted
the petition as having met the 10% threshold set out in Bylaw 2.1(l) of the
Defendants Bylaws, as they read in September 2013.

[26]

The CFS-BC attempted to appeal from both the judges determination that
the claim was not generally suitable for summary determination and from his declaration
that the Executive Committee of the CFS-BC lacked the authority to investigate
and verify the petition. It filed both a notice of appeal and an application
for leave to appeal and sought directions before a judge in chambers. The judge
held that the appeal with respect to suitability required leave, and she denied
leave. She held that the appeal with respect to the declaration concerning
verification of signatures on a petition did not require leave. Accordingly, that
is the only issue before this Court on this appeal.

Analysis

[27]

On appeal, the appellant raises three issues. First, it contends that
the judge failed to afford it a right to reply on the issue of verification of
the petition, and in so doing, failed to respect the requirements of procedural
fairness. Second, it says that the judge made a palpable and overriding error
of fact in finding that the CFS-BC had accepted petitions verified by
registrars in the past. Finally, it says that the judge erred in law in finding
that the Executive Committee of the CFS-BC did not have authority to verify the
signatures on the petition.

[28]

It is unnecessary to address the procedural fairness issue. The issues
that would have been raised in reply in the court below are not issues on which
the chambers judge would be entitled to deference, and the appellant has had a
full opportunity to address the issues on this appeal. As the appellant
concedes, if there was any unfairness to the appellant in not having had the
ability to present argument in reply, that unfairness can be corrected on
appeal.

[29]

It is also unnecessary, in my view, to analyze the issue of CFS-BCs
past practices in any detail. While the judge remarked on the absence of any
evidence of the CFS-BCs Executive Committee reviewing petitions after a
registrars review in the past, it does not appear to me that the judge based
his decision on that practice. Rather, he found that according to the language
of the bylaws, the sole authority to determine the adequacy of a petition
rested with the individual members who presented the petition. He found that
the practice of petition proponents of referring the petitions to the registrar
of the institution was reasonable, and eliminated any need to find an implied
right of verification by the CFS-BC.

[30]

In any event, I am not convinced that the history described by the
chambers judge  three referendums in which either the CFS-BC or the Canadian
Federation of Students (a separate but related organization) chose to accept
the views of an institutions registrar  could be taken to have established an
enforceable rule of the CFS-BC. In
Lakeside Colony of Hutterian Brethren v.
Hofer
, [1992] 3 S.C.R. 165 at 191-192, Gonthier J., writing for the
majority, found that a longstanding and well-established custom or tradition
can become an implied term of a voluntary associations rules:

A long-standing tradition provides a kind of notice to the
member of what rules the association will follow. We also must remember that
voluntary associations are meant largely to govern themselves, and to do so
flexibly. Therefore, tradition or custom which is sufficiently well established
may be considered to have the status of rules of the association, on the basis
that they are unexpressed terms of the Articles of Association. In many cases,
expert evidence will be of assistance to the court in understanding the
relevant tradition and custom.

The tradition that a group of
ministers appointed by the Senior Elder can finally decide issues referred to
them by the Senior Elder is a valid rule on this standard. No one disputes that
this tradition exists. The Constitution does not expressly forbid such
delegation. It merely gives the conference board a certain power without specifying
how it is to be exercised. The undisputed tradition is sufficient to authorize
the further delegation of this power.

[31]

In contrast, the history referred to in this case does not show a
practice that is either clear or well-established. At best, the evidence shows
that the Executive Committee of the CFS‑BC has, on three occasions in the
past, accepted a registrars verification of a petition as sufficient evidence
that the petition was valid. Nothing in the history suggests that the Executive
Committee has, in so doing, surrendered any power that it may have had to review
a registrars conclusions if it considered it appropriate to do so.

[32]

I turn, then, to the issue at the heart of this case. What powers does
the CFS‑BC have when it comes to verifying the signatures on a petition? The
parties primary positions on this issue are diametrically opposed. The CFS‑BC
asserts that it has final authority to determine the adequacy of a petition. On
the other hand, the KSA argues that the judge was correct in finding that the individual
members initiating the petition have authority (perhaps with the assistance of
the Registrar) to determine when a petition must be accepted. There is, of
course, a third possibility: that neither the proponents of a petition nor the
CFS‑BC has authority to definitively pronounce on the validity of
signatures.

[33]

The CFS‑BC argues that there are two alternative bases on which it
has the ability to determine the validity of signatures on the petition. First,
it cites s. 24(2)(a) of the
Society Act
, R.S.B.C. 1996,
c. 433, which was the applicable legislation at material times (it has
since been replaced by s. 52 of the
Societies Act
,
S.B.C. 2015, c. 18):

24. (2) Subject to this Act and the constitution and bylaws
of the society, the directors

(a) must manage, or supervise the management of, the
affairs of the society .

[34]

The appellant says that it is essential to the management of the CFS‑BC
that its directors have the ability to verify signatures on a petition:

It is not controversial that if a
society acts in a manner that is contrary to its articles, the act is
ultra
vires
and void. Bylaw 2.1(l) provides that a defederation referendum is
initiated by a petition signed by not less than 10% of the individual members
of a member local union. If a defederation referendum proceeds when a petition
has not been signed by 10% of the federation, the [CFS‑BC] will have
acted
ultra vires
its own bylaws. Pursuant to s. 85 of the
Society
Act
[now replaced by s. 105 of the
Societies Act
], an
interested person, including in this case another member local student union,
may apply to court to complain about the default in compliance, and the court
has the authority to intervene.

[35]

I agree that this reasoning demonstrates why the directors of the CFS‑BC
must have the ability to examine a petition, and to form a view as to whether
or not it meets the requirements of the bylaws. The same reasoning, however,
shows why a determination by the directors cannot be definitive. Just as the CFS‑BC
would be acting beyond its authority if it held a referendum where a petition did
not meet the requirements of the bylaws, it also acts beyond its authority
where it refuses to hold a referendum where a petition meets the bylaw
requirements.

[36]

The bylaws expressly set out objective requirements of a petition. The
directors, in their management of the affairs of the society, have no authority
to depart from those objective requirements. Nothing in the bylaws suggests
that the directors have any privileged position to determine whether the
objective requirements have been met.

[37]

For the same reason, I would reject the CFS‑BCs contention that
the directors have an implicit power to definitively determine the validity
of a petition. In
Moulton Contracting Ltd. v. British Columbia
, 2015
BCCA 89, this Court summarized the circumstances in which it is appropriate to
imply a term in a contract:

[53]      In
M.J.B. Enterprises Ltd. v. Defence
Construction (1951) Ltd.
, [1999] 1 S.C.R. 619 at para. 27  Justice
Iacobucci for the Supreme Court summarized the three circumstances (identified
in
Canadian Pacific Hotels Ltd. v. Bank of Montreal
, [1987] 1 S.C.R. 711
at 774-776) where terms may be implied in a contract:

(1) based on custom or usage; (2)
as the legal incidents of a particular class or kind of contract; or (3) based
on the presumed intention of the parties where the implied term must be
necessary to give business efficacy to a contract or as otherwise meeting the officious
bystander test as a term which the parties would say, if questioned, that they
had obviously assumed [citation omitted in
Moulton
].

