A.I. Enterprises Ltd. and Alan Schelew (appellants) v. Bram Enterprises Ltd. and Jamb Enterprises Ltd. (respondents) ( CA; 2012 NBCA 33)

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1 A.I. Enterprises Ltd. and Alan Schelew (appellants) v. Bram Enterprises Ltd. and Jamb Enterprises Ltd. (respondents) ( CA; 2012 NBCA 33) Indexed As: Bram Enterprises Ltd. et al. v. A.I. Enterprises Ltd. et al. Répertorié: Bram Enterprises Ltd. et al. v. A.I. Enterprises Ltd. et al. New Brunswick Court of Appeal Robertson, Bell and Green, JJ.A. April 12, Summary: Résumé: apartment building. The relationship between the parties was regulated by a "syndication agreement". The syndication agreement provided that if the majority decided to sell, the minority would have the right to purchase the building at its appraised value, failing which the property could be marketed to the public. In April 2000, resolutions were passed calling for the sale of the building. A.I. Enterprises, the minority investor, objected, but declined the opportunity to purchase the building at its appraised value of $2.2 million. Nonetheless, Schelew, the president and sole shareholder of A.I. Enterprises, continued to resist any sale of the property on the ostensible ground of the majority's non-compliance with the syndication agreement. Schelew instituted arbitration proceedings, registered documents encumbering the property's title and denied third parties access to the building for inspection purposes. During that time, the majority received and accepted two offers from distinct purchasers, one for $2.58 million and the other for $2.5 million. However, neither transaction closed without either vendor or purchaser being in breach of the underlying agreement of purchase and sale. In 2002, the majority sold the building to the A.I. Enterprises for its most recent appraised value of $2.2 million. The majority investors (Bram Enterprises and Jamb Enterprises) sued Schelew and A.I. Enterprises for damages equal to the difference between what the majority would have received, had the property sold to one of the two prospective purchasers in 2000, and the price which the minority paid. The New Brunswick Court of Queen's Bench, Trial Division, allowed the claim (see 2010 NBQB 245). The court concluded that the tort of unlawful interference with economic relations had been established. Bram Enterprises and Jamb Enterprises were each awarded damages of $183,061, and costs of $14,478. Schelew and A.I. Enterprises appealed. The New Brunswick Court of Appeal dismissed the appeal. Damages - Topic 4044 Interference with economic relations - Interference with business relations - Measure of damages - [See fifth ].

2 Interference with economic relations - Elements of liability - Use of unlawful means - The New Brunswick Court of Appeal discussed the tort of inducing breach of contract (A induces B to breach its contract with C) and the unlawful means tort (A induces B not to contract with C) - The court stated that "While the two torts differ in several respects, one is palpable. The inducement tort must involve a breach of contract. Not so with respect to the unlawful means tort. The interference may simply prevent the formation of a contract or its due performance without resulting in a breach. The second difference is that the inducement tort is not concerned with the means chosen to induce the breach of contract. In short, it matters not whether the means chosen are lawful or unlawful. Obviously, not so with respect to the unlawful means tort, where the task is to properly define 'unlawful means'. Another difference between the two torts lies in the requirement of establishing 'intent'. Under the inducement tort, the claimant must establish the defendant's intent to induce the breach. Under the unlawful means tort, the claimant must establish the defendant's intent to cause the claimant harm" - See paragraph 2. Interference with economic relations - Elements of liability - Use of unlawful means - The New Brunswick Court of Appeal examined the unlawful means tort and the issue of whether the Court should adopt the narrow definition of "unlawful means" articulated in the majority opinion of Lord Hoffmann in OBG Ltd. et al. v. Allan et al. (H.L.) - Therein, "unlawful means" were defined in terms of the defendant's impugned acts being independently actionable by the third party, or would have been had the third party suffered a loss - In short, unlawful interference embraced an actionable civil wrong committed against a third party - The critical issue was whether the independent actionability requirement should be flexible and allow for exceptions, or exceptional categories, which were principled in nature and did not attract the criticism of ad hoc decision making - The court concluded that that question should be answered in the affirmative - See paragraphs 3 to 5. Interference with economic relations - Elements of liability - Use of unlawful means - The New Brunswick Court of Appeal provided an overview of the intentional economic torts dealing with interference of contractual relations as viewed from the analysis offered in OBG Ltd. et al. v. Allan et al. (H.L.) - The court also considered the Canadian framework - The court stated that "This leads me to the point where this Court must isolate the essential tenets of the unlawful means tort. Building upon OBG and the earlier Canadian precedents, including Sagaz, I would offer the following general model which may, with the fullness of time, need refinement. The plaintiff/claimant must establish: (1) the existence of a valid business relationship between the claimant and the third party; (2) the defendant knew or ought to have known of the relationship; (3) the defendant's interference prevented the formation of a contract or its performance in circumstances where there is no breach of an existing contract; (4) the defendant's impugned conduct must qualify as unlawful means or as warranting exceptional treatment; (5) the unlawful means must not be actionable directly by the claimant; (6) the defendant must have intended to cause the claimant harm; and (7) the defendant's conduct must have been the proximate cause of the claimant's loss. From the defendant's perspective, the analytical framework should embrace: (8) the

