Condominium Corporation No., 1365 v 970365

Court of Queen ’ s Bench of Alberta Citation: Condominium Corporation No. 0321365 v 970365 Alberta Ltd, 2013 ABQB 471 Date: 20130830 Docket: 0701 00737 Registry: Calgary Between: Condominium Corporation No. 0321365, and an Unspecified Unit Holder, as Representative Plaintiff Plaintiffs - and - 970365 Alberta Ltd., Dome Britannia Properties Inc., Prairie Communities Corp., Joanne Wright, Michael Nowlan, Travis Henkel, Robert Gillis, Earth Tech Canada Inc., Hans Kneppers, Kneppers Consultants Inc., James Cuthbert, Cuthbert Smith Consulting Inc., Cuthbert Smith Consulting Partnership Inc., MCAP Financial Corporation, Residential Warranty Company of Canada Inc., Alberta Permit Pro Inc., Regional Municipality of Wood Buffalo, Gary Nissen, Archiasmo Architectural Works Limited, Macleod Dixon LLP, Burstall Winger LLP, David Marchall, and Evan Welbourn Defendants - and - 970365 Alberta Ltd., Dome Britannia Properties Inc., Prairie Communities Corp., Joanne Wright, Michael Nowlan, Travis Henkel, Earth Tech Canada Inc., Hans Kneppers, Kneppers Consultants Inc., Alberta Permit Pro Inc., Regional Municipality of Wood Buffalo, Gary Nissen, Archiasmo Architectural Works Limited, David Marshall, Evan Welbourn, Real Estate Strategies Group Inc., David Bamber, Allan Penner and European Housing Corporation Inc.

Third Party _ ________________________________________ ______________

Memorandum of Decision of the Honourable Mr. Justice R. J. Hall _________________________________________ ______________ [ 1 ] On April 7, 2009 Mr. Justice Wilkins ordered the Plaintiffs to pay into court $750,000 as security for costs. Those funds were paid into court on May 22, 2009. [ 2 ] The Plaintiff now makes application to have some or all of those funds returned to it, arguing that there has been a change of circumstances sufficient to warrant a review or variation of the order of Justice Wilkins. [ 3 ] The Respondents resist the application.

They maintain that the reasons given by Justice Wilkins granting security for costs continue to apply today, and indeed they argue that the rationale used by Justice Wilkins has become more compelling as a result of further questioning in the matter.

The Respondents maintain that the costs incurred by all of them already exceed the security for costs paid into court. [ 4 ] Rule 4.22 of the Alberta Rules of Court provides the frame work for considering whether to order security for costs: 4.22 The Court may order a party to provide security for payment of a costs award if the Court considers it just and reasonable to do so, taking into account all of the following: (

a) whether it is likely the applicant for the order will be able to enforce an order or judgment against assets in Alberta; (

b) the ability of the respondent to the application to pay the costs award; (

c) the merits of the action in which the application is filed; (

d) whether an order to give security for payment for a costs award would unduly prejudice the respondent’s ability to continue the Action; (

e) any other matter the Court considers appropriate. [ 5 ] Rule 4.23(4) enables the Court to increase or reduce the security previously ordered: 4.23(4) As circumstances require, a Court may (

a) increase or reduce the security required to be provided and (

b) vary the nature of the security to be provided. [ 6 ] Justice Wilkins dealt with a two-pronged application by the Defendants. Firstly, the Defendants maintained that the claim should be dismissed as being barred by the Limitations Act .

Secondly, the Defendants argued that if the Court did not summarily dismiss the action, the Court should award substantial security for costs against the Plaintiff. [ 7 ] Justice Wilkins declined to dismiss the action on the basis of the limitation defense, finding that there was a triable issue as to whether that defence would succeed. (His decision in that regard was appealed to the Alberta Court of Appeal, where he was upheld). [ 8 ] However, Justice Wilkins awarded $750,000 in security for costs to be paid into Court by the Plaintiff.

It is apparent, in reviewing Justice Wilkins reasons, that he considered the limitations defence to be a very strong defence.