[54]      Justice Iacobucci noted that while it was not clear
from
Canadian Pacific Hotels Ltd.
whether the business efficacy and officious
bystander tests were two separate tests, what was important in both
formulations is a focus on the intentions of the
actual
parties, and
not the intentions of
reasonable
parties (at para. 29 [emphasis
in original]):

This is why the implication of the
term must have a certain degree of obviousness to it, and why, if there is
evidence of a contrary intention, on the part of either party, an implied term
may not be found on this basis.

[55]      The key element is that
the implied term is more than just reasonable; it is necessary to make the
contract as the parties intended. That is, without the term, the contract, as
intended by the parties, would not be effective.

[38]

In the case before us, the bylaws can be effective without interpreting
them as giving the CFS‑BC authority to definitively determine whether a
petition is valid. Further, the CFS‑BC has an apparent interest in
maintaining its membership; it is impossible to infer any intention on the part
of the parties that the power to definitively determine the validity of a
petition would be placed in the hands of a body with pecuniary and political
interests in the issue.

[39]

I am not, on the other hand, convinced that there was any basis for the
judges finding that the bylaws give the proponents of a petition the right to
determine whether it conforms with the bylaws. I repeat, for convenience, the
provisions of Bylaw 2.1(l):

The individual members of the
Federation collectively belonging to a member local union will have sole
authority to initiate, by petition signed by not less than ten per cent (10%)
of the individual members and served to the Federations Executive Committee, a
defederation referendum as described in this Bylaw.

[40]

The purpose and effect of this provision are clear. It prevents a local
union from initiating a referendum by resolution or otherwise, and gives
individual members the exclusive right to initiate a petition. Nothing in the
provision expressly or implicitly gives the proponents of a petition the right
to determine whether it meets the objective criteria of the bylaws for the
holding of a referendum. The judge erred in interpreting the provision as
giving the proponents the right to determine the validity of their own
petition.

[41]

In my view, the question of whether a petition has been signed by 10% or
more of the CFS‑BC members in a local union is an objective one that is
to be determined on the available evidence. It is not for one party or another
to make a definitive ruling on the question.

[42]

I agree with the chambers judges observation that, because the parties
do not have access to lists of their members, they must, of necessity, rely on
a third party  the registrar of the institution  to assist in determining
whether a petition meets the threshold described in the bylaws.

[43]

The Office of the Registrar was clearly an impartial body, with no
apparent interest in the question of whether the petition met the threshold for
a referendum or not. The parties, quite reasonably, referred the petition to
the registrar, who graciously devoted resources to determining whether it met
the requirements of the bylaws.

[44]

I do not read the chambers judgment as suggesting that the registrar has
the power, under the bylaws, to definitively determine that question. In my
view, the registrar is not given such a power. The registrar is not mentioned
in the bylaws, and there is no reason to expect that the parties would
surrender their abilities to review the registrars work to satisfy themselves
that no errors had been made. It was, therefore, open to the CFS‑BC to
take issue with the registrars determination if it could demonstrate that
there were errors in it. Equally, it was open to the CFS‑BC to undertake
its own investigations into the validity of the petition.

[45]

From a practical standpoint, it would have been sensible for the parties
to discuss and, hopefully, resolve discrepancies among themselves, perhaps with
the assistance of the Registrar. Even a brief dialog would have demonstrated
that the numbers used by the CFS‑BC were obviously flawed, and that the
Registrars original assessment of the total number of eligible voters was
probably accurate.

[46]

The parties could then have focussed on the question of how many
signatures on the petition were invalid. This would have been a relatively
straightforward exercise. The CFS‑BC identified 165 signatures that it
alleged were invalid. It should have provided the respondents with a list of
the signatures that were disputed, along with its reasons for disputing those
signatures. The respondents could then have indicated which, if any, of those
signatures they considered valid. It is likely that the parties would have been
able to agree on the validity or lack of validity of the majority of those
signatures, leaving a relatively small number in dispute. The parties could
have gone to court and expeditiously had a judge determine which of those
signatures were valid. If 9 or more of the disputed signatures were valid, the
petition would have met the 10% threshold.

[47]

The parties did not avail themselves of such discussions, with each
taking the position that its own assessment of the facts should prevail. In my
view, the bylaws do not support the primary positions of either party. Neither
the CFS‑BC, the petition proponents, nor the registrar had the power to
unilaterally come to a definitive conclusion as to the validity of the
petition. If the parties could not reach agreement on that matter, it was one
that could be resolved by the courts on the available evidence.

[48]

This Court has, on many occasions, cautioned against the use of the
summary trial rule to decide individual issues in isolation from other issues
in litigation: See, for example,
Bacchus Agents (1981) Ltd. v. Philippe
Dandurand Wines Ltd.
, 2002 BCCA 138 at paras. 6-7;
B.M.P. Global v.
Bank of Nova Scotia
, 2003 BCCA 534;
Kaler v. Kaler
, 2013 BCCA 57 at paras. 23-25;
Edward Jones v. Mirminachi
, 2011 BCCA 493 at paras. 31-32. The
current case may well be an example of a situation in which the trial courts
efforts to resolve a single, non-determinative issue has resulted in
unfortunate delays to the litigation. As no party has addressed the question of
the propriety of the judge determining the single issue in isolation from all
others, however, I will not say more about it.

Conclusion

[49]

The declaration granted by the chambers judge was in error, and should
be set aside. The question of whether the number of valid signatures on the
petition met the 10% threshold set out in the bylaws is one that can be
determined by the trial court in the litigation, on the basis of all of the
evidence that the parties adduce.

[50]

The primary positions of both the appellant and the respondents on this
appeal have been rejected. I am of the view that neither has enjoyed
substantial success on the appeal. Each party should bear its own costs.

The Honourable Mr. Justice Groberman

I AGREE:

The Honourable Mr. Justice
Donald

I AGREE:

The Honourable Madam Justice
Saunders

Appendix  CFS-BC
Bylaw Provisions

2.4       Vote on
Decertification

The individual members of the Federation belonging to a
member local union may vote on whether to decertify, subject to the following
rules and procedures:

a.     Notice

i.      Notice
of a vote on [decertification], signed by a notary public, must be delivered by
registered mail to the head office of the Federation not less than six (6)
months prior to the vote.

ii.     Notice
of the vote must include the exact dates and times of voting.

iii.    No
vote on decertifying shall be scheduled between:

- January 1 and February 15; and

- July 15 and August 31.

iv.    Failure
to adhere to the notice provisions in Articles a.i. a.ii. and a.iii. shall
invalidate the results of the vote.

c.     Voting

i.      Voting
will be conducted at voting stations or, subject to the agreement of the
Federation, at a general meeting of the member local union.

ii.     There
shall be no less than sixteen (16) hours of polling over no less than two (2)
days, except in the case of voting being conducted at a general meeting.

iii.    In the
event that polling is conducted at a general meeting, representatives of the
Federation and Federation member local unions shall be extended full speaking
rights in the meeting.

d.    Quorum

Quorum for the vote shall be that
of the member local unions or five per cent (5%) of the individual members of
the local union, whichever is higher.

e.     Chief
Returning Officer

For each referendum on
decertification, the Executive Committee shall recommend an individual to serve
as the Chief Returning Officer. The Chief Returning Officers appointment is
subject to ratification by a general meeting of the Federation.

