OSHAWA COURT FILE NO.: CV-76324-11

DATE: 20150708

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

TODD FAMILY HOLDINGS INC. and FUTURE IMAGE HOLDINGS CORPORATION

Plaintiffs

– and –

ROY JOHN WILLIAM GARDINER, BAREFOOT SCIENCE TECHNOLOGIES INC., DAYL MARIE ARMSTRONG, BAREFOOT SCIENCE HOLDINGS INC., BAREFOOT SCIENCE DIRECT INC., BAREFOOT SCIENCE GROUP MARKETING INC. and ADVANCED BAREFOOT TECHNOLOGIES INC.

Defendants

– and –

ROY JOHN WILLIAM GARDINER

Third Party Plaintiffs

– and –

LANCE TODD, BAREFOOT SCIENCE PRODUCTS & SERVICES INC., and 2215535 ONTARIO INC.

Third Party Defendants

David Taub and Robert Choi, for the Plaintiffs and Third Party Defendants, Todd Family Holdings Inc., Future Image Holdings Corporation, Lance Todd, Barefoot Science Products & Services Inc. and 2215535 Ontario Inc.

Jonathan L. Rosenstein and Saham Goudarzi, for the Defendants

HEARD: May 26, 27, 28, 29, 30, June 2, 3, 4, 5, 6, 9, 10, 12, November 17, 24, 25, 26, 27 , 28, December 1, 2, 3, and 4, 2014 and Final Written Submissions filed January 16, 2015

McISAAC J.

REASONS FOR DECISION

INTRODUCTION

[1] This protracted litigation involves an approximate $1,250,000 U.S. advance that turned into a nightmare for the plaintiffs who claim to have seen a zero return on their investment. They suggest the defendants Gardiner and Armstrong were rogues who practiced fraud and forgery in obtaining this sum. In response, these defendants argue that the plaintiffs were fools to have made this investment without having exercised due diligence before advancing their funds. They are the authors of their own misfortune.

OVERVIEW

[2] The defendant Ray Gardiner is an inventor. Over the years, he has developed and patented rehabilitative shoe inserts that have been marketed under the name “Barefoot Science”. He has incorporated numerous corporations to manage and promote his inventions. These were in constant need of investment to stay afloat. Dayl Armstrong is his life partner and has acted as the enterprise’s Communication Director. The plaintiff, Lance Todd, on the other hand had enjoyed significant financial success and in 2004 was in the process of selling his own company. He decided to make a substantial investment in Barefoot Science with the proceeds of this sale, having been introduced to it by a friend, Yves LaFortune, who was President of Barefoot Science Holdings Inc. (“BFSH”) at the time.

[3] The plaintiffs made several advances to BFSH between May and October 2005 totalling $500,640.34 U.S. Various loan documents were negotiated during this period of time, and later, including term sheets, promissory notes, security agreements and subordinations of security. The final advance of $500,000 U.S. took place in December 2005.

[4] It was further agreed that the interest on the loan was to be calculated at a flat rate resulting in an immediate additional obligation of $500,000 U.S. Finally, the plaintiffs purchased 500,000 shares of BFSH for $250,000 U.S. on October 14, 2005.

[5] The plaintiffs sue for damages for deceit/fraudulent misrepresentation, negligent misrepresentation and breach of contract. In addition, they seek a plethora of other remedies under the oppression remedy defined in the Ontario Business Corporations Act, R.S.O. 1990, c. B 16 (“OBCA”). The defendants deny any form of misrepresentation or breach of contract on their part. They also deny ever acting in any oppressive manner towards the plaintiffs. They do not deny the financial loss suffered by them but, as above noted, they suggest that they simply made an imprudent investment.

[6] The personal defendants counterclaim for, among other things, damages for an improvident and illegal seizure of their patents as security for this loan. Finally, they suggest that the plaintiffs have recouped all of their alleged lost investment by having exploited these patents.

FACTS

[7] Much of the evidence before me consists of voluminous documents which, for the most part, speak for themselves. However, in addition to the principals, several witnesses have testified for each side.

1. The Investment

[8] Lance Todd described his business ventures prior to his involvement with Barefoot Science. He had founded and sold two very successful businesses. In my view, this attests to his “skill set” in business development which was an attribute that was sorely needed to make the Barefoot Science technology thrive. He met Roy Gardiner in 2004 having been introduced to him by his friend, Yves LaFortune, who described the product as “new” to the marketplace and involving a system of progressive foot strengthening based on a stimulus akin to walking on sand. Although having been described as a “control freak” suffering from “inventor’s syndrome” who had experienced a previous bankruptcy, when he met Roy Gardiner for the first time, Lance Todd found him to be a “passionate and intelligent” individual. Mr. Gardiner described the extent of investments to date and the potential for “massive profits”.

[9] Lance Todd identified an email from Roy Gardiner dated August 31, 2004 which referred to an “investment opportunity” with Barefoot Science and attached two versions of what counsel have described as “pitch” documents: see Exhibit 1A (Table 34). An Executive Summary dated June 2004 was forwarded on the same date: see Exhibit 1A (Tab 35). The first of these documents state that the Barefoot Science trademark is “a line of propriety insole products” involving a “unique patented design” and that for markets outside of North America and Europe, the international aim of BFSH (“BFSHI”) would be to either enter them “directly or seek licences as local marketing and distribution partners”.

[10] The Executive Summary is directed at prospective investors but contains the following “Notice to Recipients” caveats:

In all cases, interested parties should conduct their own investigation and analysis of the Company and the data set forth in this Memorandum.

Neither … Barefoot Science or any of their affiliates make any representation or warranty as to the accuracy or completeness of the information contained in the Memorandum or any other oral, written or other communications transmitted to the recipient in the course of its investment evaluation of the Company. The only information that will have any legal effect will be that specifically represented or warranted in a definitive agreement relating to a transaction involving the Company.

Neither the Information Memorandum nor its delivery to any prospective purchaser constitutes part of any offer by … Barefoot Science or its shareholders to sell, or solicitations of any offer to buy any securities or assets, nor shall it or any part of it form the basis of, or be relied on in any connection with any contract. Any prospective party will be required to acknowledge in writing that it has not relied on any matter in entering into such agreement save as expressly set out in such agreement.

[11] The “Overview” of the Executive Summary itself begins with the following statement at p.1:

Barefoot Science Holdings Inc. “(BFSH” or the “Company”) has developed proprietary technology that offers a rehabilitative alternative to the way people prevent and treat the vast majority of foot-related problems. The Company’s efforts have culminated in the development of patented technologies, the cornerstone of which is the “Foot Strengthening System™, an insole system for use in existing footwear, as well as proprietary footwear designs.

[12] At the bottom of that same page and the top of the next page there is reference to “BFSH’ s patented technology, based on solid science with high profile medical endorsements”. Further down p. 2 it is suggested that:

To date the company has concluded medical research on the efficacy of its product, gained patent recognition for its technology and extensively market tested its products.

[13] At p. 3 of the Executive Summary there is a diagram outlining the BFSH Corporation Structure where Barefoot Science Technologies Inc. is describe as a “wholly owned subsidiary of BFSHI” which is based in Singapore and which is a vehicle for holding “Intellectual Property Patents and Trademarks, etc.”. BFSHI is described as the “Parent Company” having been incorporated in the State of Delaware.