3 defence of justification" - The court elaborated on the defence of justification - See paragraphs 23 to 59. Interference with economic relations - Elements of liability - Use of unlawful means - apartment building - A "syndication agreement" which regulated the parties' relationship provided that if the majority decided to sell, the minority would have the right to purchase the building at its appraised value, failing which the property could be marketed to the public - In April 2000, resolutions were passed calling for the sale of the building - A.I. Enterprises, the minority investor, objected, but declined the opportunity to purchase the building at its appraised value of $2.2 million - Nonetheless, Schelew, the president and sole shareholder of A.I. Enterprises, continued to resist any sale on the ostensible ground of the majority's non-compliance with the syndication agreement - Schelew instituted arbitration proceedings, registered documents encumbering the property's title and denied third parties access to the building for inspection purposes - During that time, the majority received and accepted two offers from distinct purchasers, one for $2.58 million and the other for $2.5 million - However, neither transaction closed without either vendor or purchaser being in breach of the underlying agreement of purchase and sale - In 2002, the majority sold the building to A.I. Enterprises for its most recent appraised value of $2.2 million - The majority investors sued Schelew and A.I. Enterprises for damages equal to the difference between what the majority would have received, had the property sold to one of the two prospective purchasers in 2000, and the price which the minority paid - The claim was allowed - The trial judge concluded that the tort of unlawful interference with economic relations had been established - Schelew and A.I. Enterprises appealed - The decision in OBG Ltd. et al. v. Allan et al. (H.L.) had not been brought to the trial judge's attention - Applying the definition of "unlawful means" articulated in that case, the appellants argued that the appeal had to be allowed as there was no cause of action upon which the potential purchasers could have sued either Schelew or A.I. Enterprises (the independent actionability requirement) - The New Brunswick Court of Appeal dismissed the appeal - The court held that the independent actionability requirement should allow for exceptions, or exceptional categories, which were principled in nature and this case fell within an exceptional category - Although the impugned conduct of Schelew and A.I. Enterprises did not satisfy the requirement of being independently actionable by a third party, the facts of the case were akin to the tort of abuse of process - See paragraphs 6 to 9 and 78 to 83. Interference with economic relations - Elements of liability - Use of unlawful means - apartment building - The trial judge found that the minority investor (A.I. Enterprises) and its president and sole shareholder (Schelew) committed the tort of unlawful interference with economic relations by their conduct in resisting a sale of the property by the majority investors - The majority investors had received and accepted two offers, one from Bloomfield Holdings Ltd. for $2.58 million and the other from Greenarm Development Ltd. for $2.5 million - Both Bloomfield and Greenarm had subsequently withdrawn from

4 the transaction - Schelew and A.I. Enterprises appealed - They argued that the respondents failed to establish that the appellants' conduct was the proximate cause of the decision of either Bloomfield or Greenarm to withdraw from their respective sales contracts - The New Brunswick Court of Appeal held that the plaintiffs failed to establish that Schelew's actions were the proximate cause of Bloomfield's decision to withdraw from the sale transaction - However, the reason underscoring Greenarm's decision to withdraw was based entirely on Schelew's conduct - The court therefore rejected the appellants' "temporal" and "proximate cause" arguments - See paragraphs 63 to 70 - With respect to damages, the trial judge's decision to assess damages based on the selling price under the Bloomfield agreement ($2.58 million) was justified - While the respondents failed to establish that the appellants were the proximate cause of Bloomfield's decision to withdraw, that did not mean that Bloomfield's offer to pay $2.58 million was not relevant when establishing the fair market value of the property - See paragraph 88. Interference with economic relations - Elements of liability - Use of unlawful means - apartment building - The trial judge found that the minority investor (A.I. Enterprises) and its president and sole shareholder (Schelew) committed the tort of unlawful interference with economic relations by their conduct in resisting a sale of the property by the majority investors - The majority investors had received and accepted offers from two distinct purchasers who had subsequently withdrawn from the transaction - Schelew and A.I. Enterprises appealed - They argued that to establish the requisite intent, a plaintiff had to establish that the defendant knew of the contractual relationship between the plaintiff and the third party - The New Brunswick Court of Appeal rejected the argument - Schelew knew that various persons were negotiating with the majority investors and that was sufficient to satisfy the legal requirement that the defendant have knowledge of the claimant's business relationship with third parties - More importantly, it had not been shown why the identity of the potential purchasers and the terms of any executory contract should impact on the establishment of the tort - See paragraphs 71 to 75. Torts - Topic 5024 Interference with economic relations - Elements of liability - Malice or intent to injure - apartment building - The trial judge found that the minority investor (A.I. Enterprises) and its president and sole shareholder (Schelew) committed the tort of unlawful interference with economic relations by their conduct in resisting a sale of the property by the majority investors - The majority investors had received and accepted offers from two distinct purchasers who had subsequently withdrawn from the transaction - Schelew and A.I. Enterprises appealed - They argued that in order to establish the requisite intent, a claimant had to establish that the unlawful conduct was deliberately targeted with the purpose of inflicting economic injury on the claimant - Correlatively, intent had not been established if the harm was simply an incidental or foreseeable result of the defendant's unlawful conduct - The appellants maintained the present case fell within that framework - The New Brunswick Court of Appeal held that the trial judge did not err - The court stated, inter alia, "one can properly conclude the injury to the respondent investors was the means of