The Chief
Returning Officer shall be responsible for:

i.      establishing
the notice requirement for the referendum and ensuring that notice is posted;

ii.     establishing
the campaign period in accordance with Section 2.4.b of this Bylaw;

iii.    approving
all campaign materials in accordance with Section 2.4 of this Bylaw and
removing campaign materials that have not been approved;

iv.    deciding
the number and location of polling stations;

v.     setting
the hours of voting in accordance with Section 2.4.C of this Bylaw;

vi.    overseeing
all aspects of the voting;

vii.   counting
the ballots following the vote; and

viii.  establishing
all other rules and regulations of the vote.

f.     Campaign
Materials

Campaign materials shall not be
misleading, defamatory or false. The Chief Returning Officer shall be the sole
arbiter of whether materials are misleading, defamatory or false.

g.    Appeals

For each referendum on
decertification, an Appeals Committee shall be appointed to adjudicate any
appeals of the referendum results or rulings by the Chief Returning Officer.
The Appeals Committee shall be composed of:

i.      one
Executive Committee member or a designate appointed by the Federations
Executive Committee; and

ii.     two
individual members elected at a Federation general meeting who are not members
of the Federations Executive Committee.

Members of the Appeals Committee
shall not campaign during a vote to decertify.

h.    Required
Majority

In order for a decertification referendum to proceed, a
majority of the individual members voting in the referendum vote in favour of
decertifying.


COURT OF APPEAL FOR BRITISH COLUMBIA

Citation:

N-Krypt International Corp. v. LeVasseur,

2018 BCCA 20

Date: 20180118

Docket: CA43887

Between:

N-Krypt
International Corp.

Respondent/
Appellant on Cross Appeal

(Petitioner)

And

Thierry LeVasseur

Appellant/
Respondent on Cross Appeal

(Respondent)

Before:

The Honourable Madam Justice D. Smith

The Honourable Madam Justice Garson

The Honourable Madam Justice Fenlon

On appeal from:  An order
of the Supreme Court of British Columbia, dated
August 23, 2016 (
N-Krypt International Corp. v. LeVasseur
, 2016 BCSC
1539, Vancouver Docket S153418).

Counsel for the Appellant:

D.B. Kirkham, Q.C.

Counsel for the Respondent:

D.C. Cowper

Place and Date of Hearing:

Vancouver, British
  Columbia

September 22, 2017

Place and Date of Judgment:

Vancouver, British
  Columbia

January 18, 2018

Written Reasons by:

The Honourable Madam Justice Fenlon

Concurred in by:

The Honourable Madam Justice D. Smith

The Honourable Madam Justice Garson

Summary:

N-Krypt and Cirius entered
into a subscription agreement whereby N-Krypt purchased shares in Cirius on the
condition that the shares would be held in a voting trust by Ciriuss CEO and
director, LeVasseur. As part of the agreement N-Krypt waived its voting and
information rights. The relationship between the parties deteriorated and
N-Krypt petitioned for relief as a trust beneficiary, including disclosure of
information, return of its shares or removal of LeVasseur as trustee. The
hearing judge declined to terminate the trust or appoint a new trustee, but
ordered LeVasseur as trustee to provide N-Krypt with extensive information
relating to the shares, subject to specific limitations set out in the
subscription agreement. Held: LeVasseurs appeal allowed; N-Krypts cross
appeal dismissed. The judge erred in ordering LeVasseur to disclose information
about the shares which N-Krypt specifically agreed not to receive pursuant to
contract, which exceeded the relief sought and which substantially affected a
non-party.

Reasons for Judgment of the Honourable
Madam Justice Fenlon:

Introduction

[1]

The respondent N-Krypt International Corp. (N-Krypt) purchased shares
in a company controlled by the appellant Thierry LeVasseur. A term of their agreement
required N-Krypt to put its shares into a voting trust with Mr. LeVasseur
as trustee. When the relationship between the parties broke down, N-Krypt,
relying on trust law, petitioned for relief including disclosure of company
information, return of its shares or replacement of Mr. LeVasseur as
trustee. Mr. LeVasseur opposed the relief sought on the basis that it was
contrary to the parties agreement. The hearing judge declined to terminate the
trust or appoint a new trustee, but ordered Mr. LeVasseur as trustee to
provide N-Krypt with extensive information relating to the shares, subject to
specific limitations set out in the subscription agreement
.
The appeal
and cross appeal largely turn on whether trust law prevails over the terms of
the contract.

Background

[2]

Mr. LeVasseur is the president and majority shareholder of Cirius
Messaging Inc. (originally known as 0733660 B.C. Ltd.). Cirius is a B.C. company
that produces technology which enables businesses to send secure email. The
respondent N-Krypt is an Ontario company. In October 2008 N-Krypt became a
distributor of Ciriuss technology by way of a reseller agreement.

[3]

In December 2009 N-Krypt purchased close to 1.7 million shares in Cirius
for $535,000 under a Subscription Agreement which included the following
conditions:

(i)       N-Krypt
would place its shares into a voting trust for ten years with Mr. LeVasseur
as trustee; and

(ii)      N-Krypt
would waive its rights to information normally available to a shareholder.

[4]

A Voting Trust Agreement was attached to the Subscription Agreement as a
schedule and was expressly stated to form part of that agreement. Cirius and
N-Krypt were parties to the Subscription Agreement; Cirius, N-Krypt, and Mr. LeVasseur
as trustee were parties to the Voting Trust Agreement. The Voting Trust
Agreement provided that Mr. LeVasseur was exclusively empowered to
exercise the voting rights associated with the shares, and N-Krypt was entitled
to any dividends or distribution payments.

[5]

Soon after N-Krypt purchased the shares, the business relationship
between Mr. LeVasseur and N-Krypts principal, Asif Choksi, deteriorated. Mr. LeVasseur
claims N-Krypt breached the reseller agreement by holding itself out as the
owner of Ciriuss technology and giving away trade secrets to a competitor. He
also alleges N-Krypt sought and received payments directly from customers
without accounting to Cirius, and defamed Mr. LeVasseur. For its part,
N-Krypt claims Cirius made misrepresentations, improperly calculated amounts
owed to N-Krypt and deprived it of commissions to which it was entitled. In
2011, Cirius terminated its reseller agreement with N-Krypt. N-Krypt demanded
information about its shares and how they had been voted. Mr. LeVasseur
and Cirius declined to provide that information, relying on N-Krypts agreement
to waive information rights.

[6]

N-Krypt then issued the underlying petition naming Mr. LeVasseur as
the sole respondent. It sought, among other things, an order requiring him to account
for his management of the shares and to deliver to N-Krypt information he had
received in his capacity as trustee. N-Krypt also sought return of the shares
under the rule in
Saunders v. Vautier

(1841),
41 E.R. 482 (Ch. D.),
or in the alternative, appointment of a new
trustee. N-Krypt did not dispute the enforceability of the Subscription Agreement,
but argued that trust law, rather than the contract, governed the relationship
between the parties.

Petition Hearing

[7]

The judge began his analysis by observing that he could not resolve the
conflicting claims of wrongdoing on the record before him. He concluded, however,
that a referral to the trial list was not necessary because the central issue
to be resolved was the basis on which Mr. LeVasseur [held] N-Krypts
shares and what (if any) duties flow from it. He also concluded that N-Krypts
failure to name Cirius as a respondent to the petition was not a bar to
proceeding because N-Krypt [was] only seeking to compel Mr. LeVasseur to
take certain actions in his capacity as trustee.