[14] Under the topic “Science and Technologies” at p. 10 there is a reference to the development of patented technologies by BFSH and the following suggestion:

The BFSH core technology (the “Foot Strengthening System™) is far superior to conventional products on the market.

[15] In Attachment “A” to the Executive Summary at p.i under the topic “Achievements to Date” there is the following statement:

Patents/Trademark Protection

• Patent protection in the U.S. and Australia, pending in other countries under the International Patent Corporation Treaty.

• Patents pending for various footwear applications.

• Barefoot Science logo trademark registered in Canada.

[16] In Appendix “B” to the Executive Summary being the Consolidated Balance Sheet for BFSH for the year ended May 31 there is an asset entry for Patents-Technologies of $535,000 U.S.

[17] Mr. Todd testified that Roy Gardiner “mimicked” or repeated all of these representations to him during the course of their conversations during this period of time. He denied any reference by Mr. Gardiner to any personal claim that he may have had on the intellectual property (“IP”) of Barefoot Science. In particular, there was no mention of a January, 1998 “Engagement and Assignment Agreement” between Roy Gardiner and Barefoot Science Inc. along with a companion Exploitation Agreement which provided for re-assignment of the IP to him: see Exhibit 1A (Tabs 4 and 5). Roy Gardiner does not deny that he had this revisionary interest in the company’s IP and that he never mentioned it to Lance Todd throughout the protracted negotiation of this massive injection of funding to the enterprise. However, he does place significant reliance on the need for Mr. Todd as a prudent investor to undertake his own due diligence and to learn of the fact that Roy Gardiner was the owner of those patents if he had taken up his invitation to speak to the IP lawyer responsible for them, Peter Milne.

[18] Mr. Todd insists that he would have made no investment in Barefoot Science without security on the IP as the patents were the only available asset if the company failed. He maintains that no one was apparently aware of this “secret document” until such time as Roy Gardiner “pulled it out of the hat” as his “Plan B”. “Plan A” turned out to be Roy Gardiner’s subsequent reliance on the fact that Barefoot Science Technologies Inc. (“BFST”) held the rights to the IP as opposed to BFSH, the latter of which eventually undertook the loan obligation with Mr. Todd’s holding company Future Image pursuant to a Promissory Note and Security Agreement: see Exhibit 4 (Tab 3) and Exhibit 1D (Tab 170). These “rights”, as it turns out, are only mere exploitation rights pursuant to a revocable licence as opposed to a full ownership right which benefitted Mr. Gardiner pursuant to his patent rights. When he learned about these “secret” arrangements, Mr. Todd testified that he was “disgusted” and felt that he had been “set up from the beginning”.

[19] Lance Todd testified that he felt he could work with this proposal and he continued to explore an investment in Barefoot Science. He was never advised of any information correcting the impression he had received from these “pitch” documents. He identified a “Proposed Barefoot Science Holdings (BSFH) Financing Structuring Discussion Paper” dated April 4, 2005 which Mr. Gardiner sent him the following day: see Exhibit 1A (Tab 36). This document proposed the following main elements:

• Lance would lend $250,000 secured by a promissory note for a term of four months with a flat 50% interest rate;

• the possible conversion of this loan into a higher-yielding investment if used to produce a U.S. “infomercial”;

• a proposal for Lance to be hired as “head of New Business Development” for a term of 24 months and for which he would be compensated $80,000 CDN by way of base fee or on commission based on net revenues of new business initiatives.

• a separate stock option plan connected to this new position with the company and a provision for compensation review after the original 24 month engagement.

[20] Based on all of these representations, Mr. Todd testified that he made the decision to invest in Barefoot Science.

[21] On May 6, 2005 Mr. Gardiner sent him a draft Term Sheet and Promissory Note: see Exhibit 1A (Tab 38). The Term Sheet provided for the following:

• a loan to BFSH in an amount up to $500,000 U.S. to be advanced in three separate “tranches”;

• a one-year term with provision for 50% flat rate interest on the amount advanced;

• an option for conversion of the loan into share options, up to 300,000 of which would come from Roy Gardiner personally at a discounted rate from the Treasury cost;

• engagement of Todd as BFSH’s head of New Business Development on the terms outlined in the Discussion Paper dated April 4, 2005 assuming that the entire $500,000 U.S. was advanced.

• share options pro-rated on the amount advanced.

[22] These negotiations continued and eventually concluded in a “governing” note and term sheet which were executed in December 2005 but back-dated to May 12, 2005 and June 2, 2005 respectively so as to incorporate all of the advances that had been made over time: see Exhibit 4 (Tabs 3 and 5). The total advance was for $1,250,000 U.S. made up of a $1,000,000 U.S. loan and a $250,000 U.S. investment by way of share purchase. According to the “governing” term sheet, the following additional provisions applied:

• The transaction was to close “on or before December 23, 2005”;

• interest was calculated at a flat rate of 50%;

• the loan was for ten years payable on or before December 31, 2015;

• Future Image could elect to demand repayment of $45,000 U.S. per month, payable at the end of each month starting on January 1, 2007;

• Future Image agreed to purchase 500,000 BFSH common shares from the personal holdings of Roy Gardiner and/or Dayl Armstrong at a discounted price of .50 U.S. per share;

• an option to purchase up to 1,764,706 common shares of BFSH at a price of .85 U.S. per share before December 31, 2015;

• an option in favour of Future Image to convert the amount due under the note, in whole or in part, to BFSH common shares at .85 U.S. per share before December 31, 2015;

• the appointment of Lance Todd as Vice President of New Business Development of BFSH.

[23] Mr. Todd testified that the reason motivating the clause for the election for repayment of $45,000 U.S. per month as of January 1, 2007 flowed from the fact that he was in the midst of matrimonial litigation and he wanted a “safety-net” following the process of equalization of property with his wife. On the other hand, Mr. Gardiner testified that Lance Todd told him that he had negotiated the ten year term for the loan in order to isolate this asset from her claim. He conceded that he felt “uncomfortable” in being complicit with the deception but reluctantly went along with the ruse for the benefit of Barefoot Science.

[24] The promissory note that was eventually executed by the parties is referenced at Exhibit 4 (Tab 3). It too is back-dated to May 12, 2005, to reflect the fact that the first “tranche” was advanced at that time. As noted in the companion Term Sheet at Exhibit 4 (Tab 5), the $45,000 U.S. monthly prepayment as of January 1, 2007 was to be at the option of the lender, that is, Future Image. However, the note itself contains the following fundamentally important alteration:

The borrower also has the option to demand repayment of US $45,000 per month, payable at the end of each month starting in (sic) February 1, 2007. This payment will be applied towards the principal and interest outstanding.

[25] Mr. Todd insists that this change was not authorized by him and that it was always the parties’ intent to have the note reflect the companion Term Sheet and have the option benefit the lender, Future Image. He speculates that this alteration may have been a function of Mr. Gardiner’s admitted dyslexia.

[26] Mr. Gardiner’s explanation for this alteration is diametrically opposed to Mr. Todd’s explanation. He testified that Mr. Todd wanted the change in order to frustrate any attempt on the part of his estranged wife to access these payments. Mr. Gardiner concedes once again his discomfort in facilitating this additional scam on her wherein Mr. Todd explained that his lawyer, Ted Laan, was the instigator of this scheme. Interestingly enough, Mr. Laan was not given an opportunity to accept or reject this aspersion on his professional ethics when he testified for the plaintiffs.

