



COURT
OF APPEAL FOR BRITISH COLUMBIA




Citation:



Jacobs
  v. Yehia









2016 BCCA
  38




Date: 20160127

Docket: CA41892

Between:

Paul Jacobs, 657947 B.C. Ltd. and
Columbia Cottage Ltd.

Respondents

(Plaintiffs)

And

Sam Yehia, The Cambie Malones
Corporation, Cambie Holdings
(Vancouver) Corp., 494989 B.C. Ltd., Cambie Holdings (Nanaimo) Corp.,
0828508 B.C. Ltd., Esquimalt Holdings Corp., and 0790012 B.C. Ltd.

Appellants

(Defendants)




Before:



The
  Honourable Mr. Justice Chiasson

The
  Honourable Mr. Justice Frankel

The
  Honourable Mr. Justice Fitch




On appeal from:  Orders of the Supreme Court of British
Columbia,
dated May 12, 2014 (
Jacobs v. Yehia
, 2014 BCSC 845);
dated February 24, 2015 (
Jacobs v. Yehia
, 2015 BCSC 267); and
dated February 25, 2015 (
Jacobs v. Yehia
, 2015 BCSC 282)
(Vancouver Registry 106849).




Counsel for
  the Appellants:



T.D. Goepel and M.B. Stainsby





Counsel for
  the Respondents:



J.D. Vilvang, Q.C.





Place and
  Date of Hearing:



Vancouver, British Columbia

October 29, 2015





Place and
  Date of Judgment:



Vancouver, British Columbia

January 27, 2016









Written Reasons by:





The Honourable Mr. Justice Chiasson





Concurred in by:





The Honourable Mr. Justice Frankel

The Honourable Mr. Justice Fitch








Summary:

Through a private company, in November 2002 Mr. Jacobs
loaned money to Mr. Yehia.  The parties anticipated that the loan would be
converted into equity in companies owned by Mr. Yehia, but they were
unable to agree on the basis for valuing the equity contribution and other
terms of the conversion.  The loans bore interest at 12% which Mr. Yehia
paid until September 2003. He paid no interest subsequently.  In February 2005,
the parties entered into two agreements.  One addressed Mr. Jacobs
participation in Mr. Yehias companies; the other dealt with the loan and
stated that Mr. Yehia was not liable for it.  In October 2009, the parties
entered two additional agreements.  The 2002 loan agreement was renewed. 
Mr. Yehia terminated the relationship between the parties and repaid the
loan in July 2010.  The trial judge held that the February 2005 agreements
failed insofar as they dealt with Mr. Jacobs acquiring an interest in the
companies, but that they extinguished the loan obligation.  She concluded that
the October 2009 agreements renewed Mr. Yehias liability for the loan and
interest.  She held that no interest was payable between September 2002 and
February 2005 by reason of the February 2005 agreements, but that interest was
payable thereafter by reason of the October 2009 agreements.  She found that
Mr. Yehia was unjustly enriched by having use of the loan proceeds with no
juristic reason for doing so.  Held: appeal allowed.  The February 2005
agreements were unenforceable.  Mr. Yehias obligation to pay interest was
not extinguished.  There was no unjust enrichment because Mr. Yehia was
entitled contractually to use the loan proceeds with a concomitant contractual
obligation to pay interest.  Other subsidiary issues also are addressed.

Reasons for Judgment of the Honourable
Mr. Justice Chiasson:

Introduction

[1]

This appeal
considers the implications of a course of dealings between parties on their
contractual rights and an award of damages for unjust enrichment arising out of
the course of dealings.

Background

[2]

The corporate appellants are owned and controlled by the personal
appellant, Mr. Yehia.  They are known as the Cambie Malone Group,
through which he operated a number of restaurants and bar facilities.  The
corporate respondents are owned and controlled by the personal respondent, Mr. Jacobs.

[3]

The appellant and
the respondent met in October 2002.  The judge described their circumstances at
that time:

[26]      Throughout October and early November 2002, Mr. Jacobs
toured the Cambie Malone Group properties at Mr. Yehias invitation. 
Amongst others, he met senior staff members and the businesses bank managers. 
Mr. Yehia told Mr. Jacobs about the businesses and described the
existing financing arrangements.  He also told him about four appraisals
commissioned in September, 2002 for purposes of obtaining bank financing for
planned remodelling, development and expansion of the properties and businesses
(the Appraisals).

