Executive Summary: Key Legal and Evidentiary Issues

• Rectification was sought of two companies' articles of incorporation that mistakenly described Class A shares (held by the plaintiffs) as "non-participating" rather than participating
• Credibility was determinative, with the Court entirely rejecting Vern Phaneuf's evidence as fabricated, internally inconsistent, and commercially absurd while accepting that of Norman, Bradley, and their sister Elaine
• Discoverability under s. 6 and s. 8 of the Limitation Act, S.B.C. 2012, c. 13 was contested, with the Court finding the mistake was not practically discoverable until August 2020
• Although a duty of care and breach were established against Vern in negligence, damages of $68,609 were not awarded as no actual loss was proven
• A late-filed counterclaim by Vern was struck for failing the two-part test in Naudi Investments Ltd., lacking real and substantive connection to the main action and adequate explanation for delay
• Special costs were granted on the basis of reprehensible conduct, including fabricated evidence, knowingly false testimony, and deliberate disregard for the integrity of the judicial process

Background and family context

The Phaneuf family has operated A&W franchise restaurants in British Columbia for many years. Norman Phaneuf moved from Saskatchewan to BC in approximately 1986 or 1987 and opened the East Maple Ridge A&W in 1987 with his mother, Irene, through 316839 B.C. Ltd. ("316"), in which each held 50%. A second franchise, the Haney Place Mall A&W, opened in 1992, also held by 316. Bradley Phaneuf moved to BC in 1994 and managed the day-to-day operations of both restaurants. Vern Phaneuf, a chartered accountant who became a CPA in 1992, moved to BC in 1996 and shortly thereafter the family opened the West Maple Ridge A&W, operated by BPYA 1286 Holdings Ltd. ("BPYA"). Vern began working as an investment advisor in 1999 at Merrill Lynch, later acquired by CIBC Wood Gundy, where he continues to work.

The MSDA and incorporation of the companies

In 2010, A&W offered Norman and Bradley a multi-site development agreement ("MSDA") allowing for up to three restaurants in a specific geographical area. Norman and Bradley offered Vern and Terry each a 10% interest as gifts and in recognition of past services. On November 28, 2010, Vern incorporated 0896459 B.C. Ltd. ("089") online, while at Norman's house, with Norman, Bradley, and Vern as initial directors. The original intention was for Norman, Bradley, and Vern to hold Class A shares and Terry to hold Class B shares. After A&W's draft MSDA required principals (including Vern) to personally guarantee 089's obligations, Vern advised in March 2011 that he would not provide a personal guarantee, engaged Boughton Law Corporation, requested removal as a principal, requested his shareholdings be changed from 100 Class A to 100 Class B shares, and advised that he would resign as a director to avoid liability. 089 entered into the MSDA on March 14, 2011, with only Norman and Bradley signing personal guarantees. On April 17, 2012, Vern instructed Boughton to incorporate a company that would "mirror" 089, and Fremont Developments Ltd. was incorporated on May 15, 2012, with the same share structure and nearly identical articles.

The articles and the clauses at issue

The 089 articles, which Vern prepared, described the Class A shares as "non-participating", meaning the holders were not entitled to payment of dividends or to share in the proceeds of distribution of assets on liquidation, dissolution, or winding up. The Class B shares were described as "participating". Fremont Developments' articles mirrored 089. The consequence of this characterization, if left unrectified, was that Vern and Terry (holding Class B shares) would be entitled to receive 100% of the profits and assets, while Norman and Bradley (holding Class A shares) would receive nothing despite owning 80% of the voting shares and being the only directors, financiers, and personal guarantors.

The dispute and discovery of the error

The family relationship began to deteriorate around 2014 or 2015, including around the time Irene sold her shares in West Coast Investments Ltd. to Norman, Bradley, and Terry (excluding Vern). In September 2017, 089 and Fremont Developments issued profit distributions as management fees on a 40%/40%/10%/10% basis, with Norman and Bradley each receiving $31,500 and Vern and Terry each receiving $7,875 (paid to Vern's holding company, Pacific Ocean Investments Ltd.). In 2020, Elaine Phaneuf (the brothers' sister and a CPA) recommended issuing profits as dividends and prepared Shareholder Memorandums reflecting the same 40%/40%/10%/10% split, which Vern signed "under protest" because he wanted a higher percentage, though he raised no issue about non-participating status at that time. In August 2020, Elaine discovered while implementing the dividend distribution that the Class A shares were described as "non-participating". On December 18, 2020, for the first time, Vern took the position that only he and Terry held participating shares and his lawyer demanded disclosure and a buyout.