[27] The final loan advance of $500,000 U.S. was made on December 23, 2005 but, as noted in the “governing” promissory note, this amount was “rolled-up” with the previous advances of $500,640.34 U.S. and back-dated to May 12, 2005. Mr. Todd suggests that default under this note took place on January 1, 2007 when the defendants failed to pay the first instalment of the $45,000 U.S. monthly which he had demanded. Pursuant to the acceleration clause in this note, the plaintiffs insist that they were owed $1,500,000 U.S. as of the date of default.

[28] The final chapters of the plaintiffs’ attempts to obtain secured protection for this loan involved, firstly, the provision of a Security Agreement by BFSH in favour of Future Image which was purportedly signed in May 2005 but in fact was executed by Mr. Gardiner some two weeks before the final advance of $500,000 U.S. on December 23, 2005: see Exhibit 1D (Tab 170). In that document the “Collateral” was described as follows at p.1:

All of the Debtor’s present and after – acquired undertaking respecting Intellectual Property (including any property that may be described in Schedule A).

[29] “Schedule A” provides the following description of property:

All Intellectual Property owned by Barefoot Science Holdings Inc. or any of its subsidiary companies.

[30] The schedule then goes on to list the several patents purportedly “owned” by BFSH. As it turns out, at best, BFSH had a revocable licence through BFT to exploit this IP. Mr. Gardiner was the patent owner. The patent attorney, Peter Milne from Gowlings, who had obtained these patents on his behalf, was specifically referenced in this Schedule.

[31] The second document in this stage of the process was the provision of a Subordination Agreement dated December 7, 2007 which purported to defer the interests of Roy Gardiner and Daryl Armstrong in certain similarly secured loans to BFSH in favour of Future Image: see Exhibit 3 (Tab 1). The subject matter of this deferral was described in the following manner:

This will have the effect of granting you priority over each of our claims against the company as evidenced by the promissory notes issued to us.

[32] As it turns out, although these defendants’ original loans were significant, they had not been secured by any form of promissory note or notes.

[33] The third and last component of the plaintiffs’ investment in BFSH involved the purchase by Lance Todd for Future Image of 500,000 shares in the company from Dayl Armstrong for the equivalent of $250,000 U.S. This allowed the two of them to purchase a new home as the previous one where they had been living had become mould-infested and was a health hazard.

[34] Mr. Todd insists that he would not have invested “even a penny” in BFSH if he was aware of the true ownership of the Barefoot Science IP and he was not able to obtain free, clear and complete security on it. He did, however, make an additional loan of $500,000 U.S. to Barefoot Service Group Marketing (“BFSGM”) to fund the production of an “Infomercial”. This loan was only secured by a promissory note and he only received eventual repayment of the principal amount but none of the five percent flat rate monthly interest although the plaintiffs were owed well in excess of $1,000,000 U.S. at the time.

2. The Oppression Claim

[35] This aspect of the case is less document-driven. Mr. Todd began work at Barefoot Science as Vice-President of New Business Development in September 2006 and claims that his understanding was that Roy Gardiner would stand aside and let he and Yves LaFortune run the company. He expected to be responsible for the development and growth of the company. He soon discovered that the Board of Directors were merely “puppets” to the complete control being exercised by Roy Gardiner. Despite his efforts to create markets for Barefoot Science Products in retail, the military and through Doctors’ offices, he received no support for these endeavours. He accumulated some $100,000 in unpaid personal expenses for these attempts. He was accruing an original salary of $80,000 and later $100,000 but seeing none of it. At the same time, both Roy Gardiner and Dayl Armstrong were receiving handsome compensation from the company. While he was bringing forward promising financing options for development, they continued to use BFSH as their “personal piggy bank”. Any initiatives he attempted to promote were quashed by Mr. Gardiner: see Exhibit 1B (Tab 94). He was eventually “fired” by him on May 22, 2008: see Exhibit 1C (Tab 122). He specifically denies that he ever worked for the company in the capacity of an “independent contractor” as alleged by Mr. Gardiner in that email.

[36] Mr. Gardiner categorically refutes this scenario described by Lance Todd. He insists that it had been the intention of Todd to insinuate himself in Barefoot Science by means of his investment and to use it as a vehicle to take over the company including the IP. He denies that he frustrated Mr. Todd’s attempts to develop business opportunities and insists that these plans did not conform with the priorities that had been approved by the Board of Directors. He insists that Mr. Todd had failed to submit his expenses on the appropriate forms required for reimbursement. Mr. Gardiner maintains that the major impediment affecting Mr. Todd’s working relationship with the company was his insistence that he had a secured interest in the IP and that this had become a roadblock to accessing additional financing which was needed to turn it into a profit-generating enterprise.

[37] Although he admits both he and Dayl Armstrong paid themselves a combined salary of at least $200,000 during the period Lance Todd acted as Vice-President at BFSH, he did not receive any salary except by way of accrual. He also denies that he frustrated the attempts for an external audit of the company’s financial records by Ron Jones because the terms of engagement of this individual were limited to a simple review of the bookkeeping software being used. Finally, he takes great umbrage with the suggestion that he rejected what the one-time Chairman of the Board Terry McTaggart described as a “stellar” proposition to save the company in favour of sending it into bankruptcy to start afresh with his new entity, Advanced Barefoot Technologies Inc., utilizing what he suggests is his unencumbered IP.

[38] The plaintiffs advance the following circumstances as conduct on the part of the defendants, in particular Roy Gardiner and Dayl Armstrong, as breaches of their “reasonable expectations” as shareholders, investors and, in the case of Mr. Todd, as Vice-President of BFSH:

• the false representations about the true ownership of the IP pledged to secure this loan to BFSH along with the various “clouds” on the security sought;

• the absence of transparency in the financial and operational functions of BFSH;

• the failure to provide Lance Todd a reasonable opportunity to fulfill his appointment as Vice-President of New Business Development of BFSH and to participate in its business operations;

• failure to pay the note pursuant to its terms and companion Term Sheet;

• the failure of Roy Gardiner to discharge both his fiduciary duty and duty of care to BFSH and thereby prejudicing and unfairly disregarding the legitimate interests of its stake-holders;

• the commission by Roy Gardiner of an act of forgery by “re-creating” an important document related to his revisionary interest in the IP

• the act of entering into false “paper” transactions at the time BFSH went into bankruptcy.

[39] I have already canvased what I believe to be the major factual components that relate to the deceit complaint in this list. As to the fourth complaint, the defendants do not dispute that they failed to pay back any of the money that was advanced by the plaintiffs to BFSH. It may be that this failure was due, in part, to the personal defendants’ election to take a significant part of this cash injection as back salary. However, in my view, that complaint can be better assessed under a consideration of the allegation of breach of fiduciary duty.