[27]      Messrs. Jacobs
and Yehia discussed many ideas of possible mutual benefit.  From the outset
words like partnership and equity stake were bandied about.  For example,
in an October 19, 2002 email Mr. Jacobs proposed that he loan up to
$1 million to Mr. Yehia and his companies with an option to convert
the loans to an equity stake, subject to negotiation and due diligence.  He stated
the equity participation would be subject to a shareholder agreement, a
buy-sell mechanism and annual dividends, and described his prospective role as
an investor partner, with a broad base of general day to day duties.  He
further proposed that these duties be discharged through Columbia Cottages Ltd.
and compensated at a rate of $60,000 per annum, plus GST and expenses.

[28]      Mr. Yehia
responded to Mr. Jacobs email with a counter-proposal.  In an October 23,
2002 email he stated his wife was  encouraging us to try working together
before committing to a partnership.  He then proposed that in the spirit of
getting this potential partnership underway Mr. Jacobs advance a
$200,000 promissory note to the Cambie Group by November 7, 2002, which
loan would earn 12 per cent interest annually, be paid at a rate of $2,000
monthly, mature in five years and be personally secured by Mr. Yehia.

[29]      Mr. Yehia
went on to propose that Mr. Jacobs would have the option to convert the
loan and invest an additional $800,000 into the Cambie Group in equity or debt
by May 7, 2003, subject to negotiating a mutually acceptable shareholder
agreement and on mutually acceptable terms.  He also stated the Cambie Group
would retain Mr. Jacobs to assist and participate in expansion of the
existing properties for a retainer fee of $3,000 per month.

[30]      Shortly
after this exchange, Mr. Jacobs and Mr. Yehia agreed that Mr. Jacobs
would advance funds to Mr. Yehia for investment in the Cambie Malone
Group.  They also agreed to a six-month honeymoon period in which the
possibility of a long-term relationship would be explored and interest would be
paid on the loans (the November 2002 Loan Agreement).

[31]      On
November 8, 2002 Mr. Jacobs advanced $200,000 to Mr. Yehia through
Columbia Cottage Ltd.  The loan was secured by a promissory note dated November 4,
2002 and signed by both parties.

[4]

The judge
described further developments:

[33]      At
approximately the same time he made the $200,000 advance Mr. Jacobs began
to work as a marketing and business strategy consultant for the Cambie Malone
Group.  A written agreement in this regard was not signed, nor even proposed. 
At Mr. Yehias suggestion Mr. Jacobs incorporated 657947 BC Limited
(657).  He invoiced Mr. Yehias management company for his services and
expenses through 657 (the Oral Management Consultancy Agreement).



[35]      On
January 27, 2003 Mr. Jacobs advanced a second loan of $500,000 to Mr. Yehia
through Columbia Cottage Ltd.  Like the first loan, the second was secured by a
promissory note.

[5]

Both promissory
notes obliged Mr. Yehia to pay the money advanced plus 12% interest to the
respondent Columbia Cottage Ltd.

[6]

Mr. Yehia deposited the funds into his personal account and
advanced them to the Cambie Malone Group as shareholders loans.  The Cambie
Malone Group did not record a loan from Mr. Jacobs or Columbia Cottage
Ltd.

[7]

Mr. Jacobs
incorporated the respondent, 657947 B.C. Ltd., which invoiced the Cambie Malone
Group for consulting services provided to it by Mr. Jacobs.  The judge
found that it was agreed that the consulting services were to be provided for
$3,000 per month, plus expenses.  In fact, the Cambie Malone Group was invoiced
for and paid more than $3,000 per month.

[8]

The judge
described ongoing discussions between Messrs. Jacobs and Yehia:

[48]      As
their discussions progressed Messrs. Jacobs and Yehia agreed that Mr. Jacobs
loans would be converted to equity and they would operate the Cambie Malone
Group businesses as partners.  The conversion would be achieved by Mr. Jacobs
receiving shares in the companies and both parties signing a shareholder
agreement.  The terms of the shareholder agreement would address matters such
as dividend rights, corporate governance and dispute resolution.  The
percentage of Mr. Jacobs equity interest would be based on the as is
values of the Cambie Malone Group properties in the Appraisals.

[49]      Unfortunately,
although Messrs. Jacobs and Yehia agreed on the general concept of
converting the loans to equity they had quite different ideas about a key
element of the arrangement.  In particular, they did not share a common
understanding of the as is values in the Appraisals and thus the percentage
of equity to which Mr. Jacobs would be entitled.  Indeed, as the trial
progressed it became apparent that Mr. Jacobs did not fully understand the
nature of the as is values in the Appraisals, either in his discussions with Mr. Yehia
or when he was testifying.  On the contrary, I find that Mr. Jacobs
misunderstood the meaning and implications of the Appraisals on this centrally
important point.

