Attila Dogan Construction v. AMEC Americas Limited, 2011 ABQB 175

Court of Queen ’ s Bench of Alberta Citation: Attila Dogan Construction v. AMEC Americas Limited, 2011 ABQB 175 Date: 20110317 Docket: 0701 09436 Registry: Calgary Between: Attila Dogan Construction and Installation Co. Inc. Plaintiff Defendant by Counterclaim - and - AMEC Americas Limited, Formerly AMEC E&C Services Limited and Agra Monenco Inc. Defendant Plaintiff by Counterclaim _______________________________________________________ Reasons for Judgment of Chief Justice Neil Wittmann _______________________________________________________ INTRODUCTION

[ 1 ] The Defendant, AMEC E&C Limited (“AMEC”) seeks an Order for security for costs in the amount of $11,030,302 against the Plaintiff Attila Dogan Construction and Installation Co. Inc. (“AD”). In addition, AMEC seeks thrown away costs incurred due to the termination of the questioning of David Leonard on his Affidavit on November 3, 2010. BACKGROUND FACTS [ 2 ] AMEC is a body corporate created by a series of amalgamations in accordance with the laws of Canada and registered as an extra-provincial corporation in the Province of Alberta. AD is a body corporate incorporated in the Republic of Turkey.

In October 1998 AMEC and AD (“the Joint Venture”) entered into an agreement (the “Joint Venture Agreement”) in order to bid on a contract to design and build a magnesium oxide plant in the Hashemite Kingdom of Jordan for Jordan Magnesia Company Limited (“JorMag”). [ 3 ] The bid was accepted by JorMag and the Joint Venture entered into an agreement on March 1, 1999 with JorMag for the design and construction of the magnesium oxide plant. (“The Design - Build Agreement”). [ 4 ] The Joint Venture Agreement was amended by further agreement in April, 2000 (the “Amending Agreement”).On June 1, 1999, AD provided an irrevocable standby letter of credit in favour of AMEC in the amount of $5 million to guarantee AD’s performance of its obligations under the Joint Venture Agreement. [ 5 ] The project was plagued by problems.

Initially scheduled to be completed by December, 2000, it was still incomplete in June 2002 when AMEC, citing the inability of AD to perform its obligations, called the AD letter of credit. JorMag terminated the Design- Build Agreement with the with the Joint Venture on July 7, 2002. [ 6 ] There were many disputes between JorMag and the Joint Venture arising from the termination. JorMag and the Joint Venture proceeded before the International Court of Arbitration and ultimately arrived at a settlement whereby the Joint Venture agreed to pay USD $41 million to JorMag and release it from all claims.

The settlement amount was paid by AMEC, its insurers, and the Joint Venture insurers. [ 7 ] The action by AD claims that AMEC was the party predominantly responsible for the defaults that ultimately resulted in the termination of the Design-Build Agreement and claims damages against AMEC exceeding $50,000,000. AMEC has counterclaimed for AD’s share of the legal costs incurred by the Joint Venture, in the amount of $11,681,337.

Those legal costs totalled $28,650,233.38 related to an arbitration that lasted one month, involved the presentation of thirty-six fact witness statements and ten expert reports, five of which were tendered by the Joint Venture. A total of forty-seven witnesses, including experts, were examined at the arbitration. The cost of the experts to the Joint Venture at the arbitration was $7,872,793.26. In addition, $818,848.50 was paid to arbitrators. The total litigation costs for the arbitration deposed to in the David Leonard affidavit in support of this application amounted to $31,150,233.38.

The insurers agreed to pay twenty-five percent of these litigation costs, leaving remaining litigation costs of $23,362,674. As indicated, one-half of that amount is claimed as AD’s share paid by AMEC in the amount of $11,681,337 and this is the amount in the counterclaim. [ 8 ] An agreement made between AD and AMEC dated November 17, 2003 (“the Claims Agreement”) references the Joint Venture Agreement. In it, the Joint Venture agrees to defend JorMag’s claim against the Joint Venture and to prosecute Joint Venture’s claims against JorMag without prejudice to any inter se claims between AD and AMEC.