[40] The allegation of forgery arises in the following context. In 1998 Mr. Gardiner executed an Engagement and Assignment Agreement between himself personally as IP owner and Barefoot Science Inc. (“BFSI”) the predecessor to BFSH. This document allowed BFSI to exploit his IP in return for certain royalties defined therein: see Exhibit 1A (Tab 4). Paragraph 8.8 provided for a re-assignment of all rights in the IP to Mr. Gardiner under certain conditions including when BFSI or a subsequent assignee fails to maintain his minimum requirement of 51% of the voting stock in either of those entitles. In 2008 when Lance Todd began “to turn up the heat” on him over their deteriorating relationship, he decided it was time to play this “trump card” to get the IP out of BFSH and back into his personal control. However, he had lost the original agreement and decided to “re-create” it after seeking legal advice which apparently legitimized the forgery. Interestingly enough, the defence did not call this solicitor as part of its case to support Mr. Gardiner’s contention. This “recreation” was cobbled from an old draft that he found in his basement and subsequently threw out. He admits there were many alterations from the original document and that he even arranged for it to be re-witnessed. Despite Mr. Gardiner’s protestations of innocence, I am satisfied that this “recreation” was, in fact and law, a forgery and he knew it was such when he altered it with the intent it be acted upon. I also find it improbable in the extreme that any honest lawyer would approve of such a deceitful plot.

[41] I take a similar view of the alleged “paper” transaction between Roy Gardiner and Kenny Paris in the spring of 2009 at the time of the bankruptcy of BFSH. Mr. Park described a scheme whereby Mr. Gardiner had “parked” some insole inventory from BFSH with him which he later made available to Mr. Gardiner’s new company, Advanced Barefoot Technologies Inc. (“ABT”): see Exhibit 55 (Tab 9). This would have had the effect of defrauding the creditors of BFSH. Mr. Park denies the suggestion that this provision of inventory was in lieu of a $15,000 personal loan that Mr. Gardiner had extended to him. I prefer the evidence of Mr. Park to that of this defendant. Mr. Park had no reason to mislead the court; of course, Mr. Gardiner did.

[42] I turn now to the complaint that Roy Gardiner frustrated the efforts of Lance Todd to fulfill his mandate as Vice-President of New Business Development for BFSH. Although some of Mr. Todd’s complaints border on the picayune, most of them, in my view, are legitimate. First, I have already alluded to his talents for business development given his creation of two successful enterprises prior to his involvement with Barefoot Science. I agree with Mr. Todd’s assessment that Ray Gardiner was doomed to abysmal failure as a businessman given his serious case of “founder’s disease”. I agree with the various observations that he was a “control freak” and that he should have closeted himself in a backroom R and D department as opposed to being the public face of Barefoot Science. His track record of failed and limping enterprises attests to that fact. His incompetence and intransigence were the main reasons Barefoot Science was unable to obtain the third party financing it sorely needed to succeed. Unfortunately, the technology was “world class” but Mr. Gardiner’s business acumen and management skills were woefully deficient.

CLAIMS

[43] As detailed in their Statement of Claim, the plaintiffs seek damages for deceit/fraudulent misrepresentation, damages for negligent misrepresentation and damages for breach of contract. They also seek various remedies under the OBCA oppression remedy. I will deal with those claims in the order they are set out in this pleading.

1. Deceit/Fraudulent Misrepresentation

(i) Legal Principles

[44] To succeed in deceit, a plaintiff must prove that (1) – a false representation or statement was made by the defendant, (2) which was knowingly false, (3) was made with the intention to deceive the plaintiff, and (4) which materially induced the plaintiff to act, resulting in damage: see Tort Law, 3rd ed., Lewis N. Klar, Q.C. at pp. 600-01.

(ii) Analysis

[45] The plaintiffs suggest that the two “pitch” documents that were sent to Mr. Todd on August 31, 2004 when he expressed an interest in the Barefoot Science Technology constitute false misrepresentations in that they convey the message that BFSH is the “owner” of the IP: Exhibit 1A (Tabs 34 and 35). As I read these documents, the overall tenor of the status of the IP is that, indeed, BFSH owned it. The only indication to the contrary is located in the BFSH Corporate Structure located at p. 3 of the Executive Summary where BFST is noted to be the holder of the IP as a “wholly owned subsidiary” of BFSH. However, as indicated, BFST clearly comes under the “umbrella” of BFSH in that diagram and, one would assume, would remain under its’ control and direction. I find that this misrepresentation continued throughout the negotiations for the loan from the plaintiffs and was specifically repeated in the Security Agreement and Schedule “A” that was executed by Mr. Gardiner in December, 2005 but back-dated to May of that year: see Exhibit 10 (Tab 170). It was on the basis of this false factual matrix that the plaintiffs advanced a further $500,000 U.S. according to Mr. Todd who testified that he would not have advanced one penny if he knew the true state of affairs about the absence of entitlement to the IP by BFSH. In addition, I accept that there was even a more significant “cloud” on this IP that had been assigned to BFST; it was the fact that BFST only held a revocable licence from Ray Gardiner that could be cancelled upon certain listed acts of default in Engagement and Assignment Agreement and Exploitation, both in favour of Mr. Gardiner who knew that this was the only available asset in Barefoot Science upon which to make a security claim. I am satisfied that, at the time of his dealings with Lance Todd, he knew that any potential investor would want to know the status of the company’s IP for two reasons: first, to allow for the viability and success of the enterprise itself so as to guarantee a return on any investment; and, second, to provide potential security for the investment if the company failed. Accordingly, in my view, there was both active misrepresentation based on the false impression created by the “pitch” documents provided in August 2004 to Mr. Todd but, also, material non-disclosure of the true ownership of the IP.

[46] In R. v. Emond (1997) 1997 CanLII 10605 (QC CA), 117 C.C.C. (3d) 275 (Que. C.A.) the accused had failed to advise investors in a syndicate that he was promoting that he was in receipt of significant commissions. The Court held that these secret commissions constituted acts of material non-disclosure and justified the finding of criminal fraud at trial. He was not entitled to rely on the “mere silence” defence. For similar reasons, I reject the defendants’ arguments that failure to mention the revisionary right to the IP potentially exercisable by Mr. Gardiner did not constitute deceit. I am satisfied that it was reasonable for Mr. Todd to rely on both of these components as the context for the decision to invest in BFSH.

[47] The defendants attempt to avoid liability for this deceit on the following four alternative arguments. The first of such positions is raised on the basis of election: see Charter Building Co. v. 1540957 Ontario Inc., 2011 ONCA 487. In that case, the Court canvassed the two concepts of common law and equitable election. Both are premised on the principle of inconsistent remedies. The defendants suggest that it was inconsistent for the plaintiffs to pursue damages for fraudulent misrepresentation on one hand and, additionally, purporting to enforce their security in 2009 by “seizing” and exploiting the IP by way of obtaining from this Court interim interlocutory injunctive relief. I agree with the plaintiff that there is no inconsistency in the paths chosen by them to attempt to vindicate their collective rights. The injunctive relief complements the claim for damages and had the potential to mitigate them. I see no inconsistency on their part and the doctrine of election simply does not apply in these circumstances.