[9]

After Mr. Jacobs
testified at trial, his counsel made an admission on his behalf that resiled from
Mr. Jacobs valuation position.  The judge observed:

[60]      It
was sensible for Mr. Jacobs and his counsel to make this admission.  The
admission differed considerably, however, from Mr. Jacobs testimony about
his understanding of the as is values in the Appraisals.  It also differed
from his written and oral communications to Mr. Yehia on this issue.  In
those communications he rejected the notion that the Residual Values in the
Cambie, Malones and Nanaimo Appraisals corresponded to their as is values
for purposes of establishing his equity share.



[65]      Regardless
of the explanation, however, Mr. Jacobs pro‑rating approach to
determining as is values was misconceived and unjustified.  It was not based
on the values in the Appraisals, which included assumptions as to proposed
remodelling.  In contrast Mr. Yehias approach was realistic and based on
the Appraisals.  This was the method the parties identified for establishing Mr. Jacobs
equity entitlement.

[10]

The judge noted
that the practical effect of the different approaches was significant (at para. 67). 
On Mr. Yehias calculation, Mr. Jacobs equity interest would have
been 10‑12%.  Mr. Jacobs approach yielded an interest of 34‑35%.

[11]

The parties agreed that Mr. Yehia paid $70,633 in interest on the
loans until he stopped paying sometime between July and September of 2003 (at
para. 72).  The judge concluded that Mr. Yehia stopped paying
interest  specifically because he and Mr. Jacobs agreed the loans would
be converted to equity and they would operate as partners (at para. 76).

[12]

On January 27,
2004, Mr. Jacobs loaned an additional $267,000 to Mr. Yehia.  No
promissory note was executed and there were no express terms as to interest or
repayment.  It is not clear whether the loan was made by Mr. Jacobs or by
Columbia Cottage Ltd.  No interest was paid on this loan.

[13]

Throughout 2004,
Messrs. Jacobs and Yehia exchanged correspondence dealing with Mr. Jacobs
investing in the Cambie Malone Group.  They were not in agreement on a number
of points.  Mr. Jacobs did not agree on the valuation approach to his
potential equity investment being taken by Mr. Yehia or the approach being
taken to value his consultancy services.  He also addressed a number of other
outstanding issues.

[14]

The parties met in
January 2005 and on February 1, 2005 they signed two letters Shareholders
Agreement in the Cambie Group of Companies and Investing in the Cambie Group
of Companies.  These are described as the February 2005 Agreement.

[15]

The Shareholders
Agreement letter confirmed Mr. Jacobs participation as a partner in the
Cambie Malone Group and added:

To
provide clarity and avoid any confusion in the future, we have agreed that a
shareholders agreement outlining the interests and rights for both Paul Jacobs
and Sam Yehianeeds to be drawn and executed.

It also was
suggested that a professional(s) be retained to assist us in the
reconciliation of all of the points which would be included in the shareholders
agreement.

[16]

The Investing
letter recited the history of the loans and promissory notes and stated that in
July 2003, Mr. Jacobs had agreed to convert all of the promissory notes
into an equity position in the Cambie Malone Group.  It continued:

By
executing below you acknowledge that all of the promissory notes which were
advanced to me, which notes suggested a personal obligation owed by me to you,
are null and void and that I am not personally liable for the repayment to you
of any amounts on account of such notes.

[17]

Professionals were
not retained to assist in resolving outstanding issues and they were not
resolved.

[18]

The judge
addressed the February 2005 Agreement stating:

[263]    As
the February 2005 Agreement indicates, the parties agreed to agree on
conversion of the loans as part of the intended partnership.  The proposed
conversion was, however, on unspecified terms, at an unspecified time, in an
unspecified way.  It is trite law that an agreement to agree does not amount to
an enforceable contract, whether in original form or by way of later amendment.



[266]    I am
satisfied, however, that the November 2002 Loan Agreement was terminated by the
February 2005 Agreement.  When it was executed, the parties agreed Mr. Yehia
was no longer responsible to repay the $967,000 advanced by Mr. Jacobs in
2002, 2003 and 2004.  In these circumstances, an essential element of a loan
contract was removed: liability on the borrowers part for return of the
principal with accrued interest (see
Lee
, paras. 9‑10).  In
consequence, by mutual agreement, the November 2002 Loan Agreement came to an
end when the February 2005 Agreement was executed.



[268]    As
events unfolded, Mr. Jacobs expectation of partnership did not come to
fruition.  In these circumstances, Mr. Yehia remained obliged to pay
interest under the November 2002 Loan Agreement unless and until it was
terminated.  That did not occur until February, 2005.