[8]

The judge rejected Mr. LeVasseurs position that the arrangement
between N-Krypt and Cirius did not involve a trust and was more like an escrow
agreement:

[29]      As a threshold issue, I
am unable to accept the submission that Mr. LeVasseur does not hold N-Krypts
shares on a trust basis.
Both the express language used in the agreements
and, more importantly, the critical separation of legal and beneficial
ownership of the shares that has been created allows no other conclusion
.
The fact that Mr. LeVasseur and Cirius benefit from his ability to vote
the shares and that he does not manage them in the usual manner of a trustee
are features of this particular arrangement that do not detract from the
essential characterization of the manner in which the property is held.
[Emphasis added.]

[9]

Turning next to the rights N-Krypt asserted as the beneficiary of the voting
trust, the judge concluded the rule in
Saunders v. Vautier
did not apply
on the facts of this case:

[31]      First,
I do not
think that the rule in
Saunders v. Vautier
applies here
. While, as I
have said, this is certainly a trust relationship, the rule deals with situations
in which a settlor has placed property in the hands of a trustee for the
benefit of a third party beneficiary, who may wish at some point to take legal
title to the property.
A different analysis is necessary when the settlor
and the beneficiary are the same person, and the settlor/trustee has
contractually bound themselves to leave the property in the trustees hands
under certain conditions and for a specific period. [Emphasis added.]

[10]

The judge also rejected N-Krypts contention that a new trustee should
be appointed, finding N-Krypt had not established that Mr. LeVasseur had
acted improperly (at paras. 34-35).

[11]

Finally, the judge addressed the more difficult question of what trust
information N-Krypt was entitled to in light of the restrictions it had agreed
to in the Subscription Agreement. He relied on
Schmidt v. Rosewood Trust
Ltd.
, [2003] UKPC 26,
D.M.M. v. R.J.M.
, 2005 BCSC 207, and
Martin
Estate (Re)
, 2009 BCSC 1407, noting that while a trustee has a fundamental
duty to account for trust property, the extent of the trust information that
will be ordered depends on the particular circumstances. The judge found
N-Krypt was bound by its agreement not to access information normally available
to a shareholder as provided for at article 12 of the Subscription Agreement,
which states:

12.
Information Rights
:  The
Subscriber hereby acknowledges and agrees that the Subscriber shall not have
the right [to] review the minute book of the Corporation or such records that
are required to be kept in the minute book of the Corporation pursuant to the
Business
Corporations Act
(British Columbia) or to review or observe the
Corporations material contracts, as defined by the Corporation from time to
time. The Corporation may from time to time provide such information.

However, he concluded there
was still room to balance the parties interests and to meet Mr. Choksis
legitimate concerns by providing N-Krypt with other information. He then made
the following broad order:

[49]      Accordingly, I order that Mr. LeVasseur
provide to N-Krypt within 14 days of the release [of] these reasons all
information within his possession and control that deals with the following
matters:

           Any
change to the value of N-Krypts shares in Cirius from the original
subscription price (since Cirius is not publicly traded, this will obviously
involve the information on which Mr. LeVasseur relies to determine the
shares value) and any change to other benefits that N-Krypt would receive based
on the shares, such as dividends;

           Any
change in the nature of N-Krypts shares in Cirius since the original
subscription, including any dilution of them; and

           Any
actions undertaken by Cirius in relation to N-Krypts shares that adversely
affected their value or any other benefits that N-Krypt would receive based on
them, or had the potential to do so.

[50]      N-Krypt must be provided with updated information
on these matters immediately whenever any changes occur. Even if no changes
have occurred Mr. LeVasseur must confirm at least once per year that the
situation remains the same.

[51]      By information I mean a fully responsive and
comprehensible narrative of the relevant facts under each subject heading,
together with any documents or relevant portions of documents that support
them. It includes changes to the value of the shares or their related benefits
in themselves, and also in relation to shares and related held by other
shareholders -- for example Mr. LeVasseur himself.

[52]      Supporting documents that fall within the
definitions in paragraph 12 of the subscription agreement may be omitted, as
long as any facts derived from them that are relevant to the subject heading
are included in the narrative and the document is referenced in it. This will give
the non-disclosure provision continued force without depriving N-Krypt of
legitimate trust information.

[53]      Given the care with
which Cirius has defined in the agreement concerning the kind of information
that needs to be protected from disclosure in order to safeguard its interests,
I see no risk to those interests to also require Mr. LeVasseur to provide
N-Krypt with any information or material since N-Krypts subscription that has
been provided to other shareholders, solely in their capacity as shareholders,
that does not fall within the definitions in paragraph 12 of the subscription
agreement. This will continue on an ongoing basis, as any new information or
material is provided to other shareholders and, as in the case of the share
information, if nothing new is provided then Mr. LeVasseur will confirm
that to N-Krypt annually.

[12]

In supplemental reasons delivered on November 21, 2016, to settle the
formal order, the judge clarified that his order required Mr. LeVasseur to
disclose not only information which came into his possession as trustee, but
also information he obtained in his capacity as CEO and director of Cirius. The
judge declined to limit disclosure to material information, or to restrict it
to information which could foreseeably affect share value, requiring instead
disclosure of any information of any corporate actions having potentially
posed a hazard to the value of N-Krypts shares (at paras. 10-12).

[13]

Mr. LeVasseur obtained a stay of the order in this Court pending
appeal.

On Appeal

[14]

On appeal Mr. LeVasseur seeks to set aside the order in its
entirety on the basis that it is inconsistent with the contract N-Krypt entered
into with Cirius as recorded in the Subscription Agreement. In the alternative,
he seeks to narrow the scope of the order to cover only documents a shareholder
would be entitled to see.

[15]

N-Krypt cross-appeals, seeking three orders: first, disclosure of the
information excluded by the Subscription Agreement; second, return of its shares
in accordance with the rule in
Saunders

v. Vautier
; and third, in
the alternative, the appointment of a new trustee.

[16]

The main issues on appeal are thus whether the judge erred in:

1.       ordering
Mr. LeVasseur to disclose certain information to N-Krypt;

2.       refusing
to apply the rule in
Saunders v. Vautier
; and

3.       refusing to replace Mr. LeVasseur
as trustee.

[17]

Both parties also apply to adduce evidence not before the judge when the
petition was heard. Mr. LeVasseur wishes us to consider the alleged
wrongdoing by N-Krypt and Mr. Choksi which the hearing judge determined he
could not resolve. N-Krypt seeks to adduce evidence of its efforts to obtain
business records form Cirius and to serve Mr. LeVasseur with the petition.
I would not admit the new evidence of either party because it does not bear upon
what I consider to be a decisive or potentially decisive issue in these
proceedings:
Palmer v. The Queen
, [1980] 1 S.C.R. 759.

[18]

I turn now to the first ground of appeal.

1.       Did the judge err in
ordering Mr. LeVasseur to disclose information to N-Krypt?

[19]

In my respectful view, the judge erred in making the disclosure order
for three reasons. First, the judge applied trust principles and did not give
effect to the contract between the parties. Second, the order grants disclosure
N-Krypt did not seek in its petition. Third, the order requires Mr. LeVasseur
to disclose information obtained in his capacity as CEO of Cirius even though
the company was not named as a respondent to the petition. I will address each
point in turn.

