Executive Summary: Key Legal and Evidentiary Issues

• Arthur John Murray applied to add Michael Holmes and Pemberton Holmes Ltd. as defendants in a dispute arising from a failed cannabis retail venture.
   
• Kim Leslie Young opposed the application, and the proposed defendants argued they had acted only as her agents and property managers.
   
• Central to the case is whether Rule 6-2(7) of the Supreme Court Civil Rules permits joinder of new parties at this stage of the proceeding.
   
• A key evidentiary issue involves a release signed by Murray and his company on 31 July 2020 covering Young's agents.
   
• Shareholder standing principles from Hercules Managements Ltd. v. Ernst and Young required Murray to show an independent relationship with the proposed defendants and a loss separate from the company's.
   
• Justice Thompson ultimately found no real or non-frivolous issue existed between Murray and the proposed defendants.
   

Facts of the case

Arthur John Murray and Kim Leslie Young formed a business partnership in March 2018 to open a retail cannabis outlet on a property Young owned in Coombs, British Columbia, with a planned five-year commercial lease of the premises. In August 2018, Coombs Cannabis Inc. ("the company") was incorporated, with Murray as sole director and day-to-day manager; Young held 25% of the shares, and the remaining 75% was held by four individuals, including Murray. Between 2018 and 2020, the company worked toward permits and approvals for the store. Disputes arose with Young over possession of the property and alleged false statements to the Liquor and Cannabis Regulation Branch. This led to three related proceedings: an action commenced in February 2020 (S90500) by the company against Young, settled in July 2020 and dismissed by consent order on 4 August 2020, with Young agreeing to grant a new lease giving the company possession from 1 October 2020; a small claims action commenced in June 2021 by the company against Young, alleging she failed to cooperate in the company's business development, that the regional district withdrew approval for the store after a 30 November 2020 deadline passed, and that Young changed the locks in December 2020 and re-let the premises to a third party; and this action, commenced by Murray personally (not the company) against Young in June 2022, alleging breach of their partnership agreement. Michael Holmes began acting as Young's property manager around October 2020 and was involved in the breakdown of lease negotiations. Young's response pleads that this action rehashes the dismissed S90500 claims and that Murray executed a release on 31 July 2020, and also asserts that the company failed to pay December 2020 rent and indicated it would not pay going forward.

Policy and legislative provisions at issue

The application turned on Rule 6-2(7) of the Supreme Court Civil Rules, which provides that the court may order a person added as a party if "(b) ... (i) that person ought to have been joined as a party, or (ii) that person's participation in the proceeding is necessary to ensure that all matters in the proceeding may be effectually adjudicated on," or "(c) ... if there may exist, between the person and any party to the proceeding, a question or issue relating to or connected with (i) any relief claimed in the proceeding, or (ii) the subject matter of the proceeding that, in the opinion of the court, it would be just and convenient to determine as between the person and that party." Also central was the release executed on 31 July 2020, by which Murray and the company discharged Young and her agents from claims connected to the lease and the cannabis outlet arising from the S90500 action.

Reasoning and analysis

Justice Thompson held that Rule 6-2(7)(b) did not apply, as that provision concerns remedying defects in existing proceedings, and the proposed defendants were not necessary to fully adjudicate the existing claim against Young, citing Madadi v. Nichols, 2021 BCCA 10. Turning to Rule 6-2(7)(c), the court applied the two-part test from Smithe Residences Ltd. v. 4 Corners Properties Ltd., 2020 BCCA 227: first, whether there is a real, non-frivolous issue or possible cause of action against the proposed party, and second, whether it would be just and convenient to determine that issue. The proposed defendants argued that any duty they owed would have run to the company, not to an individual shareholder such as Murray, relying on Robak Industries Ltd. v. Gardner, 2007 BCCA 61, and the rule in Foss v. Harbottle. The court noted that under Haig v. Bamford, [1977] 1 S.C.R. 466, and Hercules Managements Ltd. v. Ernst and Young, [1997] 2 S.C.R. 165, an individual shareholder must show both a relationship with the alleged wrongdoer independent of the company's relationship, and a loss separate from the company's loss. Murray argued the proposed defendants were "part of the same story," owed him a fiduciary duty, and that Holmes acted in bad faith, citing Stiller v. Parsons, 2023 BCSC 872, for the proposition that disputed roles should be resolved on a full evidentiary record. The court reviewed Murray's draft amended pleadings, which described Holmes as Young's agent and property manager responsible for drafting the lease, and alleged he failed to finalize it, restricted access to the property, changed the locks, and allowed new occupants in, causing the company to lose the benefit of the settlement. The court found these allegations described conduct by Holmes as Young's agent, not an independent relationship with Murray, and it was difficult to see how negotiating the lease on Young's behalf as property owner could create a relationship independent of the proposed defendants' dealings with the company.

Ruling and overall outcome

The court concluded that Murray had not established a real, non-frivolous issue or a possible cause of action against Michael Holmes or Pemberton Holmes Ltd., and had not shown the connection required under Rule 6-2(7)(c). The application to add the proposed defendants was dismissed, with the proposed defendants — Michael Holmes and Pemberton Holmes Ltd. — as the successful parties, awarded costs on Scale B payable forthwith after assessment. The decision does not state a specific dollar figure for these costs, as the amount is subject to a separate assessment process.