[19]

On October 23,
2009, the parties executed two further agreements: the Loan Agreement and the
Management Services Agreement.  The Loan Agreement was between Messrs. Yehia
and Jacobs.  It provided in part:

WHEREAS
, IN SEPTEMBER OF 2002 AN AGREEMENT
WAS ENTERED INTO BY THE PARTIES WHEREIN THE SECOND PARTY DID LEND OR MAKE
AVAILABLE THE USE OF NINE HUNDRED SIXTY SEVEN THOUSAND DOLLARS ($967,000) TO OR
BY THE FIRST PARTY (HEREINAFTER THE INVESTMENT);

AND WHEREAS
SUCH AGREEMENT, HAVING BEEN RELIED UPON BY THE PARTIES OVER THE COURSE OF THE
SUBSEQUENT SEVEN (7) YEARS, REQUIRES A RENEWAL OF THE AGREEMENT IN ORDER TO
FACILITATE THE PARTIES GOING FORWARD;

THE PARTIES
HERETO DO ENTER INTO AN AGREEMENT, INTENDING BY SO DOING, TO SUPPLANT ANY AND
ALL PREVIOUS AGREEMENTS BETWEEN THE PARTIES WITH RESPECT TO THE ABOVE MENTIONED
LOAN AMOUNT;

THE PARTIES AGREE THAT:

1.
Paul Jacobs, the Lender has lent to
Sam Yehia, the Borrower nine hundred sixty-seven thousand dollars ($967,000) in
good Canadian currency;

2.
The Borrower will provide the Lender
with a personal guarantee for the entire amount owing under this agreement;



6.
The term of this agreement shall renew automatically in
one (1) year increments at the end of the year or the date on which the loan is
paid in full;



This
agreement supplants and is paramount to any precedent agreement. Where any
correspondence, contract or other agreement of any kind whatsoever conflicts
with this agreement it is agreed by the parties that this agreement has
paramountcy.



By signing below each of the parties
attests to the fact that they have been informed of their right to independent
legal advice and independent accounting advice and that this agreement is
executed in full knowledge of the importance of seeking such independent
counsel and under no duress or misconception about the partys rights at law
whatsoever.

There was no
provision for interest.  Mr. Jacobs did not obtain legal advice.

[20]

The Management
Services Agreement, which was between the respondent 657947 B.C. Ltd. and the
Cambie Malones Corporation dealt with aspects of the consultancy arrangement
and included the following:

9.   Upon the termination
of this agreement, the Company will:

a)   pay
out the personal loan, and any associated interest, made by Mr. Paul
Jacobs, Principal of the Service Provider, to Mr. Sam Yehia, Principal of
the Company.  The original amount of the principal outstanding of such loan was
of September 2002 was CDN $967,000.

[21]

On July 1,
2010, Mr. Jacobs was advised by Mr. Yehia that he had decided to pay
out Mr. Jacobs.  Shortly thereafter, notice to terminate the October 2009
Agreements was given.  The judge found that on July 30, 2010, Mr. Yehia
paid $967,000 to Mr. Jacobs.

[22]

The respondents
sued.  They asserted that the October 2009 Loan Agreement was unconscionable
and sought rescission.  They sought a declaration that they held an equitable
interest in the form of a trust in the Cambie Malone Group and a certificate of
pending litigation (CPL) against land owned by the Group.  Damages for breach
of contract also were claimed.  Alternatively, a declaration of partnership was
sought.  The respondents asserted that the appellants were unjustly enriched.

[23]

The appellants
contested all of the assertions of the respondents and counterclaimed for a
$45,000 overpayment of the $967,000 loan.

Trial
Judgment

[24]

The trial was
bifurcated.  The present appeal concerns only liability.  The judge observed:

[3]        
The question at the heart of the case is whether Mr. Jacobs was right
about the nature of the business relationship and, if not, whether Mr. Yehia
was unjustly enriched by what Mr. Jacobs did for him.

She then set out the issues for
determination.

1.         Were Messrs. Jacobs
and Yehia partners?

2.         How is the November 2002
Loan Agreement to be construed and did the defendants breach it by failing to
pay interest?

3.         If the November 2002 Loan
Agreement was breached, is any part of the claim for damages statute barred?

4.         How is the Oral Management
Consultancy Agreement to be construed?

5.         How are the October 2009
Agreements to be construed and were they unconscionable?

6.         Did Mr. Yehia
repudiate the October 2009 Agreements?

7.         If Messrs. Jacobs and
Yehia were not partners, was Mr. Yehia unjustly enriched and, if so, how?

8.         Is any of the relief sought
by the plaintiffs precluded by an equitable doctrine?

9.         If the plaintiffs are
entitled to a remedy, what remedy is appropriate?

10.       Are
the defendants entitled to a remedy and, if so, what remedy is appropriate?

[25]

Not all of the
issues are relevant to this appeal.  I summarize the judges conclusions with
respect to those that are relevant.