RULES OF COURT [ 9 ] Rule 4.22 provides: 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 of a costs award would unduly prejudice the respondent’s ability to continue the action; (

e) any other matter the Court considers appropriate. ANALYSIS [ 10 ] The new Rules of Court came into force on November 1 st , 2010. The Notice of Motion for Security for Costs by AMEC in this matter was filed before that time but was heard after. Therefore the new rules apply because there is no applicable exception in the transition rules. The Court is therefore required to take into account the five factors itemized in Rule 4.22 to determine whether security for payment of a costs award is just and reasonable in this matter. Therefore, I will begin by referencing each factor.

Likelihood of Enforcing an Order or Judgment Against Assets in Alberta [ 11 ] AD does not dispute that it was incorporated in Turkey and carries on business principally in the Middle East. AD has no office or assets in the Province of Alberta. It would be impossible for AMEC to enforce an Order or Judgment against assets here. There is no evidence to the contrary.

Ability of the Respondent to Pay a Costs Award [ 12 ] AD has elected not to provide any evidence with regard to its ability to pay costs aside from pointing to the fact that it has been able to retain counsel in the jurisdiction and continues to operate a website. Instead, it argues that, to the extent that it is unable to do so, its impecuniousity is related to the conduct of AMEC that is the subject of this action. [ 13 ] Retaining counsel and operating a website is not evidence that AD could satisfy an award of costs.

Nor is there any evidence to establish that any impecuniousity on AD’s part has been caused by AMEC. There is no evidence with respect to the financial condition of AD at all. It seems to me that, where a plaintiff advances a claim of this magnitude, and does not dispute that it has no assets in this jurisdiction, that plaintiff risks having this factor weigh against it if it declines to bring any evidence with regard to its ability to satisfy an award of costs. The Merits of the Action [ 14 ] AD contends that its case is considerably stronger that AMEC’s.

It argues that AMEC was the party responsible for all engineering and design and failed to properly estimate the scope, quantity and time required for engineering and the quantities of materials required for construction. As the builder, AD says it relied and was dependent on, AMEC’s engineering work. AD points to delays in the completion of engineering documents and contends that the performance of its obligations to JorMag was thwarted by the gross negligence of AMEC.

[ 15 ] Relying upon the affidavit of David Leonard, AMEC contends that any losses suffered by AD were the fault of AD. AMEC also relies upon terms of the Joint Venture Agreement which provide: 4.2(

d) Consequential Damages Notwithstanding the foregoing, as between the Members, neither Member shall be responsible to the other for any indirect or inconsequential damages unless such damages arise out of or relate to any claim or demand of a third party who does not have the benefit of the protection afforded by 4.2(f). Provided that, for certainty, any loss of profit contemplated in

section 4.2(

a) or

section 4.2(b), and any loss or liability arising under or in connection with any bond (or collateral instrument), consent of surety, guarantee, letter of credit or similar instrument provided by a Member or any of its affiliates as contemplated herein, shall not, under any circumstances, be deemed to be indirect or consequential in nature. 5.6 Liability of Leader and Project Manager The Leader and the Project Manager shall be liable to Attila Dogan only for gross negligence or wilful misconduct in the performance of their functions as set forth in this Agreement, and shall otherwise have no further liability whether arising under contract, tort (including negligence), strict liability or otherwise, arising at any time from any cause whatsoever. 6.11 Termination of Contract … In the event of termination of the Contract by the Owner resulting from the default by a Member in performing its obligations pursuant to the terms of the Contract, the Member which was predominantly responsible for the default which led to the termination of the Contract shall be liable for all costs, expenses, liabilities and obligations arising from such termination, including those of the Owner and the other Member. [ 16 ] The Amending Agreement further provides: 2.

