Canada: Agricultural Law NetLetter - Sunday, February 21, 2016 - Issue 342

HIGHLIGHTS

* The Nova Scotia Court of Appeal dismissed the appeal of a Nova Scotia farmer and his farm corporation from the decision of a hearing judge, who found that: the farmer had engaged in oppressive conduct towards the minority shareholder in the corporation; the farmer therefore had to purchase the minority shareholder's shares; the value of those shares should not be reduced to reflect "sweat equity" injected into the corporation by the farmer; and the farmer was not entitled to certain farm property under the doctrine of proprietary estoppel, notwithstanding improvements he had made to that property.

On appeal, the farmer argued that the hearing judge erred in finding a juristic reason to deny his claim that the minority shareholder would be unjustly enriched by the forced share purchase. The Court agreed with the hearing judge that the farmer had engaged in oppressive conduct and therefore did not come to court with "clean hands." Accordingly, the Court dismissed this ground of appeal.

The farmer further argued that the hearing judge erred in finding that he was not entitled to the portion of farm property upon which he had made improvements, on the basis that the hearing judge misapplied the test for proprietary estoppel, and inappropriately included an element of mistaken belief in her analysis. However, the Appeal Court found that the very authorities relied upon by the farmer actually supported the hearing judge's application of the test. Specifically, those authorities made reference to an element of mistaken belief on behalf of a claimant that making such improvements would result in obtaining interest in the land. The Court ultimately held that the hearing judge had ample evidence to find that the farmer was not under a mistaken belief as to entitlement, and also dismissed this ground of appeal. (Bellton Farms Ltd. v. Campbell, CALN/2016-004, [2016] N.S.J. No. 22, Nova Scotia Court of Appeal)

NEW CASE LAW

Bellton Farms Ltd. v. Campbell;

CALN/2016-004,

Full text: [2016] N.S.J. No. 22;

2016 NSCA 1,

Nova Scotia Court of Appeal,

M. MacDonald C.J.N.S., P. Bryson and C.A. Bourgeois JJ.A.,

January 21, 2016.

Oppression Remedies -- Unjust Enrichment -- Proprietary Estoppel -- Admission of Affidavit of Deceased Witness.

In 1980, a dairy farmer, Ralph Campbell, incorporated Bellton Farms Ltd. ("Bellton") and transferred most of his original family farm's assets into that corporation. A wooded, 258 acre tract of land with a cleared portion used for farming, was not included in that transfer. When Ralph Campbell died in 1982, title to that tract passed to his wife, Winnifred Campbell, who subsequently conveyed it to her daughter-in-law, Mary Nova Jane Campbell ("Nova").

Ralph's sons, Alan and Colin, grew up on the family farm. When Ralph incorporated Bellton, 60% of the shares were issued to Alan, 10% were issued to Colin, and 30% remained with Ralph. Two years later, Ralph transferred his shares to Alan, thus increasing Alan's shareholding to 90%.

Although Colin built his home adjacent to the farm, Alan was responsible for the day-to-day farming responsibilities of Bellton. Colin's minor involvement with the farm ended altogether in 1984, after an incident between the two brothers resulted in a long-term breakdown in their relationship.

Alan continued the farming operations of Bellton, which included expansion of the cleared lands held by Winnifred Campbell (and later, Nova). Alan was later diagnosed with Parkinson's disease, making farming activities difficult. Between 2007 and 2009, Bellton proceeded to sell significant farming assets, including livestock and milk quota.

In 2010, Colin and Nova filed an application in which Colin sought oppression remedies against Alan, including an order forcing Alan to purchase Colin's shares. Nova sought various remedies including an order preventing further entry by Alan and Bellton upon the 258 acre tract.

In response, Alan and Bellton filed a Notice of Contention, denying any oppressive conduct and alleging that, through Colin's objectionable behaviour, he had forfeited entitlement to his shareholding in Bellton. It was pled in the alternative that if Colin was held to be entitled to have his shares purchased, the value of those shares ought to be reduced to reflect Alan's sweat equity and personal funds put into Bellton. In response to Nova's claim, Alan and Bellton argued that they had acquired title to the 258 acre tract by way of adverse possession, or in the alternative, that they should receive compensation for improvements made to the tract based on quantum meruit.

In 2013, Alan and Bellton filed a separate Notice of Application against Nova, claiming title to the cleared portion of the tract through adverse possession or proprietary estoppel, or in the alternative, claiming damages for improvements made to the property.

Nova responded by alleging that the requisite elements of Alan and Bellton's claims were absent and ought to be dismissed accordingly.

The applications were ultimately brought as a consolidated application. Beforehand, however, Alan and Bellton brought a preliminary motion to have an affidavit sworn by Winnifred Campbell struck from evidence. Her Affidavit was sworn on April 12, 2013, but she passed away prior to the hearing without having been questioned. The hearing judge received submissions and heard evidence from the parties, and decided that the affidavit ought to be entered into evidence.