[26]

The judge
concluded that Messrs. Jacobs and Yehia were not partners.  She held that Mr. Yehia
was in breach of the 2002 Loan Agreement by failing to pay interest from
September 2003 to February 2005.  The October 2009 Agreements were not
unconscionable and were not repudiated by Mr. Yehia.  Mr. Yehia was
unjustly enriched.  She held that the respondents are entitled to judgment for
unpaid interest and a declaration the appellants have been enriched unjustly
from February 2005 to October 2009.  Compensation will be calculated based on
11.73% of the increase in the net equity of the Cambie Malone Group from
February 2005 to October 2009.

[27]

The judge also
awarded 657947 B.C. Ltd. $50,064 for unpaid GST and held that the appellants
were entitled to a $45,000 set‑off.  In a separate order the judge
refused to order the cancellation of the certificate of pending litigation.

[28]

I review these
conclusions in a little more detail.

[29]

The judges
conclusion, that there was no partnership, was based on her analysis of the
course of dealings between them.  She stated that Messrs. Jacobs and
Yehia did not proceed beyond the intended partners stage in their business
relationship (at para. 243) and added:

[245]     at
a minimum, until the parties ownership interests were determined or
determinable and basic governance agreed upon the joint enterprise could not
and did not commence.

[246]    
I am not persuaded there was a meeting of minds on the shared ownership issue,
nor on an effective mechanism for its determination.  On the contrary,
Messrs. Jacobs and Yehia held distinctly different views on this key
element of the intended partnership.  In particular, they disagreed on the as
is values in the Appraisals and thus on the formula for calculating their
respective equity entitlement.

[30]

The judge held
that the entire advance of $967,000 was covered by the 2002 Loan Agreement and
that it carried interest at 12%.  She rejected the appellants contention that
interest was waived and held that it was payable until the February 2005
Agreement, which terminated the 2002 Loan Agreement.

[31]

The judge also
held that the 2005 Agreement acknowledged the debt and the respondents claim
was not statute barred.

[32]

The judge rejected
the respondents contention that the October 2009 Agreements failed for lack of
certainty and consideration or were unconscionable.  After examining a number
of troublesome provisions, she found that I am able objectively to discern the
meaning of its essential terms.  The judge rejected the appellants submission
that:

[312]    
the October 2009 Agreements clarified, confirmed or otherwise impacted the
parties
past
relationship or obligations.  In particular, I reject the
submission that the October 2009 Agreements confirmed Mr. Jacobs
had
been solely
a lender and a consultant in so far as it suggests, ex post
facto, that he was a lender continuously from 2002 to 2009.  He was not, and
the parties did not agree that he was.

[33]

She continued:

[313]    I
find the October 2009 Agreements, considered as a whole and in context,
expressed a meeting of the minds on the way forward given what had transpired
in the past, regardless of how the past was characterised.  The opening recital
of the Management Services Agreement referenced the past relationship and a wish
to express how the relationship had been operative, but failed to do so.  On
the contrary, the terms agreed upon thereafter concern only the future
relationship and are unrelated on their face to the past relationship or its
characterisation.  The same is true of the Loan Agreement, which referenced the
original loan because it was being renewed.

[314]    The
Loan Agreement did not clarify or alter the past effect of the November 2002
Loan Agreement, nor did it purport to do so.  Rather, it recorded the fact that
Mr. Jacobs had previously loaned $967,000 to Mr. Yehia and a renewal
was required for the business relationship to go forward.  In so doing, it
expressed a shared intention to supplant any and all previous agreements with
the Loan Agreement.  It did not, however, cancel any prior unmet obligations
(such as liability for unpaid interest) or purport retroactively to extend the
life of the November 2002 Loan Agreement over the pre‑renewal period.



[317]    Taking
into account the plain and ordinary meaning of the words in the October 2009
Agreements in the context of the contract as a whole and the surrounding
circumstances, I find the October 2009 Agreements renewed the November 2002
Loan Agreement and replaced the existing Oral Management Consultancy
Agreement.  When read as a whole, they contain all the essential elements of a
loan agreement.  They also contain all the essential elements of a management
services agreement.