(a)   The order is inconsistent
with the contract

[20]

The judge ordered broad disclosure based on the general principle that a
trustee has an obligation to report to his beneficiary, even though that
disclosure was inconsistent with the terms of the contract between N-Krypt and
Cirius. In my respectful view the judge was led into error because each party focused
on only one aspect of their arrangement: N-Krypt insisted trust law governed; Mr. LeVasseur
insisted contract law governed. Neither party attempted to reconcile the
apparently conflicting principles of trust and contract, of equity and the
common law. Although, as I have noted, the judge found N-Krypt was bound by its
agreement not to receive the information described in article 12 of the Subscription
Agreement, he ultimately determined N-Krypt was entitled to a vast sweep of other
information as a beneficiary of the voting trust, without further consideration
of the bargain it had entered into. In my view, it was an error in principle to
determine N-Krypts entitlement to information without reconciling the
competing principles of contract and trust law raised in this case. I turn now
to that exercise.

[21]

I begin by considering the trust aspect of the parties arrangement, and
in particular the nature of a voting trust.

[22]

The voting trust originated in the United States and eventually moved
across the border into Canada. It is a commercial trust originally used in
large venture companies, such as those constructing railroads, to protect investors
by ensuring the continuity of management they trusted to get the project
completed, and to insulate the company from the control of special interest
groups for the security of both shareholders and lenders alike: Harry A.
Cushing,
Voting Trusts: A Chapter in Modern Corporate History
(New York:
The MacMillan Company, 1927) at 16 and 22.

[23]

A voting trust differs from personal trusts established by deed or will
in a number of ways. First, it is intended to be a temporary trust, ending on a
particular date or event. Second, it is generally terminable at the discretion
of the trustee. Third, unlike a personal trust in which the trustee is bound to
use the trust property for the exclusive benefit of the beneficiary, the
trustee in a voting trust is empowered to vote the shares to the advantage of
the company. That object may only indirectly benefit the shareholder and will
in some cases work against the shareholders immediate and direct interest
for example, a vote to defer payment of a dividend so as to invest in a company
project. These characteristics are present in the Voting Trust Agreement entered
into by N-Krypt, which provides:

3.1       Until the termination of this Agreement and
surrender of the Voting Trust Certificate, the Voting Trustee will, in respect
of the Shares deposited with him pursuant to this Agreement, exclusively
possess and be entitled to exercise, in his discretion, in person or by
attorney, all of the voting rights appertaining to such Shares and all rights
in connection with the initiation, taking part in and consenting to any action
as shareholder of the Company, including, without limitation, the execution of
any shareholders agreement, provided that the Voting Trustee (either
personally or in his capacity as a director or officer of shareholders of the
Company) also executes such shareholders agreement at such time.
The
Shareholder hereby authorizes the Voting Trustee to waive all rights the
Shareholder would otherwise have as a shareholder of the Company, provided that
the Voting Trustee also waives such rights at such time
(other than with
respect to shares to be issued to the Voting Trustee under the Companys stock
option plan)
and that any transaction resulting in a subscription for shares
is in the best interests of the Company as determined by the Voting Trustee,
acting reasonably
.

3.2
In exercising the
voting rights attached to the Shares the Voting Trustee will exercise his best
judgment from time to time to secure suitable directors, officers and employees
of the Company to the end that the affairs of the Company shall be properly
managed
but it is hereby declared and agreed that the Voting Trustee
assumes no responsibility in respect of such managing or in respect of any
action taken by him as shareholder and the Voting Trustee shall not incur any
liability or responsibility by reason of any error of law or of any matter or
thing done or suffered or omitted to be done under this Agreement, except only
for his own individual wilful and wrongful neglect or misconduct. [Emphasis
added.]

[24]

Mr. LeVasseur gave evidence that Cirius entered into voting trusts
with all other share purchasers up to 2014 because the company was concerned about
its distributors being in a conflict of interest. The judge regarded these
concerns in relation to N-Krypt as vague and speculative (at para. 46).
In contrast, he viewed N-Krypt as having legitimate reasons for wanting
information about what had been done with its shares and what they were worth. As
I have noted, the judge looked to trust law and determined N-Krypt was entitled
to information as a beneficiary, relying on the general principle that [the] trustee
has a fundamental duty to account for the trust property  and to report on how
it has been dealt with (at para. 38). Having concluded N-Krypt was not
entitled to the information typically available to a
shareholder
because
it was expressly excluded by article 12 of the Subscription Agreement, he determined
that N-Krypt as a
beneficial
owner was entitled to other information
well beyond that scope (at paras. 52-53).

[25]

In my respectful view, the judges focus on a trustees duty to account
to a beneficiary led him away from the fundamental question of the obligations
and rights of N-Krypt and Cirius
in the context of the commercial agreement
they had entered into
. Whether N-Krypt is entitled to information turns on the
terms of that agreement. The question before the judge was therefore whether
the use of a voting trust as a mechanism to give effect to the agreement gave N-Krypt
rights as a beneficiary that overrode its contractual commitments.

[26]

It is helpful at this point to consider the distinct origins of trust
and contract law. Whereas contracts stem from the common law, trusts are a
product of equity. The relationship between equity and the common law, as well
as the origins of the trust are explained in D.W.M. Waters, M.R. Gillen &
L.D. Smith, eds.,
Waters Law of Trusts in Canada
, 4th ed. (Toronto:
Carswell, 2012) at 5-6:

One system of law was interpreted and moulded in
the Kings Courts, and another system of law was gradually being established in
the Lord Chancellors Court, ultimately called the Court of Chancery. The first
is the common law in the strict sense, the second is Equity, a gloss upon the
first
, designed as an act of the Kings residual justice to bring equity to
bear in the application of the laws of the realm. Equity is superior in
authority because it is the Kings personal ruling concerning the application
of his justice in the realm. Equity, like the common law, gradually became
institutionalized, with each system using its own forms and procedures, but
in
matters of substance Equity assumed the existence of the common law, assisting,
modifying, and supplementing it
.

It was out of this
unique state of affairs
, which endured even to the point of separately
administered systems until the latter half of the nineteenth century,
that the
trust was born
. In the eyes of the common law courts if [the trustee] held
the legal title to land or chattels, he had the rights of disposition,
management and enjoyment of that property. But, if [the trustee] had earlier
promised the transferor to hold the property for the enjoyment of a person
other than [the trustee] himself,
the Court of Chancery was asked and
finally agreed to enforce the moral obligation. At law, [the trustee] might be
owner in the fullest sense that the common law recognized ownership, but in
equity  which [the trustee] could not avoid if he were summoned to account
B, the intended beneficiary, could compel [the trustee] to yield up the
enjoyment in the property and indeed administer it on Bs behalf
. [Emphasis
added.]

[27]

The relationship between equity and the common law is sometimes
described by the maxim equity follows the law: J. McGhee, ed.,
Snells
Equity
,

31st ed.
(Toronto: Carswell, 2005). The author
of
Snells Equity
elaborates on the meaning of the maxim at 95:

Where a rule,
either of the common or the statute law, is direct, and governs the case with
all its circumstances, or the particular point, a court of equity is as much
bound by it as a court of law, and can as little justify a departure from it.

However, the maxim that equity follows the law does not
mean the common law always trumps equitable doctrines. To the contrary,
s. 44 of the
Law and Equity Act,
R.S.B.C. 1996, c. 253, provides
that equity prevails where the rules of law and equity conflict.

