Xpress Lube & Car Wash Ltd. v. Gill, 2011 ABQB 457

Court of Queen ’ s Bench of Alberta Citation: Xpress Lube & Car Wash Ltd. v. Gill, 2011 ABQB 457 Date: 20110711 Docket: 0901 09045, 1001 10545 Registry: Calgary Between: 0901 09045 Xpress Lube & Car Wash Ltd. Plaintiff - and - Gurdeep Gill, Birinder Singh Khangura, Vincent Lee, Gloria Tang, Longbow Financial Corp., Greenfield Holdings Corp. and Amritpal Singh Gill Defendants And Between: 1001 10545 Xpress Lube & Car Wash Ltd. Plaintiff - and - Birinder Singh Khangura, Vincent Lee, Gurdeep Gill Kiran Dhaliwal, Gloria Tang, Longbow Financial Corp., Greenfield Holdings Corp. and Greenfield Financial Planning Ltd. Defendants

_______________________________________________________ Memorandum of Decision of the Honourable Mr. Justice R. J. Hall _______________________________________________________ [ 1 ] There are two actions before me in these applications.

The first is 0901-09045 in which the Plaintiff, Xpress Lube & Car Wash Ltd. (“Xpress Lube”) sues Gurdeep Gill, Birinder Singh Khangura, Vincent Lee, Gloria Tang, Longbow Financial Corp., Greenfield Holdings Corp. and Amritpal Singh Gill (the 2009 Action), and the second action in which the Plaintiff sues Birinder Singh Khangura, Vincent Lee, Gurdeep Gill, Kiran Dhaliwal, Gloria Tang, Longbow Financial Corp., Greenfield Holdings Corp. and Greenfield Financial Planning Ltd. (the 2010 Action).

In the 2009 Action the Defendants Birinder Singh Khangura, Vincent Lee, Gloria Tang, Longbow Financial Corp. and Greenfield Holdings Corp., all represented by one Counsel, claim security for costs. In the 2010 Action the same Defendants plus Greenfield Financial Planning Ltd. (also represented by the same Counsel) claims security for costs. In addition, in the 2010 Action, the Defendants, Gurdeep Gill and Kiran Dhaliwal (the two of whom are represented by one Counsel) also claim for security for costs.

Gurdeep Gill, a Defendant in the 2009 Action, makes no claim in that Action for security for costs. [ 2 ] The 2009 Action alleges that, during a period of time when the management of day to day affairs of the Plaintiff was being conducted by the individual Defendants, there was a “revenue shortfall” alleged in the amount of $500,000.00.

The claim alleges that the Defendant, Gill misappropriated funds, and that the Defendants Khangura and Lee breached fiduciary, common law and contractual duties and obligations to the Plaintiff which had the effect of permitting, or failing to detect and prevent that misappropriation. [ 3 ] In the 2010 Action the Plaintiff alleges that the individual Defendants owe fiduciary duties and obligations to the Plaintiff and breached them by setting the rates for the services of the Plaintiff at artificially below market rates, authorizing and directing the payment of unjustified, unauthorized and exorbitant fees in connection with the management of the business of the Plaintiff, depriving the Plaintiff of assets and records, authorizing and directing payment with respect to settlement of a Small Claims Provincial Court Action and appropriating for their own use and benefit travel points which were the property of the Plaintiff. [ 4 ] The Defendants seeks security for costs in these actions pursuant to Rule 4.22 of the Alberta Rules of Court which 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. [ 5 ] Neither of these actions has proceeded to the questioning stage. Affidavits in support of the applications have been filed by some of the Defendants. The Plaintiff has chosen not to file any Affidavit to oppose the applications, but instead relies upon the evidence

contained in the Defendants’ Affidavits and the cross examination upon them, and the materials filed by the Defendants from a previous action involving some or all of the same parties. [ 6 ] A brief history of this matter is that Pal and Kulwant Dhillon made up one of four shareholder groups of the Plaintiff. The Dhillons offered to purchase the shares of the other shareholders and their offer was accepted. The Dhillons initially failed to close on that share purchase agreement, with the result that the preceding action was commenced to enforce the Dhillons’ obligation.