[48] Second, Ray Gardiner argues that, at all times, he was acting in his corporate capacity as an officer and director of BFSH and for its benefit. However, I agree with the plaintiffs that he is not entitled to rely upon that mantle of protection. I am satisfied that Mr. Gardiner intended to mislead Lance Todd both actively and by means of material non-disclosure and that this deception was done not only to benefit BFSH by way of obtaining a significant investment that allowed for he and Ms. Armstrong to recoup significant accruals of salary, but also to protect his personal ownership interest in the IP. As such, in my view, he is disqualified from any such protection: see XY Inc. v. International Newtech Development Inc., 2013 BCCA 352 at paras. 57-75. In my view, the legal adage “Fraud ‘unravels everything” is wide enough to allow for the corporate veil in this case to be pierced and to permit personal liability to be imposed on Mr. Gardiner: see Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., 2002 SCC 19 at para. 68.

[49] Third, the defendants place significant reliance on the failure of Mr. Todd to conduct even a modicum of due diligence into Barefoot Science and, in particular, the status of its alleged IP before committing these significant sums by way of investment. As such, the cause of the plaintiffs’ loss was not the alleged fraud perpetrated by the defendants but, rather, his foolishness in accepting Mr. Gardiner’s representations unreservedly and failing to meet with the IP attorney, Mr. Milne. I have no trouble in concluding that it was cavalier in the extreme for Mr. Todd to have been so naïve as to accept these representations at face value. However, this foolishness does not, in my view, provide a defence for the defendants. At para. 69 of Performance Industries v. Sylvan Lake, supra, Binnie J. for the Court observes:

The appellants’ concept of a due diligence defence in a fraud case was rejected over 125 years ago by Lord Chelmsford L.C. who said “

When once it is established that there has been any fraudulent misrepresentation or wilful concealment by which a person has been induced to enter into a contract, it is no answer to his claim to be relieved from it to tell him that he might have known the truth by proper inquiry. He has a right to retort upon his objector, “You, at best who have stated what is untrue, or have concealed the truth, for the purpose of drawing me into a contract, cannot accuse me of want of caution because I relied implicitly upon your fairness and honesty.”: Central R. Co. of Venezuela v. Kisch (1867), L.R. 2 H.L. 99 at pp. 120-21.

[50] I am satisfied that these comments provide a complete rebuttal to this argument.

[51] Finally, the defendants’ point to the various passages in the June 2004 Executive Summary that attempt to foreclose validity for any inaccuracies communicated in the document. My first observation is that this is a curious suggestion because it would allow a party in a commercial negotiation to contract out of fraud. In my view, the law should not countenance such an objectionable proposition as a matter of public policy. This approach finds support in the case law: see K.R.M. Construction Ltd. v. British Columbia Railway Co. (1982) B.C.L.R.1 (C.A.) at para. 39. This is a recognition once again of the legal adage that “Fraud ‘unravels everything”.

(iii) Conclusion

[52] Returning to the elements of the tort of deceit, I am satisfied that the defendant Roy Gardiner communicated false representations to Mr. Todd when he emailed the “pitch” documents to him on August 31, 2004 and that Ms. Armstrong was complicit in this ploy in her capacity as proof-reader of such documents as one of her responsibilities in Communications Director of BFSH. Mr. Todd testified that these representations were repeated by Mr. Gardiner throughout the subsequent negotiations that eventually led to his $1,250,000 U.S. investment in BFSH, in particular the status of the Barefoot Science patented technology. Mr. Gardiner denies having done so. I find the evidence of Mr. Todd preferable for the following reason. Mr. Gardiner has admitted that he “recreated”, that is, forged the lost agreement that enshrined his reversionary interest in the IP. He has also admitted that he uttered that forgery on several occasions and didn’t advise the recipients of it that it did not represent the true state of affairs. He insists that he did so after obtaining legal advice as to the propriety of his actions yet he has failed to call that lawyer before the court. In those circumstances, I am entitled to draw the inference that Mr. Gardiner’s protests of innocent intent would not be supported by this absent witness: see Sylvan Lake Golf & Tennis Club Ltd. v. Performance Industries Ltd., 1999 ABQB 479 at para. 81. In the final analysis, I find his justifications weak and unconvincing and I reject his testimony not only where it is inconsistent with the testimony of Lance Todd but also where it is at odds with the other trial witnesses on issues of importance. I am also satisfied that when Roy Gardiner and Dayl Armstrong practiced this litany of deception on Mr. Todd, they did so knowing it was both false and misleading and that they materially induced him to make the investment that is the subject matter of these proceedings.

2. Negligent Misrepresentation

[53] The parties made no submissions on the claim of negligent misrepresentation. Given that fact and the findings on the claim of fraudulent misrepresentation, that part of the plaintiff’s case is of no moment.

3. Breach of Contract

[54] Lance Todd insists that he made a demand for the first instalment on the monthly payment of $45,000 U.S. provided for in the “governing” term sheet: see Exhibit 4 (Tab 5). He relies upon an email dated February 29, 2008 which refers back to that conversation wherein he “requested” payment of this first monthly instalment of $45,000 U.S. the previous January, that is, 2007 and where he was seeking “clarification” as to how these amounts were being reflected in the company books: see Exhibit 1C (Tab 107). Mr. Gardiner had the company accountant respond to this inquiry on March 3, 2008: see Exhibit 1C (Tab 109). In that correspondence Mr. Quereshi advised Mr. Todd that he was seeking a “legal opinion and interpretation” of the loan documents. On March 6, 2008 the accountant sent an email to Mr. Todd and advised him that the loan Term Sheet and Promissory Note were “conflicting” in that the former allowed the “lender” to demand the monthly payments as opposed to the latter which permitted the “borrower” to demand such payments.

[55] In their original Final Submissions Brief, the plaintiffs sought, among other things, two declarations:

• A variation of the Security Agreement nunc pro tunc to include BFSI as a party to it and that it include the “new” technology developed by Mr. Gardiner: seepara. 160(d); and

• a declaration that Future Image holds a security interest over the IP including this “new” technology: see paras. 160 (d) and (f).

These proposals were advanced under the plethora of oppression remedies created in the OBCA. Accordingly, in my view, it would be appropriate to defer the issue of breach of the Security Agreement to my oppression analysis.

4. Oppression

[56] The plaintiffs advance the following circumstances as oppressive against their personal interests at the hands or behest of some or all of the defendants:

• the deceitful negotiation and receipt of the $1,250,000 U.S. investment paid to BFSH;

• the sale of 500,000 shares of BFSH from the personal holdings of Dayl Armstrong to Future Image for $250,000 U.S.;

• the payment of generous salaries to Mr. Gardiner and Ms. Armstrong from the proceeds of the plaintiff’s investment in BFSH without payment of any salary to Mr. Todd as Director of New Business and Development;

• the marginalization and exclusion of Mr. Todd in his capacity and function as Director of New Business and Development;

• uttering of the forged revisionary document, the so-called “re-creation” of the original Engagement and Assignment Agreement;

• “stripping” BFSH of virtually all of its assets, including the IP, prior to its bankruptcy in May 2009; and

• incorporation of a successor enterprise to BFSH, Advanced Barefoot Technologies Inc. (“ABT”), prior to the demise by bankruptcy of BFSH.

[57] I agree with counsel for the defendants that some of these complaints are in the nature of wrongs done to the company itself which would justify a derivative action as opposed to the personal claim of an individual complainant based on oppression: see Rea v. Wildeboer, 2015 ONCA 373. These include the sale of Ms. Armstrong’s shares in BFSH to the plaintiffs, the “stripping” of assets save for the IP and the conflicting incorporation of ABT. Any derivative action on behalf of BFSH would, of course, be frustrated by its bankruptcy in May 2009. Barefoot Science Group Marketing Inc. met the same fate at the same time.