[28]

These statements may at first appear contradictory. However, they can be
reconciled by appreciating that the relationship between equity and the common
law is contextual. In
Geffen v. Goodman Estate
, [1991] 2 S.C.R. 353, the
Court considered the relationship between trust law and contract law in the
context of determining whether a trust agreement had been entered into as a
result of undue influence. After considering the framework for determining
whether a presumption of undue influence applies, Justice Wilson turned to the
nature of the particular transaction, saying at 378:

Having
established the requisite type of relationship to support the presumption, the
next phase of the inquiry involves an examination of the nature of the
transaction.
When dealing with commercial transactions, I believe that the
plaintiff should be obliged to show, in addition to the required relationship
between the parties, that the contract worked unfairness
either in the
sense that he or she was unduly disadvantaged by it or that the defendant was
unduly benefited by it. From the courts point of view
this added
requirement is justified when dealing with commercial transactions

because,
as already mentioned, a court of equity, even while tempering the harshness of
the common law, must accord some degree of deference to the principle of
freedom of contract and the inviolability of bargains
. Moreover, it can be
assumed in the vast majority of commercial transactions that parties act in
pursuance of their own self
‑
interest.
The mere fact, therefore, that the plaintiff seems to be giving more than he is
getting is insufficient to trigger the presumption. [Emphasis added.]

[29]

To similar effect is
Buschau v. Rogers Communications Inc.
, 2006
SCC 28, discussed more fully below in the part of this judgment dealing with the
rule in
Saunders v. Vautier
. In
Buschau
,

the employee
beneficiaries of a company pension trust fund sought to have trust funds paid
out to them. Justice Bastarache, in determining whether trust law should
prevail over contract law, said the Court should consider the circumstances in
which the trust was made, including the parties contractual expectations and
the status of the trust as a vehicle to hold and manage funds to give effect to
the pension plan.

[30]

Equity is ultimately concerned with fairness, and equitable relief is
discretionary. As Justice La Forest said in
Canson Enterprises Ltd. v.
Boughton & Co
., [1991] 3 S.C.R. 534 at 585-86:

the maxims of equity can be
flexibly adapted to serve the ends of justice as perceived in our days. They
are not rules that must be rigorously applied but malleable principles intended
to serve the ends of fairness and justice.

[31]

Of significance in the present case is the creation of the voting trust
as a condition of the purchase of the shares forming the trust property. Together
the Subscription Agreement and the Voting Trust Agreement gave effect to the
bargain made by N-Krypt and Cirius, whereby Cirius sold shares to N-Krypt and N-Krypt
waived its right to information about the company and granted Mr. LeVasseur
the right to vote the shares for ten years. As in
Buschau
, the trust was
the mechanism used to give effect to the contract and the two are indissociable.
From N-Krypts perspective, the terms of the trust and Subscription Agreement turned
out to be imprudent in light of the deterioration of the parties business
relationship. Ciriuss concerns about the potential for N-Krypt to be in a conflict
of interest may have been overblown. But there is in my view nothing unfair
about holding N-Krypt to the terms of the agreement it entered into to give up
voting rights and access to corporate information in order to acquire a
significant number of shares in Cirius.

[32]

I note parenthetically that this appeal is not concerned with whether a
shareholders agreement to waive access to information is contrary to the
Business
Corporations Act
, S.B.C. 2002, c. 57. That is so for two reasons. First,
the
Business Corporations Act
applies generally to shareholders, and
N-Krypt does not at this point hold legal title to the shares:
Brio Industries
Inc. v. Clearly Canadian Beverage Corporation
, [1995] B.C.J. No. 1441 (S.C.).
Second, that issue and the extent of a companys obligation to provide
information to its shareholders were neither pleaded nor argued below and cannot
be addressed in the absence of a proper record.

(b)   The order exceeds the relief sought and affects the interests of
a non-party

[33]

In any event, I am of the view that the disclosure order cannot be
upheld for two additional reasons. First, as N-Krypt acknowledges, the order
made goes far beyond what was sought in the petition which covered only what Mr. LeVasseur
received in his capacity as trustee:

Part 1:             ORDERS
SOUGHT

The Plaintiffs
seek the following relief:

a.
An
order that LeVasseur deliver to the petitioner all correspondence, notes, and
records received, executed, or produced by him in his capacity as trustee for
the petitioner, including all
:

i

Shareholders resolutions or agreements
entered into by
LeVasseur in connection with the shares held by LeVasseur as trustee for the
petitioner;

ii

Waivers of shareholder rights
or equities executed by
LeVasseur in connection with the shares held by LeVasseur as trustee for the
petitioner; and

iii

Votes and records of votes cast or not cast
by LeVasseur
in connection with the shares held by LeVasseur as trustee for the petitioner.

b.
An
order that LeVasseur account to the petitioner for his management of the shares
held by LeVasseur as trustee for the petitioner since the formation of the
trust; [Emphasis added.]

[34]

Second, the order cannot be upheld because it effectively compels Mr. LeVasseur
to disclose information obtained in his capacity as director and CEO of Cirius
even though Cirius is not a respondent. As noted earlier, Mr. LeVasseur
objected at the outset of the hearing to N-Krypts failure to name Cirius as a
party, but the judge did not accede to that objection, saying:

[28]       I do not see the
absence of Cirius as a party as a bar in itself to the relief being sought,
since
N-Krypt is only seeking to compel Mr. LeVasseur to take certain
actions in his capacity as trustee
. [Emphasis added.]

However, the order made affects Cirius directly and
significantly. For example, Mr. LeVasseur is ordered to provide N-Krypt
with share valuations and updates on a regular basis, a significant expense for
a company which is not publicly traded. Disclosure of information about
contracts entered into by Cirius could also affect the company given that Cirius
views N-Krypt as a competitor. The obligation to provide a running and updated
narrative of all of Ciriuss actions since 2009 which could possibly affect the
value of shares is also a task which imposes a significant burden on the
company.

[35]

In summary on this ground of appeal, I conclude that the judge erred in
ordering Mr. LeVasseur to produce information to N-Krypt that was not
sought in the petition, significantly affected a non-party, and was
inconsistent with the terms of the agreement N-Krypt had entered into with
Cirius.

[36]

It will be apparent from this conclusion that N-Krypts cross appeal seeking
additional information cannot succeed. I turn to the two remaining issues on
the cross appeal.

2.       Did the judge err in
holding that the rule in
Saunders v. Vautier
does not apply?

[37]

N-Krypt contends the judge erred in holding the rule in
Saunders v.
Vautier
does not apply to the voting trust.

[38]

The rule in
Saunders v. Vautier
allows beneficiaries of a trust
to depart from the settlors original intentions provided they are of full
legal capacity and are together entitled to all the rights of beneficial
ownership in the trust property:
Buschau
at para. 21. If those
prerequisites are met, the beneficiaries may extinguish the trust and call for
a conveyance of the trust property.

[39]

N-Krypt submits that since the Voting Trust Agreement states
unequivocally that N-Krypt is the sole beneficial owner of the shares and is
entitled to their return when the term of the trust expires, the rule in
Saunders
v. Vautier
governs and N-Krypt can demand the return of its shares. This
proposition finds support in an article written by Professor Donovan Waters, Voting
Trust Agreements and the Zeidler Case

(1988) 9 Est. & Tr. 51 at 72:

The instrument should also be
very clear as to the moment at which or the circumstances in which the voting
trust is to terminate. However,
in
Saunders v. Vautier
jurisdictions
the share transferors
or the trust certificate holders for the time being,
as the case may be,
can always agree to terminate the voting trust
;
[Emphasis added.]