5 attaining the appellants' desired end of preventing any sale of the property and not merely a foreseeable consequence of having done so" - See paragraphs 76 to 77. Torts - Topic 5208 Interference with economic relations - Contracts - Inducing breach of contract - [See first ]. Torts - Topic 5210 Interference with economic relations - Contracts - Interference with contractual rights - [See all ]. Torts - Topic 5215 Interference with economic relations - Contracts - Defences - Justification - [See third ]. Délits civils - Cote 5023 Atteintes aux relations économiques - l ments de responsabilit - Usage de moyens ill gaux - [Voir ]. Délits civils - Cote 5024 Atteintes aux relations économiques - l ments de responsabilit - Malice ou causer intentionnellement un pr judice - [Voir Torts - Topic 5024]. Délits civils - Cote 5208 Atteintes aux relations économiques - Contrats - Incitation à la rupture de contrat - [Voir Torts - Topic 5208]. Délits civils - Cote 5210 Atteintes aux relations économiques - Contrats - Atteintes aux droits contractuels - [Voir Torts - Topic 5210]. Délits civils - Cote 5215 Atteinte aux relations économiques - Contrats - Moyens de défense - Justification - [Voir Torts - Topic 5215]. Dommages-intérêts - Cote 4044 Atteinte aux relations économiques - Atteinte aux relations commerciales - Base d'évaluation des dommages-intérêts - [Voir Damages - Topic 4044]. Cases Noticed: Lumley v. Gye (1853), 118 E.R. 749 (Q.B.), refd to. [para. 2]. Allen v. Flood, [1898] A.C. 1 (H.L.), refd to. [para. 2]. OBG Ltd. et al. v. Allan et al., [2007] 4 All E.R. 545; [2007] 1 A.C. 1; 369 N.R. 66; [2007] UKHL 21, consd. [para. 2]. Alleslev-Krofchak et al. v. Valcom Ltd. et al. (2010), 266 O.A.C. 356; 2010 ONCA 557, refd to. [para. 5].