Procedural history and the counterclaim decision (2024 BCSC 1343)

Norman and Bradley filed a petition on June 10, 2021, seeking rectification. On September 29, 2022, Justice Jackson converted the petition to an action. On September 22, 2023, Vern filed a late response to civil claim and a counterclaim, naming Irene, Terry, BPYA, and WCIL Investments Ltd. ("WCIL") as defendants by counterclaim, alleging breach of an oral "March 2011 Agreement", breach of fiduciary duty arising from an alleged Phaneuf family partnership, and oppression. Norman, Bradley, and the defendants by counterclaim applied to strike the counterclaim; Vern cross-applied to extend the filing deadline. On July 25, 2024, Justice Douglas declined to admit Vern's late Affidavit #2 explaining his delay, found there was no real and substantive connection between the action and the counterclaim, struck the late-filed counterclaim, dismissed Vern's application to extend time, and awarded costs in the cause. The Court applied the two-part test from Naudi Investments Ltd. v. 0899809 B.C. Ltd., 2021 BCSC 1121, and found that Vern's delay was inadequately explained, the claims were largely statute-barred (grounded in events from 2016 and 2017), and the counterclaim's connection to the action was tenuous at best.

Trial decision on rectification (2025 BCSC 1509)

The trial proceeded from January 27 to February 12, 2025, before Justice Basran. On August 7, 2025, the Court ordered rectification. Justice Basran found that the evidence of Norman, Bradley, and Elaine was logical, forthright, and consistent, and accepted it without reservation. Conversely, the Court found that Vern "lied repeatedly and unrelentingly during his testimony", that his "de facto shareholders' agreement" narrative was "a fiction unsupported by any documents or logic", and that his evidence was "irrational, self-interested, and a seeming product of his imagination". Metadata for the index to the 089 articles revealed it was created approximately 45 minutes after a Boughton paralegal requested it, with Vern's assistant working on the document, and on cross-examination Vern conceded that handwriting on the Incorporation Agreement appeared to be his. Pursuant to s. 230(2) and (3) of the Business Corporations Act, S.B.C. 2002, c. 57, and on the equitable doctrine of rectification for mutual mistake (citing Canada (Attorney General) v. Fairmont Hotels Inc., 2016 SCC 56), the Court ordered that the articles be corrected to reflect that both Class A and Class B shares are fully participating, equity, and voting shares.

Limitation defence and negligence claim

On the limitation issue, applying Grant Thornton LLP v. New Brunswick, 2021 SCC 31, the Court found that Norman and Bradley had no reason to suspect the mistake until Elaine discovered it in August 2020, that they exercised reasonable diligence by relying on their professionally accredited siblings, and that the action filed in 2021 was within the two-year limitation period. On negligence, the Court found Vern owed and breached a duty of care to incorporate the companies on the agreed 40%/40%/10%/10% participating basis. However, the Court declined to award the $68,609 in damages sought (representing lost interest on Guaranteed Investment Certificates), finding the underlying funds remained available in the companies, that Norman and Bradley control the voting shares and could distribute funds to themselves, and that no actual loss had been established.

Costs decision (2026 BCSC 822)

On May 5, 2026, Justice Basran addressed costs. Applying the principles in SHH Holdings Limited v. Philip, 2021 BCSC 1232, and Westsea Construction Ltd. v. 0759553 B.C. Ltd., 2013 BCSC 1352, the Court found Vern's conduct was reprehensible because he falsified and fabricated evidence intended to mislead the Court, concocted evidence spanning four decades in support of dishonest claims, demonstrated deliberate and conscious disregard for the truth and the integrity of the judicial process, and continued the unmeritorious narrative through to closing submissions. The Court did not, however, find that Vern's late filing, late lists of documents, and two failures to attend oral discoveries rose, on their own, to the level of reprehensible conduct. On indemnification, Norman and Bradley sought court approval under ss. 161 and 164 of the Business Corporations Act for the companies to repay their costs above those ordered against Vern. The Court declined, finding no court order was required because Norman and Bradley control the companies' voting shares and any indemnification order was premature.

Disposition and successful party

Norman Phaneuf and Bradley Phaneuf are the successful party in all three decisions. The Court ordered rectification of the articles of 0896459 B.C. Ltd. and Fremont Developments Ltd. to reflect that the Class A shares are participating, equity, and voting shares, dismissed Vern's counterclaim, dismissed his application to extend time, and granted special costs against Vern based on actual legal costs and disbursements, to be assessed by the Registrar of the court (including the costs of the special costs application). The total monetary award and costs cannot be determined from the decisions, as the special costs are to be assessed by the Registrar with reference to the actual legal fees and disbursements, the costs of the 2024 BCSC 1343 application were ordered in the cause, the damages claim for $68,609 in negligence was denied, and the trial costs would otherwise have been at Scale B absent submissions.