[318]    As
the plaintiffs note, the October 2009 Agreements do not define the loan amount
outstanding as of the date of their execution.  The Loan Agreement does,
however, renew the November 2002 Loan Agreement (recitals, para. 1) and
thus resume liability for the amount owed thereunder after an interruption.  Accordingly,
I find the October 2009 Agreements established an effective mechanism for
determination of the amount of the renewed loan.

[319]    Application
of the established mechanism is straightforward. The November 2002 Loan
Agreement encompassed a total principal sum of $967,000 advanced in three
tranches, plus annual interest at a rate of 12 per cent (see also Management
Services Agreement, para. 9 (a)).  The outstanding principal was
reduced by $45,000 in May 2004 and interest was paid monthly until
approximately September 2003.  Thereafter, interest accrued until February
2005, when the November 2002 Loan Agreement was terminated.

[34]

The judge
concluded that the parties intended to renew liability for both the principal
of the loan and interest at 12%.

[35]

After reviewing
the relative positions of the parties, the judge concluded that the October
2009 Agreements were not unconscionable.  She also assessed the conduct of Mr. Yehia
and concluded that he did not evidence an intention not to be bound by the agreements,
that is, he did not repudiate them.

[36]

The judge addressed
unjust enrichment as follows:

[355]    I
find the defendants were enriched by Mr. Jacobs $967,000 investment.  The
investment funds were used to operate, renovate and develop the Cambie Malone Group
properties and businesses.  I also find Mr. Jacobs was correspondingly
deprived.

[356]    There
is a causal link between the contribution and the enrichment.  The causal link
was the defendants access to and use of the investment funds.

[357]    As
previously noted, Mr. Yehia needed substantial cash for planned
remodelling, development and expansion of the Cambie Malone Group properties
and businesses.  Bank financing was not, however, readily available for these
purposes.  In November 2002, Mr. Yehia found an alternate source of
financing: Mr. Jacobs.  From that point forward, he had access to the
needed funds.

[358]    Mr. Jacobs
funds allowed Mr. Yehia to convert his plans into reality. Combined with
the properties and businesses in their as is state, they jointly contributed
to the increased value of the Cambie Malone Group over time.

[37]

She rejected
unjust enrichment as it pertained to Mr. Jacobs consultancy services
because there were consultancy contracts in place.  The judge continued:

[362]    Between
November 2002 and February 2005 the defendants also accessed and used the
$967,000 pursuant to a valid and enforceable contract: the November 2002 Loan
Agreement.  The same is true of the period after the October 2009 Agreements.  Between
February 2005 and October 2009, however, there was no such contract in place
because Mr. Yehia persuaded Mr. Jacobs they were partners completely.
 Although naïve, this belief was held in good faith and was based on the
cumulative effect of Mr. Yehias conduct and representations.

[38]

The judge
addressed the basis for calculating compensation:

[364]    Based
on their history and Mr. Yehias representations, between February 2005
and October 2009 Mr. Jacobs reasonably expected to share in the profits of
the Cambie Malone Group if he left the $967,000 investment, Second Mortgage and
SBIL loan guarantee with Mr. Yehia.  He did so.  The profits he expected
to share in were the increase in net equity of the Cambie Malone Group, including
any increase in land values.  They were to be calculated taking into account
any difference between the fair market value of his services and those of Mr. Yehia.

[365]    Mr. Jacobs
also reasonably expected that his share entitlement would be a relative
percentage of the Cambie Malone Groups as is value, as outlined in the
Appraisals.  For purposes of this unjust enrichment analysis, I accept as
accurate Mr. Yehias repeated assertions that it was reasonable for Mr. Jacobs
to expect to receive 11.73 per cent of the net equity in the Cambie Malone
Group.

[366]    The
defendants have failed to show a reason it would be just for them to retain the
benefits from February 2005 to October 2009.  Mr. Yehia had no such
reasonable expectation.

[367]    In
reaching the foregoing conclusion I have considered the parties entire course
of dealings.  I find that Mr. Yehia consciously and deliberately strung Mr. Jacobs
along regarding his intentions and the nature of their relationship.  In
particular, he persuaded Mr. Jacobs they were partners in order to retain
access to and use of his $967,000 for the benefit of the Cambie Malone Group.  In
so doing, he failed to deal with Mr. Jacobs with commercial good
conscience by rebuffing his attempts to resolve the partnership impasse while
simultaneously paying no interest on the $967,000, renouncing liability for its
repayment and purporting to erode Mr. Jacobs equity entitlement.

[368]    All
things considered, I conclude it would not be just to permit the defendants to
retain the benefits so conferred.