In her final decision, following a two-day hearing, the hearing judge made the following conclusions:

  • the claim of proprietary estoppel was not made out on the evidence;
  • Alan and Bellton were not entitled to damages for improvements made to the claimed land;
  • an injunction prohibiting Alan and Bellton from further entry upon the land was appropriate (although an award for past rent and damages in trespass claimed by Nova was denied);
  • Colin did not forfeit his shareholding in Bellton;
  • Alan's conduct as a majority shareholder was oppressive, entitling Colin to an oppression remedy;
  • as an appropriate oppression remedy, Alan was forced to purchase Colin's shares at a specified value; and
  • that value was not reduced to reflect any sweat equity on behalf of Alan.

On appeal, Alan and Bellton advanced the following primary issues:

1. Did the hearing judge commit a reversible error by concluding that Alan was not entitled to sweat equity?

2. Did the hearing judge commit a reversible error by admitting the affidavit of Winnifred Campbell into evidence?

3. Did the hearing judge commit a reversible error by failing to declare that Alan or Bellton obtained title to the cleared portion of land under the doctrine of proprietary estoppel?

Decision: Bourgeois, J. (writing for the Court) dismissed the appeal, finding that: Alan was not entitled to sweat equity; the affidavit of Winnifred Campbell ought to have been introduced into evidence; and Alan and Bellton did not obtain title to the cleared portion of land under the doctrine of proprietary estoppel.

Regarding the issue of sweat equity, Bourgeois, J. accepted the hearing judge's application of the test for unjust enrichment, specifically that the necessary elements for such a claim are: an enrichment to the defendant; a deprivation to the claimant; and the absence of a juristic reason for the enrichment [at para. 21].

Bourgeois, J. found that the Appellants took issue with the manner in which the hearing judge applied legal principles to the facts, and did not allege any extricable legal error. As such, Bourgeois, J. held that the standard of review of the hearing judge's decision regarding unjust enrichment ought to be that of palpable and overriding error [at para. 24].

The Appellants argued that the hearing judge erred in finding a juristic reason for the enrichment. However, Bourgeois, J. found that the Appellants did not challenge the hearing judge's finding of oppressive conduct and that Alan did not come to court with "clean hands" [at para. 28]. She noted the hearing judge's finding that in 1984, Alan ran Colin off the farm in a threatening manner, took the accounting and bookwork from Colin, and ultimately froze out Colin from any further involvement in the farm enterprise.

Bourgeois, J. held that the hearing judge had ample evidence to support her conclusion that there was a juristic reason to deny Alan's claim for sweat equity, namely that he did not come to court with "clean hands", and dismissed this ground of appeal [at para. 32].

Regarding the admission of Winnifred Campbell's affidavit, the hearing judge relied on legal authorities, including R v Khelawon, 2006 SCC 57, which dealt with the admission of hearsay evidence. The hearing judge summarized the relevant principles from R v Khelawon, explaining that the party who wishes to adduce hearsay evidence must show that is necessary and reliable [at para. 34].

In that regard, the hearing judge found that Winnifred Campbell's affidavit was necessary, because she had passed away, and reliable, because it was sworn under oath [at para. 35]. She further found that the potential prejudicial effect of entering the affidavit into evidence was outweighed by its probative value and that Alan did not appear to contest the contents of the affidavit [at para. 35].

Bourgeois, J. held that the Appellants did not point to any error regarding the application of these legal principles by the hearing judge, nor to any palpable and overriding error [at para. 36]. Rather, Bourgeois, J. found that the Appellants simply repeated their arguments that admitting the affidavit into evidence would result in prejudice and that this prejudice had since come to fruition. However, they failed to point to anything in support of that claim. As a result, Bourgeois, J. dismissed this ground of appeal [at para. 37].

Regarding the issue of proprietary estoppel, Bourgeois, J. found that the Appellants did not suggest that the hearing judge failed to identify the proper test for proprietary estoppel, but rather that she had misapplied the test [at para. 39]. Bourgeois, J. noted that this would typically attract the standard of palpable and overriding error upon review.

However, Bourgeois, J. found that the Appellants attempted to introduce a new argument during oral submissions [at para. 39 and 40]. The Appellants argued that the hearing judge erred in law by inappropriately adding a new element to the test for proprietary estoppel - that the claimant must mistakenly believe that he would obtain an interest in the claimed property. Bourgeois, J., however, noted that the legal authorities relied upon by the Appellants themselves made reference to this element of mistaken belief, thereby supporting the hearing judge's application of the test for proprietary estoppel [at para. 41 to 47].

Applying this test, the hearing judge found that neither Alan nor Bellton were under a mistaken belief regarding their entitlement to the claimed property and denied their claim. Bourgeois, J. noted that this was a factual finding which was not challenged by the Appellants and was amply supported by the evidence [at para. 49]. Bourgeois, J. therefore dismissed this ground of appeal on that basis alone, and did not engage in further review of the hearing judge's analysis of the other requisite factors.

Previously published by LexisNexis

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