His significant costs award recognized the complexity of the litigation and the number of Defendants named by the Plaintiff in the action. [ 9 ] The Respondents in this application have put forth various draft Bills of Costs, which would lead to the conclusion that the $750,000 security for costs is already exceeded by the costs incurred by the numerous Defendants to date. [ 10 ] The Plaintiff recognizes that, in order to succeed in this application, it must show that there has been a material change in circumstances which would justify the return to it of some or all of the security for costs posted.

In that regard, the Plaintiff states that the most significant material changes are that: (

a) In January 2011 the I-joists supporting the building started to bend, crack and break; (

b) On March 11, 2012, a safety codes officer from the Regional Municipality of Wood Buffalo ordered that the buildings be evacuated due to the failing of the I-joists; (

c) The occupants have been unable to return to the buildings and the Plaintiffs have decided to demolish the buildings; (

d) As a result of the failure of the buildings and the evacuation, the Plaintiffs have spent millions of dollars and are now

impecunious. [ 11 ] The Plaintiff argues that the structural failures referred to above have strengthened the Plaintiff’s case because such failures clearly resulted from the faulty work of at least some of the Defendants.

The Plaintiff also maintains that the structural failures weaken the Defendants limitations defence because the structural failures were not known nor could have been known by the Plaintiffs prior to their occurrence in 2011. [ 12 ] The Plaintiff argues that, if security for costs is not released, the Plaintiff will not have the funds necessary to proceed with the action, the 168 unit owners in Penhorwood Place will have worthless buildings, and the Defendants, who caused the buildings to be worthless, will be allowed to escape without liability. [ 13 ] The Plaintiff notes that originally, in October of 2007, the Condominium Corporation levied a special assessment to raise funds to pursue the litigation and complete necessary repairs, raising over $4 million.

The Plaintiff maintains that those funds would have been sufficient to prosecute the action, but as a result of the structural failures and evacuation, the Condominium Corporation is in a significant deficit position, presently owing some $350,000 (indeed the Defendants say the Condominium Corporation owes $750,000 to its creditors). [ 14 ] The Plaintiff maintains that it incurred over $1 million in evacuation costs. It maintains that, as a result of this expense, the Condominium Corporation should be considered to be impecunious.

It argues that neither the Condominium Corporation nor the individual unit holders could possibly borrow or otherwise raise funds to require the action, and that the vacant, condemned buildings have no value.

It further argues that the Condominium Corporation cannot realistically raise money from the owners by another special assessment, given that the owners have been evacuated and have condemned units that cannot be rented or used. [ 15 ] The Respondents reply to the Plaintiff’s limitations argument that, with respect to the allegations preceding the I-joist failure and subsequent evacuation, the evidence respecting limitations obtained during the discovery process in the case has substantially strengthened the limitations defense on behalf of all defendants, and accordingly the rationale for Justice Wilkins awarding security for costs has not changed in favour of the Plaintiff. [ 16 ] Having reviewed the evidence and submissions provided, I accept the submission from the Respondents that the Limitations Act defence respecting the original allegations in the Statement of Claim remains strong.

It remains a triable issue with respect to the allegations that existed in the Statement of Claim at the time of Justice Wilkins’ decision. [ 17 ] In regard to the later developments of I-joist failures, various Respondents have various positions.

Respondents such as MacLeod Dixon LLP and Burstall Winger LLP (the lawyers charged with the obligation of disbursing trust funds subject to holdbacks) and the Cuthbert Smith Defendants (quantity surveyors alleged to be cost consultants under the Condominium Property Act ) maintain that they cannot possibly have any liability in respect to the subsequent I-joist failures, and therefore the Plaintiff’s case against them cannot have improved; nor has there been any material change in circumstances in the case which they face, which would justify a release of the security for costs.

The Regional Municipality of Wood Buffalo and Alberta Permit Pro Inc. also maintain that the I-joist failure cannot be laid at their feet as it was not discoverable upon inspection, being a latent defect in the I-joists. [ 18 ] All of the Respondents argue that the Plaintiff has not proven impecuniosity as a basis for release of security for costs.