[58] To this list of potential derivative actions, I would also add the plaintiffs’ complaint that Mr. Gardiner and Ms. Armstrong permitted BFSH to, in effect, “die” when it went into bankruptcy in order to protect their selfish interests in the IP. I agree that Mr. Todd had brought a “stellar” financing option from the TT Group to rescue this floundering enterprise but that it was rejected by them in breach of Mr. Gardiner’s duty to place the interests of BFSH above his own personal interests. Despite this egregious breach of faith on his part, it does not, in my view, create the basis for a remedy by way of oppression. However, it does provide a compelling context for those circumstances that I now consider.

[59] The plaintiffs’ major complaint in their personal as opposed to derivative capacity is as creditors of BFSH by way of their investment and related share purchase totalling some $1,250,000 US. I have already determined that these investments were orchestrated by Mr. Gardiner and Ms. Armstrong by means of deceit and subterfuge committed on a major scale. The defendants suggest that, since the plaintiffs did not become creditors until after the false representations and material non-disclosures had been perpetrated, they could not constitute “complainants” under the OBCA: see Apotex Inc. v. Laboratoires Fournier S.A. 2006 CanLII 38354 (ON SC), [2006] O.J. No. 4555 (S.C.J.) at paras. 39-43. However, in my view, that submissions ignores the fact that the plaintiffs’ investment in BFSH was not a “one shot” affair; it was a “rolling” investment that began with an initial contribution of $121,500 U.S. in May, 2005 and “mushroomed” into the final total of $1,250,000 some seven months later. Critically, in my view, the final advance of some $500,000 U.S. in December, 2005 was provided to BFSH after it had provided a Security Agreement by way of Mr. Gardiner that contained the same misinformation about the status of the IP as had been contained in the original “pitch” documentation. None of this “security” suggested that any entity or person was the unfettered owner of these patents other than BFSH. In fact, they were owned by Mr. Gardiner and were subject to an immediate reversion to him for accessing royalties and other indebtedness. As I have already noted, the pathetic absence of due diligence evidenced by the plaintiffs in this investment does not make it any less fraudulent. For these reasons, I have little difficulty in coming to the conclusion that these manipulations and non-disclosures constituted oppression in relation to the plaintiffs that not only unfairly prejudiced their financial interests but clearly unfairly disregarded those interest as creditors of BFSH.

[60] Although these findings are sufficient, in my view, to trigger an assessment of the remedies available under the OBCA to put the plaintiffs in the position they found themselves before they had the misfortune to intersect with Mr. Gardiner and his personal “fiefdom”, I wish to address the other complaints of oppression that they say took place. Given my findings to this point, it is evident that Mr. Gardiner’s use and reliance on the “re-created”, that is, forged, Engagement and Assignment Agreement was oppressive to the personal interests of the plaintiffs in their capacity as creditors of BFSH in that it frustrated their attempts to realize on the security of the IP. This attempt to “strip” this simple asset from the company obviously was oppressive in the extreme. Finally, I am satisfied that Lance Todd negotiated the appointment as Director of New Business and Development as part of this overall investment package in order to oversee and protect the significant monies advanced. I am also satisfied that, if he had been given sufficient scope to exercise his business talents to properly exploit the Barefoot Science Technology, the enterprise would have, no doubt, thrived and brought fortunes to all of the parties. However, Mr. Gardiner’s insistence on absolute control of the IP turned out once again to be fatal to that dream. I am satisfied that the intentional estrangement of Mr. Todd from the operations and vision of BFSH was not only oppressive of his significant investment, it also doomed Barefoot Science to another failure. Part of this unfair disregard on the part of Mr. Gardiner was to see himself and Ms. Armstrong in receipt of a handsome salary while Mr. Todd and at least one other senior manager went totally without one.

[61] I do not intend to ignore the defendants’ reliance on J.S.M. Corp. (Ontario) Ltd. v. Brick Furniture Warehouse Ltd. 2008 ONCA 183, [2008] O.J. No. 958 (C.A.) where, at para. 65, Doherty, J.A. held that the oppression remedy was generally not intended to provide relief in circumstances where a creditor had failed to negotiate adequate protection for itself and suffered a breach of contract that involved some form of guarantee. The defendants suggest that this is the identical situation in which the plaintiffs now find themselves. However, Doherty, J.A. immediately acknowledged that the oppression remedy could be used where the creditor finds its interest compromised due to unlawful and internal corporate manoeuvres against which the creditor cannot effectively protect itself: see para. 66. In my view, this is exactly the situation that Future Image found itself when the defendants set about insulating the Barefoot Science IP from the reach of the Security Agreement herein in the deceitful and underhanded manner to which I have already referred. In my view, this authority cannot assist the defendants.

[62] To summarize, I have been persuaded that the plaintiffs have been exposed to a litany of oppressive machinations at the hands of the defendants and they are entitled to significant relief under s.248 of the OBCA.

5. Relief Requested

[63] In their consolidated Statement of Claim dated March 31, 2011, the plaintiffs sought, among other things, $2,000,000 damages from Roy Gardiner and BFSH for deceit and/or fraudulent misrepresentation, a return of the money received by Roy Gardiner and Dayl Armstrong for the purchase of shares in BFSH, an order setting aside any contract or agreement that had been granted by Roy Gardiner or Dayl Armstrong in relation to the assets of BFST including the IP or any of its affiliated, related, subsidiary or parent companies including the Engagement and Assignment Agreement, IP ownership and Exploitation Agreement, a declaration that all IP and assets of Advanced Barefoot Technologies Inc. is properly owned by BFST or any of its related, affiliated, subsidiary or parent companies, a declaration that PPSA security held by the plaintiffs is in priority to security held, if any, by the defendants Gardiner and Armstrong pursuant to their Subordination Letter signed between the parties and a declaration that the plaintiffs are entitled to enforce their security interests pursuant to the terms and conditions of the GSA as executed by the defendants in favour of the plaintiffs.

[64] In their final written submissions dated January 16, 2005, the plaintiffs sought the following forms of relief under s.248 of the OBCA.

• an order that Ray Gardiner and Dayl Armstrong pay Future Image $1,250,640.34 (USD) being the monies advanced in respect of the investment into and share purchase of BFSH plus interest and costs:

• an order that the above obligations would survive any bankruptcy pursuant to s.178 of the Bankruptcy and Insolvency Act (“BIA”);

• a declaration that the Security Agreement granted to Future Image in December 2005 by BFSH be varied to include BFST as an obligor and that the collateral thereon include the “new” IP;

• an order that Roy Gardiner, Dayl Armstrong and ABT execute all documentation necessary for the transfer of all rights in this “new” IP to Future Image;

• a declaration that Future Image has a valid security interest over all of the Barefoot Science IP including the “new” IP and that Future Image is entitled to enforce its Security Agreement over this collateral until such time as all of the indebtedness of BFSH to Future Image, including interest and costs, less any amounts actually recovered from Roy Gardiner and Dayl Armstrong has been repaid;

• an order restraining Roy Gardiner, Dayl Armstrong and ABT from interfering, hindering or impeding this security realization by either Future Image or Mr. Todd’s new company, Barefoot Science Products & Services Inc. (“BFSPS”).