Discussion

Effect of the February
2005 Agreements

[39]

The judge and the parties proceeded on the basis that the February 2005
Agreement was comprised of both the Shareholders Agreement letter and the
Investing letter.  Indeed they both address Mr. Jacobs position as an
investor and the conversion of his loans into equity in the Cambie Malone
Group.

[40]

The judge held, at para. 263, that the February 2005 Agreement
indicates, the parties agreed to agree on conversion of the loans as part of
the intended partnership.  She noted that the terms for doing so were not
specified and that an agreement to agree does not amount to an enforceable
contract.  At para. 266, she held that the November 2002 Loan Agreement
was terminated by the February 2005 Agreement.  In my view, that cannot be so.

[41]

The judge stated
that in February 2005 the parties agreed that Mr. Yehia was no longer
responsible to repay the $967,000 advanced by Mr. Jacobs, but that
agreement was premised on conversion of this money into equity in the Cambie
Malone Group.  It was not a stand-alone agreement.  The basis for the
conversion was not agreed.  Essentially, there was a failure of consideration.  In
my view, the February 2005 Agreement was not an enforceable agreement.

[42]

It follows that Mr. Yehia
is liable for payment of interest to Columbia Cottage Ltd. at 12% per annum
from the date of advancement of funds to the date of repayment, subject only to
consideration of the provisions of the October 2009 Agreements to which I now
turn.

The October 2009 Agreements

[43]

I agree with many
of the judges conclusions regarding the October 2009 Agreements and with her
concerns about its shortcomings.  The critical issue is the effect of the
October 2009 Agreements on the November 2002 Loan Agreement.  The appellants
assert it was supplanted to the extent that no obligations derived from it
survived.  In my view, this does not take adequate account of the factual
matrix or the language of the October 2009 Agreements.

[44]

I agree with the
judges conclusion that:

[313]    I
find the October 2009 Agreements, considered as a whole and in context,
expressed a meeting of the minds on the way forward given what had transpired
in the past, regardless of how the past was characterised.  The opening recital
of the Management Services Agreement referenced the past relationship and a wish
to express how the relationship had been operative, but failed to do so.  On
the contrary, the terms agreed upon thereafter concern only the future
relationship and are unrelated on their face to the past relationship or its
characterisation.  The same is true of the Loan Agreement, which referenced the
original loan because it was being renewed.

[45]

These agreements
were entered into to resolve many years of disagreement and uncertainty.  This
history included the February 2005 Agreements by which the parties purported to
relieve Mr. Yehia from any obligation to repay the $967,000 loan on the
basis that the money was invested in the Cambie Group of Companies for equity
participation.

[46]

The October 2009 Loan
Agreement begins by referring to the 2002 Loan Agreement.  It states, perhaps
curiously, that the parties had relied on that agreement for seven years and
that the agreement requires a renewal.  The renewal was to supplant all
previous agreements; that is, to supersede and replace them (
Concise
Oxford English Dictionary
, 11th ed. (Oxford: Oxford University Press,
2004)).

[47]

The October 2009
Management Services Agreement set out the basis on which the loan was to be
paid out.  On termination of that agreement The Cambie Malones Corporation
would repay the loan and any associated interest.  Reference was made to the
amount of the indebtedness as of 2002.

[48]

It is apparent
immediately that the October 2009 Agreements took off the table any
relationship between the loan and an equity investment by Mr. Jacobs.  It
also is apparent that the loan addressed in the Agreements was linked to the
November 2002 Loan Agreement and to interest payable on that loan.

[49]

Although it is
somewhat troublesome, the legal interest of Columbia Cottage Ltd., which
advanced at least the first two tranches of the loan and which was the
beneficiary of two promissory notes, appears to have been ignored at the time
of the October 2009 Agreements.  I conclude that the parties intended that the
loan would be treated as directly between Messrs. Yehia and Jacobs.

[50]

I see no basis in
the factual matrix or the language of the October 2009 Agreements to suggest
that Mr. Jacobs was forgiving interest that had accrued or forgoing
interest for the future.  There is no suggestion that an equity position would
derive from the loan.  The monthly fee payable for Mr. Jacobs services is
not linked to interest on the loan.  There had been considerable disagreement
over the years on the value of those services.

[51]

As of October 2009,
the November 2002 Loan Agreement was extant.  It provided for interest at 12%
payable annually.  There also were terms of repayment.  On the evidence, the
loan was advanced in the context of the expectation that the parties would
agree to terms on which the loan would be converted into equity.

[52]

The October 2009
Loan Agreement superseded and replaced the November 2002 Loan Agreement.  It no
longer governed the relationship between the parties.  The issue becomes the
proper construction of the October 2009 Agreements.