6 Correia v. Canac Kitchens et al. (2008), 240 O.A.C. 153; 91 O.R.(3d) 353; 2008 ONCA 506, refd to. [para. 5]. Total Network SL v. United Kingdom (Her Majesty's Revenue and Customs) (2008), 385 N.R. 310; [2008] UKHL 19, refd to. [para. 5]. Agribrands Purina Canada Inc. v. Kasamekas et al. (2011), 278 O.A.C. 363; 106 O.R.(3d) 427; 2011 ONCA 460, refd to. [para. 5]. SAR Petroleum Inc. et al. v. Peace Hills Trust Co. (2010), 357 N.B.R.(2d) 202; 923 A.P.R. 202; 2010 NBCA 22, refd to. [para. 18]. Carnahan v. McGregor and Whalen (1994), 149 N.B.R.(2d) 342; 381 A.P.R. 342 (C.A.), refd to. [para. 21]. Dufferin Real Estate Ltd. v. Giralico, [1989] O.J. No (H.C.J.), refd to. [para. 21]. Reid et al. v. Egg Marketing Board (B.C.), [2007] B.C.T.C. Uned. B21; 2007 BCSC 155, refd to. [para. 22]. D.C. Thomson & Co. Ltd. v. Deakin and Others, [1952] 1 Ch. 646 (C.A.), refd to. [para. 25]. Rookes v. Barnard, [1964] A.C (H.L.), refd to. [para. 30]. South Wales Miners' Federation v. Glamorgan Coal Co., [1905] A.C. 239 (H.L.), refd to. [para. 35]. RCA Corporation v. Pollard, [1983] Ch. 135 (C.A.), refd to. [para. 40]. OBG Ltd. v. Allen, [2005] EWCA Civ. 106, refd to. [para. 42]. Roman Corp. v. Hudson's Bay Oil and Gas Co., [1973] S.C.R. 820, refd to. [para. 44]. International Brotherhood of Teamsters v. Therien, [1960] S.C.R. 265, refd to. [para. 44]. Canada Cement LaFarge Ltd. et al. v. British Columbia Lightweight Aggregate Ltd. et al., [1983] 1 S.C.R. 452; 47 N.R. 191, refd to. [para. 44]. Saskatchewan Wheat Pool v. Canada, [1983] 1 S.C.R. 205; 45 N.R. 425, refd to. [para. 44]. Torquay Hotel C. Ltd. v. Cousins and Others, [1969] 1 All E.R. 522 (C.A.), refd to. [para. 47] Ontario Ltd. v. Sagaz Industries Canada Inc. et al. (1998), 67 O.T.C. 22 (Gen. Div.), refd to. [para. 49]. Mallard v. Saskatchewan Financial Services Commission et al., [2011] Sask.R. Uned. 30; 2011 SKCA 38, refd to. [para. 52]. Conway et al. v. Zinkhofer, [2008] A.R. Uned. 306; 2008 ABCA 392, refd to. [para. 52]. Reach M.D. Inc. v. Pharmaceutical Manufacturers Association of Canada et al. (2003), 172 O.A.C. 202 (C.A.), refd to. [para. 52]. Lineal Group Inc. v. Atlantis Canadian Distributors Inc., [1998] O.A.C. Uned. 450 (C.A.), refd to. [para. 53]. Drouillard v. Cogeco Cable Inc. et al. (2007), 223 O.A.C. 350; 2007 ONCA 322, refd to. [para. 53]. O'Dwyer v. Ontario Racing Commission (2008), 238 O.A.C. 364; 2008 ONCA 446, refd to. [para. 53]. Barber et al. v. Vrozos et al. (2010), 269 O.A.C. 108; 322 D.L.R.(4th) 577; 2010 ONCA 570, refd to. [para. 53]. Print N' Promotion (Canada) Ltd. v. Kovachis et al. (2011), 271 O.A.C. 214; 2011 ONCA 23, refd to. [para. 58]. Doucet et al. v. Spielo Manufacturing Inc. et al. (2011), 372 N.B.R.(2d) 1; 961 A.P.R. 1; 2011 NBCA 44, refd to. [para. 85].

7 S. & S. Industries Inc. v. Rowell, [1966] S.C.R. 419; 56 D.L.R.(2d) 501, refd to. [para. 86]. Skinner v. Perry (1893), 10 R.P.C. 1, refd to. [para. 86]. Tersigni v. Fagan, [1959] O.J. No. 65 (C.A.), refd to. [para. 86]. Pete and Martys (Front) Ltd. v. Market Block Toronto Properties Ltd., [1985] O.J. No. 564 (H.C.J.), refd to. [para. 86]. Geo. Cluthe Manufacturing Co. et al. v. ZTW Properties Inc. et al. (1995), 81 O.A.C. 141 (Div. Ct.), refd to. [para. 86]. Schurman v. Covered Bridge Recreation Inc. (2009), 340 N.B.R.(2d) 168; 871 A.P.R. 168; 2009 NBCA 1, refd to. [para. 88]. Authors and Works Noticed: Burns, Peter T., and Blom, Joost, Economic Interests in Canadian Tort Law (2009), [para. 45]. Burns, Peter, Tort Injury To Economic Interests: Some Facets Of Legal Response (1980), 58 Can. B. Rev. 103, p. 141 [para. 46]. Fridman, Gerald Henry Louis, The Law of Torts in Canada (3rd Ed. 2010), [para. 45]. Halsbury's Laws of England (4th Ed. 1985), vol. 45, para [para. 86]. Klar, Lewis N., Tort Law (4th Ed. 2008), [para. 45]. Osborne, Philip, The Law of Torts (2nd Ed. 2003), p. 238 [para. 83]. O'Sullivan, Janet, Intentional Economic Torts in the House of Lords, [2007] C.L.J. 503, pp. 504 [para. 25]; 505 [para. 27]. O'Sullivan, Janet, Unlawful Means Conspiracy in the House of Lords, [2008] C.L.J. 459, [para. 32]. Prosser, William Lloyd, and Keeton, W. Page, Prosser and Keeton on Torts (5th ed. 1984), p [para. 21]. Sopinka, John, Lederman, Sidney N., and Bryant, Alan W., The Law of Evidence in Canada (3rd Ed. 2009), para [para. 65]. Counsel: Avocats: Richard J. Scott, Q.C., and Jennifer D. Snow, for the appellants; Charles A. LeBlond, Q.C., for the respondents. This appeal was heard on November 23, 2011, before Robertson, Bell and Green, JJ.A., of the New Brunswick Court of Appeal. The following judgment of the Court of Appeal was delivered by Robertson, J.A., on April 12, Editor: Angela E. McKay Appeal dismissed.