• a declaration that Roy Gardiner and Dayl Armstrong have no security interest in the “new” IP or any property described in their security agreements;

• a declaration that the Engagement and Assignment Agreement as well as the Exploitation Agreement are of no force or effect and an order setting them aside pursuant to s.248(3)(h) of the OBCA;

• a declaration that the outstanding loan owing to Future Image and which forms the basis for the Security Agreement herein totals $4,591,472.52 (USD) as of February 1, 2015 inclusive of interest calculated at 15 percent per annum compounded annually but not inclusive of costs which continue to accrue; and

• costs of this action on a substantial indemnity basis.

6. Relief Granted

[65] Based upon my findings of active deceit and material non-disclosure earlier in these reasons, I have no difficulty in awarding Future Image damages in the amount of $1,250,640.34 (USD) as against the defendants Roy Gardiner and Daryl Armstrong and that this award survives any bankruptcy pursuant to s.178 of the BIA. Since a major component of the fraud practiced by the defendants in their dealings with the plaintiffs involved deceit as to the true holder of the IP at the time of the lengthy negotiation of these advances up to December 2005, I agree with the submission that equity demands a variation of the Security Agreement to include BFST as an obligor along with BFSH. This was overwhelmingly a reasonable expectation on the part of this investor group which was completely frustrated by the trickery of the defendants.

[66] The plaintiffs are also seeking a declaration that the collateral captured in this Security Agreement includes the so-called “new” IP which involves the creation of the Elastic Tethered Egg and Tongue-in-Groove technologies as testified to by Roy Gardiner’s collaborator, Robert Burke: see Exhibit 47. The plaintiffs suggest that this “new” IP constitutes “collateral subsequently acquired by the debtor” as provided for in s.12(1) of the Security Agreement. Mr. Gardiner attempts to avoid this outcome on the basis that he was entitled to develop additional technologies that would be discrete from any claim on the part of BFSH/BFST: see Spiroll v. Putti (1975) 22 C.P.P. (2d) 261 (B.C.S.C.); aff’d (1976) 1976 CanLII 1146 (BC CA), 77 D.L.R. (3d) 761 (B.C.C.A.). I am unable to accept this position for two reasons. First, as observed by the trial judge in Spiroll v. Putti, supra, the employee in question had not been expected as a part of his engagement to improve the complainant’s concrete forming machine. Second, and more importantly in my view, Mr. Gardiner was the driving force behind the Barefoot Science Technologies who was bound by an Executive Employment Agreement which created an expectation of mutual trust and reliance: see Exhibit 10, Tab 127, p. 803. In those circumstances it is evident to me that he would be expected to improve upon the technology he had created for the betterment of the company. In the result, I am satisfied that the “new” IP forms part of the collateral captured by this Security Agreement and that the defendants should execute all documentation necessary for its temporary transfer to Future Image.

[67] It obviously flows from the above determinations that Future Image is entitled to a valid security interest over all of the Barefoot Science IP including the Elastic Tethered Egg and Tongue-in-Groove Egg Technologies. It is also declared that Future Image is entitled to enforce this Security Agreement over all of this collateral until such time as all of the net indebtedness of BFSH/BFST to Future Image, including interest and costs, has been satisfied. The defendants are restrained from interfering, hindering or impeding this realization by Future Image or BFSPS. Rather than declaring that Roy Gardiner and Dayl Armstrong have no interest in any of the collateral described in the Security Agreement including the “new” IP, I feel more comfortable declaring that any such interest is suspended pending the full realization of the indebtedness secured thereunder by Future Image. As well, the Engagement and Assignment Agreement along with the Exploitation Agreement are declared to be of no force and effect and they are ordered set aside pursuant to s.248(3)(h) of the OBCA.

[68] In the latter stages of the negotiation of this loan/share purchase by Future Image, Lance Todd learned that Roy Gardiner and Dayl Armstrong had obtained notes and supporting security agreements from BFSH which were similar if not identical to the ones being proposed for the plaintiffs. The two defendants purported to subordinate their interests to those of the plaintiffs by a letter dated December 7, 2005: see Exhibit 3, Tab 1. A careful reading of that document limits the subordination to only their claims that are “evidenced by the promissory notes issued to us”. Despite the defendants’ suggestion that the plaintiffs should be required to endure the prejudice created by this document because of their lack of due diligence, I am persuaded that this is yet another hallmark of their dishonesty that should not be countenanced by this court: see Bhasin v. Hrynew, 2014 SCC 71. Accordingly, I wish to make it crystal-clear that all of these notes and security agreements between the two defendants and BFSH do not constitute any form of barrier to the plaintiffs’ realization on their security herein.

[69] I come to the same conclusion in relation to the promissory note in favour of the plaintiffs as well. It provided for an option in favour of the “borrower” to repay $45,000 (USD) per month beginning on January 31, 2007. This was a total loan of $1,000,000 (USD) along with a flat rate of interest in an amount of $500,000 (USD) that came due on December 31, 2005. All previous versions of this note had provided for the lender to be the beneficiary of this term. Mr. Gardiner insists that this change was based on Mr. Todd’s last minute instructions flowing from his family lawyer, Mr. Laan, to defraud the estranged Mrs. Todd. Mr. Todd denies this subterfuge and explains the defect on his failure to be duly diligent. He suggests it may flow from Mr. Gardiner’s dyslexia. I am not prepared to be so charitable. Mr. Gardiner admits to “re-creating” the lost Engagement and Assignment Agreement. Where I come from people call that forgery. So do I. I am satisfied that Mr. Gardiner forged this promissory note as well having taken advantage once again of the gullibility of Mr. Todd who, admittedly, should have been more careful. He has certainly paid the price for his indiscretions. Although it was somewhat tenuous, I am satisfied that Mr. Todd made a demand for payment under this term as reflected in his letter to Mr. Gardiner a year later: see Exhibit 1C, Tab 107. Having come to that conclusion, I am satisfied that the entire $1,500,000 (USD) became due under the acceleration clause as a result of this default on the part of BFSH. In addition, I am prepared to go so far as to order a rectification of this note so as to give the benefit of the repayment clause to the “lender” as opposed to the “borrower” in order for justice to prevail among the parties. I am of the view that I am entitled to grant such relief in the absence of a pleading to that affect by the plaintiffs herein: see Augdome Corp. v. Gray, 1974 CanLII 172 (SCC), [1975] 2 SCR 354 at pp. 372-3. To do otherwise would allow this document to become an “engine of fraud”: see Performance Industries v. Sylvain Lake, supra, at para. 31.

[70] The defendants agree that they have made no payments to the plaintiffs under this note because they take the position there has been no default due to its wording. Having rejected that argument, I now consider the positions on how much remains outstanding under this obligation. The plaintiffs suggest that they are owed $4,591,472.52 (USD) as of February 1, 2015. The defendants maintain that the plaintiffs are owed nothing because they “seized” the IP and have exploited it to such an extent that the entire debt, however calculated, has been paid off.