[53]

The October 2009
Agreements dealt with the loan strictly as a loan and provided for its
repayment.  Interest was included although a rate was not specified.

[54]

In my view, the
effect of the October 2009 Agreements was to continue the November 2002 loan
bearing interest at 12% payable on the termination of the Management Services Agreement.
 To interpret the October 2009 Agreements as absolving Mr. Yehia of the
obligation to pay interest on a $967,000 loan makes no business sense in the
circumstances of this case.  The 2009 Loan Agreement provides that the loan is
to Mr. Yehia and that he will guarantee its repayment.  In addition, the Management
Services Agreement provides that The Cambie Malones Corporation will pay out the
personal loan, and any associated interest.

[55]

The loan was repaid on July 30, 2010.  Mr. Yehia is liable for
interest at 12% from the date money was advanced to July 30, 2010 as
adjusted by interest and principal previously paid.  The Cambie Malones
Corporation also is liable for this amount.

Unjust Enrichment

[56]

The judge rejected
unjust enrichment for the periods November 2002 to February 2005 and after
October 2009 because there was a contractual basis on which Mr. Yehia
retained the $967,000.  She held there was no such basis between February 2005
and October 2009 because the February 2005 Agreement terminated the 2002 Loan
Agreement; there then was no juristic reason for Mr. Yehias retention of
the benefit he derived from the loan funds.

[57]

I have concluded that the February 2005 Agreement did not terminate the
2002 Loan Agreement.  It remained extant.  It continued as a juristic reason
for Mr. Yehias retention of the benefits he derived from the loan funds.

[58]

Until there was
agreement on the basis on which the loans would be converted to equity, they
remained loans to Mr. Yehia.  He was enriched to the extent he did not pay
interest and Mr. Jacobs was deprived of that interest, but Mr. Jacobs
had an enforceable contractual right to recover his loss.  Mr. Yehias use
of the funds in the business did not give Mr. Jacobs an interest in
whatever benefits may have accrued to the Cambie Malone Group.  He did not have
an interest in the business because the parties did not agree on the terms for
him to do so.

$45,000 Overpayment

[59]

It is common
ground that Mr. Yehia overpaid $45,000 on the loan.  He and The Cambie
Malones Corporation are entitled to a set‑off in that amount.

GST

[60]

The October 2009 Management
Services Agreement provided for the payment by The Cambie Malones Corporation
of GST in addition to the monthly fee.  Previous agreements apparently did
not.  The Cambie Malone Group was invoiced for fees only and paid the invoices.

[61]

I agree with the appellants that 657947 B.C. Ltd. is not entitled to
payment of GST for the time prior to the 2009 Management Services Agreement.

Certificate of Pending Litigation

[62]

The judge declined
to order the cancellation of the CPL on the basis that there was no hardship on
the appellant and because the CPL related to the award of damages for unjust
enrichment.  In my view, that award is not sustainable.  The respondent Mr. Jacobs
is entitled to an award of interest on the loan.  No interest in land is
involved.  The CPL should be cancelled.

Conclusion

[63]

The appellants
seek an order setting aside paras. 1‑6 of the judges order and
varying paras. 7 and 8 of her order to provide for judgment rather
than set‑off.  I address these provisions.

[64]

I would vary para. 1
to provide that Mr. Yehia breached the October 2009 Agreements by failing
to pay interest that was due and owing from the date of advancement of funds to
July 30, 2010.

[65]

I would vary para. 2
to provide that Mr. Jacobs is entitled to an accounting for unpaid
interest from the date funds were advanced to July 30, 2010 plus court
ordered interest as against Mr. Yehia and The Cambie Malones Corporation
to be determined at the second stage of the trial.

[66]

I would set aside para. 3
as unnecessary.

[67]

I would set aside paras. 4, 5
and 6.

[68]

I would not
disturb para. 7.

[69]

I would modify
para. 8 to read: The Defendant, The Cambie Malones Corporation, is
entitled to set‑off against the compensation awarded to the Plaintiffs
the value of any ineligible expenses paid to the plaintiff, 657947 B.C. Ltd.,
over the course of the Oral Management Consultancy Agreement or the October
2009 Agreements. The value of any such ineligible expenses shall be determined
at the second stage of the trial.

[70]

In my view, the
results of this appeal are mixed.  The finding of unjust enrichment is set
aside, but Mr. Yehia is liable for interest.  I would direct that each
side bear its own costs in this Court and in the Supreme Court.

The
Honourable Mr. Justice Chiasson

I agree:

The Honourable Mr. Justice Frankel

I agree:

The
Honourable Mr. Justice Fitch