However, this passage does not address the present case
in which the settlor beneficiary
has contracted to create a voting trust
for a set term
as a condition of obtaining the shares which form the
property of the trust
. In my view, the rule in
Saunders v. Vautier
is
inapplicable in such circumstances. N-Krypt contractually bound itself to give
the trustee the right to vote the shares for ten years as a condition to
obtaining the shares. As a result, N-Krypt is not solely entitled to the
beneficial enjoyment of the property during the term of the trust  the voting
rights which form part of the bundle of property rights attaching to the shares
are to be enjoyed by Cirius, and voted by its CEO as trustee and in Ciriuss
interests. It follows that the judge was correct in concluding that:

[33]
the rule is not a
proper means of escaping the overall contractual terms under which the trust
property is held
. I should say in this regard that I do not think it is
possible to analyze the voting trust and subscriber agreements separately in
terms of the restrictions they impose on N-Krypts ability to collapse the
trust, as its counsel submits.
The subscriber agreement provides for the
shares to be delivered to Mr. LeVasseur in trust for N‑Krypt and
requires N‑Krypt to enter into the voting trust agreement. Together the
agreements form the overall trust arrangement and define the rights and
obligations agreed to under it
. [Emphasis added.]

[40]

A similar approach was adopted in
Buschau
. In that case the Court found the
rule in
Saunders v. Vautier
did not apply to trust funds which formed part of an employment pension plan.
Justice Bastarache observed at para. 90 that the
real
question is whether trust law can in effect prevail over the contract and
governing legislation in the present case.

He found at para. 92 that the application of the

rule
in
Saunders v. Vautier
would contradict the reasonable contractual expectations
of the parties  Finally, at para. 94, he concluded:

In my view, the unique
role of the employer in respect of the pension plan and pension Trust cannot be
ignored; and
the terms of the contract at the root of the Trust cannot be
circumvented
; as well, the legislative framework cannot be made irrelevant
by applying the rule in
Saunders v. Vautier
.

[Emphasis added.]

3.       Did the judge err in refusing to replace the trustee?

[41]

I turn next to whether the judge erred in refusing to replace Mr. LeVasseur
as trustee. At the hearing, N-Krypt relied on the
Trustee Act
, R.S.B.C.
1996, c. 464, which provides for the replacement of a trustee by court
order:

31    If it is expedient to
appoint a new trustee and it is found inexpedient, difficult or impracticable
to do so without the assistance of the court, it is lawful for the court to
make an order appointing a new trustee or trustees, whether there is an
existing trustee or not at the time of making the order, and either in
substitution for or in addition to any existing trustees.

[42]

N-Krypt submits in the present case that its welfare as a beneficiary is
the main factor in determining whether it is expedient to appoint a new trustee.
N-Krypt submits further that it is not necessary to show a breach of trust where
a conflict of interest exists, and there is a reasonable basis to conclude
either that the trustee may not act with impartiality and fidelity, or that it
would be difficult for the trustee to do so:
Simpson-Alec v. Ziprick
, [1998]
B.C.J. No. 685 (S.C.).

[43]

N-Krypt made similar arguments at the petition hearing. The judge
concluded that N-Krypt had failed to establish evidence of a conflict of
interest or impropriety, saying:

[35]      Nothing of that nature
has been shown.
The right to vote N-Krypts shares at Mr. LeVasseurs
discretion is the very purpose of the agreements and exercising that right in a
way that may not align with N-Krypts preferences is not the same thing as
devaluing the trust property or otherwise undermining N-Krypts property
interests
. The hostile relationship between the parties, for which no fault
can be ascribed on the current contradictory evidence, and Mr. LeVasseurs
restrictive position on disclosure to N-Krypt, which has some support in the
agreements, are also insufficient reasons to find that he is acting improperly
as the trustee. These conclusions make it unnecessary for me to determine
whether N-Krypt gave sufficient notice of its intention to seek this remedy.
[Emphasis added.]

[44]

The judges assessment of the evidence and his finding in this regard
are entitled to deference. I see no error that would justify appellate
interference with his decision. Further, replacing Mr. LeVasseur as
trustee is contrary to the contractual obligation N-Krypt entered into to
enable Mr. LeVasseur to control the voting rights for ten years.

[45]

In summary, I would dismiss the applications to admit fresh evidence, allow
the appeal, and dismiss the cross appeal.

Costs

[46]

In the usual course it would follow that Mr. LeVasseur as the
successful party is entitled to party-party costs below and on the appeal and
cross appeal. Mr. LeVasseur submits, however, that special costs should be
ordered against N-Krypt on the cross appeal only, based on the outrageous
allegations made by N-Krypts counsel against Mr. LeVasseur in its factum.
N-Krypts factum contains repeated references to Mr. LeVasseur falsely
swearing and making false allegations and accusations. Mr. LeVasseur
relies on
689531 B.C. Ltd. v. Anthem Works Ltd.
, 2009 BCSC 1005, in
which Justice Hinkson, as he then was, ordered special costs against the
defendants in light of the deliberate, inappropriate and potentially damaging
allegations of fraud made against the plaintiffs without foundation.

[47]

Anthem
is distinguishable because unlike that case, in the
present one the judge was unable to make findings about the allegations of
wrongdoing levelled by both sides. In these circumstances, I agree that it
would have been prudent for N-Krypts counsel to frame his submissions in a
manner that acknowledged the unproven nature of the allegations, but I do not
find the submissions reached the level of reprehensible conduct warranting an
award of special costs. In my opinion the appropriate disposition is party-party
costs throughout.

The
Honourable Madam Justice Fenlon

I AGREE:

The Honourable
Madam Justice D. Smith

I AGREE:

The Honourable
Madam Justice Garson


COURT OF APPEAL FOR BRITISH COLUMBIA

Citation:

1026238 B.C. Ltd. v. Pastula,

2018 BCCA 32

Date: 20180119

Docket: CA44996

Between:

1026238 B.C. Ltd.

Respondent

(Petitioner)

And

Catherine Grace
Pastula,
also known as Catherine Grace Picco

Appellant

(Respondent)

Before:

The Honourable Madam Justice Fisher

(In Chambers)

On appeal from: an
order of the Supreme Court of British Columbia, dated
December 21, 2017 (
1026238 B.C. Ltd. v. Pastula
, Nanaimo Registry No. H76173)

Oral Reasons for Judgment

Counsel for the Appellant:

J.A.S. Legh

Counsel for the Respondent:

J.L. Williams

Place and Date of Hearing:

Vancouver, British
  Columbia

January 19, 2018

Place and Date of Judgment:

Vancouver, British
  Columbia

January 19, 2018

Summary:

The applicant seeks leave to
appeal the order of a Supreme Court judge allowing an appeal from a masters
order to adjourn the hearing of an application for order absolute. The judge
overturned the masters decision and granted the order absolute effective
immediately. If leave to appeal is granted, the applicant also seeks a stay of
the judges order pending the disposition of her appeal. Held: (1) Leave to
appeal is granted. Whether a master has discretion to grant an adjournment on
equitable grounds, in circumstances where the legal test for an extension of
the redemption period is not met, may be a significant question in foreclosure
practice. The point is significant to the action, and the appeal has some
merit. (2) The order is stayed pending the disposition of the appeal. There is
some merit to the appeal, the applicant would suffer irreparable harm if the
order absolute is not stayed, and the balance of convenience is in her favour.