7. Accounting

[71] The plaintiffs arrive at the figure of $4,591,472.52 (USD) on the basis of interest calculated at 15% per annum. Mr. Todd initially took the position that this rate was agreed to by Mr. Gardiner when he pressed him on how the indebtedness was being reflected in the company’s records. However, he resiled from that position in cross-examination and conceded that no firm commitment was made to him. Accordingly, I am not satisfied that this interest rate should be applied.

[72] The plaintiff’s alternative position is that interest should be calculated at the rate of seven percent per annum because that is the amount that appears to be reflected in the bankruptcy records for BFSH in relation to creditors. However, in the absence of cross-examination of Mr. Gardiner on the issue, I agree with the defendants’ submissions that this figure is equally explained by the conversion rate between American and Canadian currency. For this reason, I am not prepared to apply this interest rate to any potential outstanding indebtedness.

[73] The plaintiffs next suggest that I should apply a five percent per annum rate as opposed to the 4.5 percent annum provided for by the Courts of Justice Act because that was the rate applied on another parallel unsecured loan negotiated between the parties. I am satisfied that is a fair resolution of this issue given the fact that this $1,000,000 (USD) loan attracted an immediate flat interest rate of $500,000 (USD). Accordingly, I find that the total indebtedness of Roy Gardiner, Dayl Armstrong and BFST as of February 1, 2015 was $2,217,602.28 (USD).

[74] The defendants insist that the plaintiffs have realized far in excess of this amount as a result of their seizure and exploitation of the I.P. Mr. Todd pleads virtual impecuniosity for himself and his two investment companies. According to the calculations of the defendants’ accountant, Ms. Silver, there are two ways to estimate how much the plaintiffs have been able to recoup of their losses in this investment. The first approach involves two scenarios based on the volume of inventory purchases: see Exhibit 115. The second approach involves an assessment based on historical sales. According to Ms. Silver, assuming a generous cost of sales of 40 percent, the plaintiffs should have enjoyed a gross margin of $3,109,200 - $4,160,400 for the period July 2009 through April 13, 2014. Even the lower of this range would have been more than sufficient to cancel the indebtedness of the defendants. The thrust of Ms. Silver’s evidence is that the defendants owe the plaintiffs nothing today.

[75] I accept that Mr. Todd has woefully failed to provide the financial disclosure provided for in the Rules. I recognize that he has been soundly chastised by various justices of this court at the interlocutory stages of these proceedings. I do not criticize or challenge those comments as they involved brief snapshots of this litigation. However, I am privy to the extended video of that saga and I do not come to the same conclusions as my brother and sister judges. Having excavated the relationship of these parties far deeper than my associates, I have come to the clear conclusion that the plaintiffs’ capacity to conduct this litigation has been seriously hobbled, if not crippled, by the financial fleecing to which they have been exposed by the deceit and chicanery practiced by the likes of Mr. Gardiner and Ms. Armstrong. They exposed the plaintiffs to marathon acts of fraud, false pretences and forgery. They robbed him of his life’s earnings and I am satisfied he is destitute and a virtual pauper. He has mortgaged his properties to the hilt in his search for justice and he came within a hair’s breadth of losing counsel for the second phase of this complex trial. His lawyers were forced to continue their representation under protest despite his proved inability to pay outstanding and anticipated legal fees.

[76] Ms. Silver paints a picture of a thriving enterprise that has been generating handsome profits over the last five years. Her assessment is buttressed by impressive analysis and calculations. It is professional in the extreme. There is only one problem with her testimony and report: it has absolutely no connection to the circumstances of the man who testified before me. I accept that he is living from hand to mouth and that he is doing his level best to recover the legacy that he was hoping to achieve with his investment in BFSH. I hope he makes it but, from my judicial perspective, he is light years away from it at present. I accept his evidence that he has made absolutely no profit from the exploitation of the secured and seized Barefoot Science Technology. I accept that he has been operating at a continuing substantial loss since he made the decision to attempt to realize on his security. In the final analysis, I am satisfied that the plaintiffs have made absolutely no recovery on their loss and there should be no deduction to the indebtedness found earlier in these reasons.

8. Damages Related to the Undertaking

[77] I have determined that the plaintiffs were entitled to execute their security by way of the Anton Piller and Mareva injunctions obtained in January 2009. If successful, the defendants would have sought damages for the undertaking given by the plaintiffs in that regard. If I am later found to be wrong about the legitimacy of that process on the part of the plaintiffs, I am prepared to assess those damages claimed by the defendants.

[78] Although there are incidental claims related to an alleged unlawful search of the defendants’ business premises, the freezing of their bank accounts and an improvident placement of a CPL on their home which allegedly impeded their ability to obtain financing of legal fees, the major complaint would appear to be related to the unauthorized exploitation of the Barefoot Science IP which, I assume, would have denied them of the profits obtained. The fundamental problem with this latter complaint is that the record before me establishes beyond any doubt that this was far from a profit-generating enterprise. With Mr. Gardiner at the helm it achieved continual and increasing losses despite impressive sales. In those circumstances, I am not satisfied that there should have any award of damages. In relation to the other heads, I find that an award of $1,000 would have been appropriate. I am not satisfied the plaintiffs actions constituted an abuse of process.

9. Conclusion

[79] For the foregoing reasons, the following dispositions will be made:

(i) For the deceit/fraudulent misrepresentation Future Image Holdings Corporation shall have judgment against the defendants, Roy John William Gardiner, Dayl Marie Armstrong and Barefoot Science Technologies Inc. for the Canadian dollar equivalent of $2,217,602.28 USD inclusive of pre-judgment interest as at February 1, 2015;

(ii) A declaration that Barefoot Science Technologies Inc. is a co-obligor along with Barefoot Science Holdings in the Security Agreement in favour of Future Image Holdings Corporation and that the collateral therein secured includes any new insole intellectual property developed directly or indirectly by the defendant Roy John William Gardiner including the Elastic Tethered Egg and Tongue-in-Groove technologies;

(iii) A declaration that Future Image Holdings Corporation is entitled to exclusively exploit all of this collateral pursuant to the Security Agreement until such time as the monetary judgment herein is fully satisfied, including all associated interest and legal costs;

(iv) The defendants are restrained from interfering hindering or impeding this exploitation until such time as the judgment herein remains outstanding;

(v) A declaration that any interest of any of the defendants in the collateral herein is suspended pending full satisfaction of the judgment herein;

(vi) A declaration that the Engagement and Assignment Agreement along with the Exploitation Agreement herein are of no force and effect against the interest of any of the plaintiffs;

(vii) A declaration that any security agreement in favour of Roy John William Gardiner and Dayl Marie Armstrong from Barefoot Science Holdings Inc. or any associated company is of no force or effect against any interest of any of the plaintiffs here; and

(viii) An order rectifying the “governing” promissory note herein purportedly dated May 12, 2005 by replacing the word “borrower” in paragraph two herein with the word “lender”.

For greater certainty, this latter order is effective the date on the note, that is, May 12, 2005.

[80] I am prepared to consider the parties written submissions as to costs herein, those of the plaintiffs to be filed within 15 days of the release of these reasons and those of the defendants, 15 days thereafter. Those submissions shall not exceed five pages double-spaced exclusive of supporting documentation and legal authorities.

McISAAC, J.

Released: July 8, 2015