Zerbin v Vrbanek, 2021 ABCA 317: The Alberta Court Kicks Back At A Contractor Taking Kickbacks

• Published date: 03 March 2022
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Criminal Law, Corporate and Company Law, Contracts and Commercial Law, Trials & Appeals & Compensation, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Miller Thomson LLP
• Author: D. Bronwhyn Simmons and Ryley Schmidt (Articling Student)

In the Alberta Court of Appeal decision, Zerbin v Vrbanek, 2021 ABCA 317 ("Zerbin"), and the preceding trial decision (Zerbin v Vrbanek, 2020 ABQB 797), the Alberta Courts assessed damages against a general contractor who was bleeding the owners on a project for excess funds by illegal means.

Background

The plaintiff owners in this case, David and Barbara Zerbin, wanted to build their "dream home" - a multi-million dollar property - along with a second home on a nearby lot for their daughter. To this end the Zerbins hired DN Developments (carrying on business as Darren's Homes) and Mr. Vrbanek, the sole shareholder, director, and principal of DN Developments, to provide project management services. Under the project management agreements, DN Developments was to provide its services on a "cost-plus" basis - there was no hard ceiling on the cost, and DN Developments' service charge was 20.96 percent. For the sake of expediency, the Zerbins agreed that DN Developments would handle all payments on their behalf, and DN Developments would invoice the Zerbins for both the work and services provided by sub-trades and suppliers, and for DN Developments' service charge.

The Court of Queen's Bench found that DN Developments was experiencing a cash flow problem prior to its retainer by the Zerbins, and Mr. Vrbanek viewed the Zerbins' project as an enduring source of revenue to keep DN Developments afloat. The principal of Modern Granite, a supplier on the project, informed the Zerbins that Mr. Vrbanek had asked him to inflate his quotes to the Zerbins and pay a "kickback". This revelation caused the Zerbins to request a reconciliation from DN Developments, and when that reconciliation was not received, the Zerbins terminated both project management agreements.

The Zerbins commenced legal action against DN Developments and Mr. Vrbanek, alleging that they had been intentionally overcharged and that the project management agreements were performed dishonestly. However, before the matter went to trial, DN Developments ceased doing business. Therefore, the focus of the trial was whether Mr. Vrbanek, as DN Developments' principal and directing mind, could be held personally liable for the Zerbins' losses.

The trial judge accepted the Zerbins' evidence, including that of several contractors, suppliers, and a forensic accounting expert that:

• Vrbanek did, in respect of Modern Granite and other contractors on the Zerbins' project, charge and collect from the Zerbins or...