[1]

FISHER J.A.:
This application has a long, unfortunate history. It
involves foreclosure proceedings in respect of three parcels of farm land near
Duncan, British Columbia.

[2]

The properties were owned by the appellant/applicant Catherine Grace
Pastula and her husband Gordon, and had been in Mr. Pastulas family for over
60 years. The mortgage on all three parcels has been in default since May 2013,
a considerable period of time. The original mortgagor, a commercial lender,
commenced foreclosure proceedings in April 2014. The respondent, who is not a
commercial lender (its director is a neighbour of the appellant), purchased the
mortgage after that. However, the original foreclosure proceeding was
subsequently declared a nullity. The respondent then commenced these
foreclosure proceedings in 2015. An order
nisi
was granted on September
30, 2015, with a six-month redemption period ending March 16, 2016. At that
time the redemption amount was $1,029,987.

[3]

On November 25, 2016, the respondent brought an application for order
absolute but this was not granted and the redemption period was extended to
March 31, 2017 to give the Pastulas an opportunity to sell the properties
themselves. However, they did little to do so during the extended redemption
period.

[4]

There have been various appeals of many of these orders which I need not
outline here, and Ms. Pastula has been representing herself and her husband
throughout many of the proceedings. What is important for the purposes of the
applications before me is what has occurred since April 6, 2017, when the
respondent filed another application for an order absolute.

[5]

On September 13, 2017, the respondent set the hearing of its application
for October 11, 2017. A week later, on September 20, 2017, Gordon Pastula died
suddenly of a heart attack. As the properties were held in joint tenancy, Ms.
Pastula became the sole owner.

[6]

Due to the death of her husband, Ms. Pastula sought an adjournment of
the hearing set for October 11, 2017. The respondent opposed this but Master
Dick in Chambers ordered an adjournment for two weeks, to October 25, 2017,
peremptory on Ms. Pastula. She suggested that Ms. Pastula bring with her a
current appraisal to provide evidence of the equity in the properties.

[7]

On October 22, 2017, Ms. Pastula listed the properties for sale. The
list prices totaled over $2 million.

[8]

On October 25, 2017, Master Dick considered the listing of the
properties as well as an appraisal provided by the respondent valuing them at
$1.76 million. The amount outstanding under the mortgage was then $1.254
million, leaving about $500,000 in equity assuming the appraised value. While
she was satisfied that Ms. Pastula had not at that time met the test for a
further extension of the redemption period, she recognized that the death of
Mr. Pastula was a material change of the matters before the court and that Ms.
Pastula had since taken steps to list the properties for sale and to put
materials before the court indicating the steps she has taken to pay the amount
owing to the respondent. She acknowledged that the effect of granting another
adjournment was basically extending the redemption period without Ms. Pastula
meeting the legal test, but she considered the equities at play, which included
the significant amount of equity that may be available, and reluctantly
adjourned the application to November 29, 2017.

[9]

The respondent appealed this decision to a judge of the Supreme Court,
which was heard on December 21, 2017. In the meantime, Ms. Pastula accepted an
offer to sell one of the properties on November 22, 2017, and the matter
proceeded again before Master Dick on November 29, 2017 in accordance with her
October 25 order. At that time, the master adjourned the application again to
February 7, 2018, and extended the redemption period to February 1, 2018. She
also ordered Ms. Pastula to authorize the listing realtor to disclose to
counsel for the petitioner copies of all offers, counteroffers and evidence of
marketing efforts, and, at least 10 days before the expiry of the redemption
period, to deliver affidavits with copies of all accepted offers or contracts of
purchase and sale as well as all offers, counteroffers and evidence of
marketing efforts.

[10]

Despite
this latter order, the petitioners appeal of Master Dicks October 25 decision
proceeded before Gaul J. on December 21, 2017. He considered that Master Dick
erred by failing to properly apply the test for extending the redemption period
to the facts she found and in granting the adjournment. He allowed the appeal
and granted the respondent an order absolute to be effective immediately. I am
advised by Mr. Williams, counsel for the respondent, that Mr. Justice Gaul was
aware of Master Dicks November 29 order extending the redemption period. While
he gave no reasons on this point, he apparently held the view that he had the
jurisdiction to abridge the redemption period which had been extended in that
order.

[11]

It
is this order of Mr. Justice Gaul which Ms. Pastula now seeks leave to appeal
and if granted leave, a stay pending the appeal.

The applicable tests

[12]

The
test for leave to appeal is set out in
Power Consolidated (China) Pulp Inc.
v. British Columbia Resources Investment Corp
., [1988] B.C.J. No. 1403
(C.A.): (1) Is the point of appeal significant to the practice? (2) Is the
point raised of significance to the action itself? (3) Is the appeal
prima
facie
meritorious or is it frivolous? (4) Will the appeal unduly hinder the
progress of the action?

[13]

The
test for a stay of an order pending appeal is the same test applied for
granting an interim injunction as set out in
RJR-MacDonald Inc. v. Canada
(Attorney General)
, [1994] 1 S.C.R. 311 at 334: (1) is there some merit to
the appeal in the sense that there is a serious question to be tried? (2) would
the applicant suffer irreparable harm if the stay is refused? (3) does the
balance of convenience favour the applicant? These principles were outlined by
this Court in
Bea v. The Owners, Strata Plan LMS 2138
, 2010 BCCA
463 at para. 19, in the context of an application for a stay pending appeal.

Decision

[14]

While
I certainly appreciate the frustrations of the respondent, and Mr. Williams
has outlined that history in some detail to me, I am satisfied that leave to
appeal should be granted.

[15]

Master
Dicks decision was a decision to adjourn an application for an order absolute
in circumstances where the mortgagee did not meet the legal test to extend the
redemption period but where there were other equities at play. Whether a master
can exercise such a discretion in these circumstances may be significant in
foreclosure practice and the points raised are clearly significant in the
action. Given the amount of equity in the properties, Ms. Pastula will
suffer a substantial loss and the petitioner will likely receive a considerable
gain if leave is not granted. I say this without considering the new evidence
put forward by the applicant with the new appraisals. I do not need to consider
those, as the evidence that was before both Master Dick and Mr. Justice Gaul
showed considerable equity in the property.

[16]

I
acknowledge that there have been long delays in these proceedings caused by the
Pastulas, but I do not consider this to be a frivolous appeal. Mr. Justice Gaul
considered the question as if the Master had granted an extension of the
redemption period and he restricted her ability to exercise her discretion to
grant an adjournment to the legal test for that. The Master was well aware of
the legal test but chose to consider other equities in granting a one-month
adjournment. In my view, there is some merit to this appeal.

[17]

I
am also satisfied that the order should be stayed pending the appeal. As I have
concluded, there is some merit to the appeal. There is evidence before me to
show that Ms. Pastula would suffer irreparable harm if she loses her equity in
these properties. They are her main asset, and without them it is unlikely that
she would have any ability to exercise her right of redemption. The
inconvenience to her will be greater than the inconvenience to the petitioner,
who, in the absence of the order absolute, stands to be heard again on February
7, 2018, according to the order of November 29, 2017. I will confirm here that
I consider the order of November 29, 2017 to be effective.

[18]

Accordingly, leave to appeal is granted and the order absolute made
December 21, 2017 is stayed pending the appeal.

The
Honourable Madam Justice Fisher