Notwithstanding the [Joint Venture Agreement] and subject to

section 3 of this Amending Agreement, each Member (the "Indemnifying Member") shall be solely responsible for and shall defend, indemnify and hold harmless the other Member (the "Indemnified Member") against all losses, damages, costs and expenses (including but not limited to legal expenses) suffered by the Indemnifying Member and/or any member of the Indemnifying Member's Group to the extent arising from any delay in the performance of the Work, whether occurring in the past, the present or the future and howsoever caused; provided that this paragraph 2 shall not apply to delays suffered or caused by AD-Demirel Steel Construction and Machine Industry Co.

Inc. after the date of this Amending Agreement. [ 17 ] Both parties have cited authorities under old Rules 593 and 594. Those Rules did not, in the manner of Rule 4.22, set out a list of factors to be considered in determining whether security should be granted. Rule 594 provided that an application for security for costs should be supported by an affidavit of the defendant or his agent, who can speak positively as to the facts, alleging that there is a good defence to the action on the merits and specifying the nature thereof.

It is AD's contention that Rule 4.22 mandates a more detailed inquiry into the relative strengths of each party’s position and a higher standard than a reasonably arguable defence. Even if this is so, it does not follow that, as AD suggests, the appropriate and determinative question is which party has a stronger case. This is a highly complex claim. What Rule 4.22 requires is an inquiry into the merits. In my view, this suggests that a reasonably meritorious defence, when considered together with the other factors set out in Rule 4.22, is sufficient to weigh in favour of granting security for costs.

It is neither possible, nor desirable, for the Court at this stage to determine which party’s case is stronger. [ 18 ] AMEC has raised a reasonably meritorious defence, grounded in evidence relating to the ability of AD to fulfill its obligations

[18] AMEC has raised a reasonably meritorious defence, grounded in evidence relating to the ability of AD to fulfill its obligationsto JorMag independent of the alleged gross negligence of AMEC, and grounded in several contractual provisions that appear to bepertinent to the claims made by AD. This is sufficient for the purposes of Rule 4.22(c), especially where, as here, AD has elected not toput forward any evidence on this application. Undue Prejudice [19] In the absence of any evidence with respect to the ability to AD to pay security for costs, it is impossible to conclude that suchan order would unduly prejudice AD’s ability to proceed with this action. Other Matters (

a) The AMEC Counterclaim [20] AD argues that because AMEC has counterclaimed against it, AMEC is either not entitled to security for costs or should haveits security reduced. The proposition that the mere existence of a counterclaim constitutes grounds for rejecting security was firmlyrejected by McMahon J. in Tracer Industries Inc. v. Shell Canada Ltd., 2004 ABQB 484, [2004] A.J. No. 769. Where the counterclaimis so intimately interwoven with the issues in the statement of claim that those issues would still have be addressed in the counterclaim, itmay be appropriate to refuse security for costs: Caskey v.

Guardian Insurance Co. of Canada, (AB KB), [1994] A.J.No. 109, 148 A.R. 251 (Q.B.). Where the counterclaim adds significant complexity to the action, with the potential to prolongdiscoveries and trial, this may be a relevant factor in refusing security or in determining the amount: Frontier Ventures Corp. v.Interactive Community Systems Inc., 2007 ABQB 542, [2007] A.J. No. 988. [21] The AMEC counterclaim alleges that, pursuant to the Claims Agreement between the parties, it was agreed that litigationcosts incurred in pursuing the litigation with JorMag would be divided equally.

The counterclaim does not raise the same issues set forthin the Amended State of Claim or the defence to it. Nor does it significantly complicate the primary claim. It is a liquidated claim forunpaid fees that AMEC alleges is owing to it under the Claims Agreement. It does not appear that it would be necessary to resolve any ofthe issues arising out of the parties’ conduct in respect of the JorMag project in order to determine the parties’ entitlements andobligations in respect of legal fees incurred in the proceedings with JorMag. (

b) The Letter of Credit [22] AD argues that its $5 million letter of credit was wrongfully called by AMEC and as a result AMEC has already received $5million of AD’s money. In AD’s submission, this sum should be considered when determining entitlement or quantum of security forcosts. [23] AMEC’s entitlement to call the $5 million letter of credit is one of the issues in this action. The purpose of the letter of creditis not in dispute: it was to secure AD’s performance of its obligations under the Joint Venture Agreement.