They demonstrate on the evidence that the Plaintiff is already in debt in the approximately amount of $750,000, such that, if the security for costs was released, the funds released would go to creditors, and do nothing to further enable the Plaintiff to proceed with the action; therefore, in order proceed with the action, the Plaintiff would still have to raise funds for that purpose. They note that the Plaintiff says that, if the security for costs is returned to it, it can then raise the funds to proceed with the action.

The Respondents argue that, if that is the case, the Plaintiffs cannot maintain that they are impecunious, since they have asserted they have the ability to raise funds. [ 19 ] The Respondents note that, upon the evacuation of the building, the Plaintiff reduced condominium fees by some two-thirds, thereby contributing to its own financial difficulties. They note that the Plaintiff has not sought to raise condominium fees, nor sought to raise a fund to allow it to continue with its action, and therefore there is no reliable evidence that the Plaintiff is in fact impecunious.

They note that an increase in condominium fees to each owner of $150.00 per month would result in a fund of some $300,000 per year being raised for the purpose of funding the litigation, which is approximately equal to the Plaintiff’s legal costs per year from 2007 to 2011.

The Respondents state that it would not be just and reasonable in the circumstances to release the security for costs, as doing so would result in the Condo Corporation’s creditors receiving the benefits of the funds, the Condo Corporation continuing to be left without sufficient funds to prosecute the action, and the Respondents left without any protection for the costs incurred in defending the action. The Respondents note that the European Housing Corporation Inc. (formerly Nascor) engineered and supplied the joist system to the project.

The Plaintiff has not commenced action against that manufacturer at all, relying instead upon its amended pleadings alleging liability against the existing Defendants for the joist failure. [ 20 ] Review of the case law in this area indicates that the test for variation of an order for security for costs under Rule 4.23(4)(

a) is: (

a) whether the plaintiffs have established a material change in circumstances; and (

b) whether such material change in circumstances justifies a variation of the amount of security for costs posted. This requires a 2 step consideration: (

i) a review of the factors set out in Rule 4.22(

a) to (e); and (ii) whether it is just and reasonable to vary the security for costs, having taken those factors into account. [ 21 ] Where the Plaintiff is an individual, impecuniosity can be established upon the evidence of the individual. Where the Plaintiff is a limited liability corporation, even though the corporation may itself be impecunious, the Court looks beyond the corporation itself to its shareholders, to determine whether the shareholders are able to raise necessary funds for the litigation. Those shareholders enjoy

limited liability, such that, if the corporation ultimately loses the litigation, the shareholders cannot be pursued by the successful defendants to pay the costs of the action, as their liability is limited to the amount of their investment in the shares of the corporation. [ 22 ] A condominium corporation is, however, somewhat different. Each condominium unit holder is jointly liable with the condominium corporation, to the extent of his interest in the condominium property.

Therefore the debts of the condominium corporation (including litigation costs) are payable by the unit holders up to the extent of their interests. If costs are awarded against the condominium corporation, those costs can be recovered from the unit holders proportionately to those unit holders’ interests.

However, if some unit holders are unable to pay their share of costs, their share cannot be recovered from the remaining unit holders. [ 23 ] Accordingly it can easily be envisioned that if the security for costs is returned to the Plaintiffs, the Defendants are left exposed and unsecured, at least for some portion of costs awarded in their favour. [ 24 ] The security for costs awarded by Justice Wilkins was not divided amongst the Defendants, but was a lump sum security for all defendants.

For some of the defendants, the failure of the I-joists and the subsequent evacuation cannot possibly be their responsibility. Therefore there has been no change in circumstances applicable to them. [ 25 ] In respect to the Respondents who might bear responsibility in relation to the joist failures, I am not satisfied that the Plaintiff has established impecuniosity sufficient to warrant release of the security for costs. No effort has been made by the Plaintiff to raise a litigation fund. In his affidavit, Mr.