The issues of whether ADfailed to perform, and if so, whether that failure was caused by AMEC, are central to this litigation. The calling of the letter of credit hasnothing to do with AMEC’s entitlement for security for costs. Decision [24] Having carefully considered the factor in Rule 4.22 as discussed, I will approach the decision in two steps. First, the factorsconsidered in Rule 4.22 (a-

d) are weighted in favour of granting the application for security for costs. A court may also take intoaccount, pursuant to Rule 4.22 (e), “any other matter the court considers appropriate”. Particularly telling is AD’s choice to tenderabsolutely no evidence on its behalf in opposition to the application, but rather to rely on the evidence put forward by AMEC, includingAD’s questioning of David Leonard on his affidavit. The lack of any evidence put forward on behalf of AD, together with the fact thatDavid Leonard’s evidence was not significantly diluted or undermined by cross-examination, is, in my view a significant factor in favourof granting AMEC’s application.

[ 25 ] At the second step of the process, the court should ask itself whether it considers it just and reasonable to grant an application for security for payment of a costs award after it has taken into account all of the factors in Rule 4.22. In this case, having considered all of the factors, I find it just and reasonable to grant AMEC’s application and I will make an Order for security for payment of a costs award.

Quantum and Timing of Security for Costs [ 26 ] The undisputed evidence of AMEC is that the Joint Venture’s legal costs in the JorMag arbitration amounted to $31,150,233.38, including $7,872,793.26 in experts’ fees. It appears that the issues and complexity of this action may result in similar legal and expert fees. However, it is to be remembered that security for costs is security for party and party costs and not for legal fees. It should also be noted that of the $31,150,233.38, $818,848.50 was paid to the arbitrators.

Expert fees, however, are a recognized disbursement in any Bill of Costs resulting from successful litigation, although the quantum of expert fee reimbursement is still subject to approval by the Court. [ 27 ] Weighing all of these factors, I am asked to award security for costs on the basis of a multiple of Column 5. In this case, due to the complexity of the action, the multitude of issues and weighing all of the factors discussed above, I have decided to evaluate the quantum of security for party and party costs excluding disbursements based on triple Column 5.

It is appropriate, in circumstances where the claim is significant and the issues complex, to award security for costs on the basis of multiples of Column 5: Ritter v. Hoag , 2003 ABQB 229 ; Tracer Industries. [ 28 ] An award for security for costs is an exercise of the Court’s discretion. There is room within the scope of that discretion for a staged process, whereby security is posted at different points in the litigation: Law Society (Alberta) v. Stinchcombe , 2009 ABQB 27 , [2009] A.J. No. 223; Western Canadian Shopping Centres Inc. v. Dutton 2003 ABQB 376 , 338 A.R. 124.

Though the circumstances warrant an award for security for costs, to require AD to post $11 million at this stage of the litigation is, in my view, neither just nor reasonable. However, it is just and reasonable at this time to order AD to post security for costs to the end of what is now referred to in the new Rules as questioning pursuant to Rule 5.17. In the event that the estimate herein proves excessive or too little, it will remain open to the parties to bring the matter to me for a reassessment or adjustment as the litigation proceeds.

To be clear: at the conclusion of questioning, in the event that the estimate of costs herein was too high, AD will be entitled to a credit in respect of security for costs for the next stage of this litigation; in the event that my estimate was too low, this will be taken into account in determining the appropriate sum of security to be paid for the next stage. [ 29 ] AD is therefore ordered, within 35 days of this Order, to post security for costs on the basis of three times Column 5 through to the end of 80 days questioning.