Penner comes to the conclusion that funds could not be raised but does nothing to show that any attempt to raise funds has been made. [ 26 ] The Plaintiff maintains that the failure of the I-joists virtually guarantees that the Plaintiff will successfully succeed against at least some of the Defendants, since such a failure would not occur in a properly designed, engineered and constructed building; and that therefore the Court can be assured that, at the end of the day the Plaintiff will have sufficient funds to pay the costs of any parties against whom the Plaintiff is unsuccessful.

I do not accept those assertions. Judgment against some of the Defendants may be hollow if those liable Defendants do not have the funds to satisfy the judgment. Successful respondents should not be called upon to release the security of monies held in court, and exchange it for a contingent interest in the Plaintiff’s claim. [ 27 ] The Plaintiff notes that the limitation defence which based the original security for costs award, is not applicable in respect to the failing I-joists and subsequent evacuation of the buildings.

That is true; however, the original allegations preceding the I-joist failure are still faced with the limitation defence and a great deal of costs were incurred by the Respondents defending those claims prior to the I-joist failure.

Should the limitations defence in respect of those earlier allegations succeed, one can envision significant costs being awarded to the Respondents in regard to the litigation steps taken up until the time of the I-joist failure. [ 28 ] If one looks at the I-joist failure as commencing a new cause of action against some of the Respondents an application in respect of that cause of action for security for costs might fail; however, for me to order a return of the security for costs would, in essence, be asking the Respondents to finance the Plaintiff’s joist failure claim.

That is a step which I am not prepared to take. [ 29 ] Looking specifically at the factors set out in Rule 4.22 respecting payment of security for costs: (

a) it is less likely now than when security was originally ordered, that the respondents could enforce a costs award against the real property, given its present state of disrepair; (

b) it is less likely now than previously that the Plaintiff can satisfy a cost award, except from some future judgment relating to the I- joists claim, which remains a very contingent asset at this time; (

c) the merits of the action vis à vis the limitations argument have not materially changed. While the I-joists failure claim is not impressed with the imitations defence, that defence remains against the original claims; (

d) the Plaintiff maintains the security for costs order unduly prejudices its ability to continue the action. However, the Plaintiff has the obligation to finance its lawsuit, and has 168 unit holders to share in the litigation expenses.

To now reverse the previous security for costs order would not serve to finance continuation of the litigation but would simply pay out creditors, while correspondingly depriving the Respondents of security. [ 30 ] Accordingly, the Plaintiff’s application for return of security for costs is denied. [ 31 ] The parties may address costs of this application before me at the next case management meeting. Heard on the 12 th day of July, 2013. Dated at the City of Calgary, Alberta thi s 26 th day of August, 2013.

R. J. Hall J.C.Q.B.A. Appearances: Grant Vogeli Burnet, Duckworth & Palmer LLP for the Plaintiffs and the Third Parties Real Estate Strategies Group Inc., David Bamber and Allan Penner Edward W. Halt, Q.C. Peacock Linder & Halt LLP for the Defendants/Respondents, Macleod Dixon LLP and Burstall Winger LLP Perry Mack, Q.C. Mack Meagher LLP for 970365 Alberta Ltd., Dome Brittania Properties Inc, Gary Nissen and Evan Welbourn Kenneth A. Homstrom, Q.C. Brian E.

Thompson Chomicki Baril Mah LLP for Archiasmo Architectural Works and Joanne Wright Derrick Pagenkopf Marc Matras Gowling Lafleur Henderson LLP for Alberta Permit Pro Inc. Jill Shore Dolden Wallace Folick LLP for Kingsway/Jevco Thomas P. O’Leary Dentons Canada LLP for James Cuthbert and Cuthbert Smith Consulting Inc.

William M. Everett, Q.C. Christopher D. C. Ruttkay Lawson Lundell LLP for Earth Tech Canada Inc., Travis Henkel and Michael Nowlan Ken Staroszik, Q.C. Wilson Laycraft for David Marshall and Prairie Communities Corp. Todd W. Kathol Field LLP for Regional Municipality of Wood Buffalo