Attached to David Leonard’s affidavit is a draft Bill of Costs including taxable disbursements. The expert witness fees claimed are $7 million. In addition, the claim for the electronic database and full fees associated with maintaining and updating the same is $600,000, disbursement for the questioning reporter $82,425.00 (for 100 days), conduct money for discovery witnesses $60,000. Other charges include the cost of transporting documents from the Middle East, London and Oakville to Calgary $20,000, long distance charges $3,500, facsimile charges $15,000, courier charges $20,000, photocopying charges $30,000.

My best estimate of disbursements that will be incurred until the end of questioning for discovery purposes, based on 80 days of questioning and the Bill of Costs presented is a further $800,000. I am also aware that the GST is five percent. [ 30 ] Considering all of these factors, I am fixing the security for costs to be posted within thirty-five days of this Order at $1.6 million.

With respect to security for costs for expert reports, I am directing that when AMEC incurs a disbursement for an expert fee prior to the conclusion of questioning, upon proof of that disbursement or a certificate to that effect in a form satisfactory to the Court, the Court will consider adding security for costs for those expert fees.

I do not anticipate that that will necessarily occur before questioning is concluded, but if it does, the parties may approach me for an adjustment of the security before that time. [ 31 ] AMEC is given leave to apply for the next installment of security for costs after questioning is completed. AD may satisfy the requirement of security for costs to the end of questioning by paying $1,600,000 to the Clerk of the Court, or if agreed to by the parties in another form, such as a bond or irrevocable letter of credit.

If the parties cannot agree on the form of security, I will entertain a further application on this issue. Costs of This Application

[ 32 ] AMEC is entitled to the costs of this application on triple Column 5, including the costs associated with the questioning of David Leonard in Calgary and London, England. It is therefore not necessary to determine whether some of those costs were thrown away.

It is appropriate, however, to take note of the circumstances that gave rise to AMEC’s application for thrown away costs with respect to David Leonard’s attendance in Calgary. [ 33 ] On November 3, 2010, David Leonard was provided by AMEC for cross-examination on the affidavit filed in respect of this application, after having travelled from Bangkok, Thailand, solely for this purpose. The cross-examination commenced at 9:15 a.m. and almost immediately AMEC objected to producing two insurance policies referred to in David Leonard’s affidavit.

A debate ensued regarding the extent of AD’s entitlement to cross-examine David Leonard in respect of the merits of AMEC’s defense. Counsel for AMEC suggested that, notwithstanding the disagreement regarding the scope of cross-examination on the merits of the defence, counsel for AD might proceed to cross-examine David Leonard on those parts of his affidavit that pertained to the other factors associated with an application for security for costs.

Unwilling to proceed on this basis, counsel for AD abruptly terminated the cross-examination at 9:41 a.m. [ 34 ] It is not uncommon for disagreements to arise between counsel regarding the appropriate scope of cross-examination on an affidavit. In view of the effort and cost involved in producing David Leonard on November 3, 2010, the proper course would have been for AD to continue with the cross-examination and bring AMEC’s objections before me for a determination, if necessary.

This is in fact what occurred when the cross-examination of David Leonard was finally completed, at further significant expense, on December 6 and 7, 2010, in London, England. Had it been necessary for me to determine whether the November 3, 2010 cross-examination was a wasted step warranting an award of thrown-away costs, I would have so found. [ 35 ] The costs of this application will be payable by AD to AMEC upon taxation in any event of the cause. Heard on the 1st day of February, 2011. Dated at the City of Calgary, Alberta this 17 th day of March, 2011. Neil Wittmann C.J.C.Q.B.A. Appearances: John N.

Craig / George M. Vlavianos Bennett Jones LLP Attila Dogan Construction and Installation Co. Inc. A. Webster Macdonald Jr., Q.C. and David Tupper Blake, Cassels & Graydon LLP

for AMEC Americas Limited, Formerly AMEC E&C Services Limited and Agra Monenco Inc.