Eventually, after a number of delays, the Dhillons obtained sufficient financing to allow them to close the transaction and did so. The transaction was closed using contributions from the Dhillon group, plus ordinary bank financing. However, when that financing was not sufficient to close the transaction, the Dhillons arranged for “mezzanine” financing to raise the remainder of the funds to close the transaction. [ 7 ] Once the Dhillons obtained 100% shareholdings of the Plaintiff, they caused the Plaintiff to commence the 2009 and 2010 Actions. [ 8 ] Rule 4.22(

a) calls for the Court to assess whether the Defendant has assets in Alberta against which it is likely the applicant will be able to enforce a judgment awarding him costs. Here the Plaintiff has assets in Alberta. Those assets, however, will be subject to a first charge by secured lenders. I must assess whether the Alberta assets of the Plaintiff are assets against which it is likely the Applicants could enforce. [ 9 ] Rule 4.22(

b) has been the crux of this application. The Applicants say that the Plaintiff is so heavily in debt that it will not have the ability to pay a costs award. Cross examination on the Applicants’ Affidavits shows that the Applicants have no present knowledge of the Plaintiff’s financial situation, or its revenues and obligations. The Applicants rely upon 2008 consolidated financial statements and a statement by Mr. Paul Dhillon that he “bought the corporation, which was worth $2.8 million for $6.8 million”.

The Applicants note that the Plaintiff has not filed any Affidavit evidence deposing that the Plaintiff has the ability to pay a costs award. [ 10 ] There is no obligation on the Plaintiff under the Rules to swear and file an Affidavit deposing to its ability to pay costs. The Plaintiff is entitled to require the Applicants to satisfy the Court that the Plaintiff is not likely to be able to pay a costs award. The Court must assess the evidence before it to determine whether the Applicants have met that onus. [ 11 ] In regard to Rule 4.22(c), the Court notes that neither action has proceeded through questioning.

Each action makes allegations which, if proven, could ground a judgment; that is to say, valid causes of action are alleged. In these two cases it is simply too early for the Court to be persuaded that the actions do or do not have merit. Therefore, nothing turns on this subrule at present. Following the completion of questioning, this consideration may have greater weight. [ 12 ] Rule 4.22(

d) has a greater role to play where the Plaintiff is an individual rather than a corporation. An individual with a meritorious claim should not be deprived of pursuing his claim because he cannot afford to put up security for costs. [ 13 ] However, a corporate entity must be considered differently. A corporation is funded by its shareholders. If the shareholders wish the corporation to pursue litigation and the corporation cannot afford it, then the shareholders must contribute funds to allow the corporation to do so. Reference is to be had to the comments of Côté, J.A. in Calmont Leasing Ltd. v. 32262 B.C.

Ltd. , 2002 ABCA 290 , para. 8 , commenting upon the Plaintiff corporation’s allegations that it was impecunious and should not be required to post security for costs. In the case of a limited liability company, it is particularly important that there be sworn evidence that the Appellant or Plaintiff has no way to raise any kind of security of any description.

That is because an impecunious company with a cause of action is a one-way valve which allows money to flow from a successful lawsuit through the company to its shareholders or creditors (or both), but prevents any money from flowing in the opposite direction. That principle has not been altered by the new Rule 4.22(d). [ 14 ] Rule 4.22(

e) allows the Court to consider “any other matter which the Court considers appropriate”. The Plaintiff maintains that one or more of the Applicants have committed fraud and that the Court should consider that as an appropriate reason to deny security

for costs. The Court notes that fraud has been alleged but not proven. [15] The Applicants also recite s. 254 of the Alberta Business Corporations Act, R.S.A. 2000, c.B-9 as grounds for an Order forsecurity for costs. That

section reads: 254 In any action or other legal proceeding in which the Plaintiff is a body corporate, if it appears to the court or the application of aDefendant that the body corporate will be unable to pay the costs of a successful Defendant the court may order the body corporate tofurnish security for costs on any terms it thinks fit. [16] To my mind, s. 254 above sets a more stringent test for the Applicant than that set out in Rule 4.22(

a) and (b).

Section 254ABCA envisions the situation where the body corporate will be unable to pay costs. Rule 4.22 permits an Order for security for costswhere it is unlikely that the Plaintiff can pay costs. As the standard under Rule 4.22(

a) and (

b) is less onerous on the Applicant than s.254 ABCA, I will apply Rule 4.22. [17] The new Rule 4.22 has been considered by this Court in Attila Dogan Construction v. AMEC Americas Ltd. 2011 ABQB 175, [2011] A.J. No. 308 and in Autoweld Systems Ltd. v. CRC-Evans Pipeline International, Inc., 2011 ABQB 265 ,[2011] A.J. No. 460. Security for costs was awarded against the corporate Plaintiff in both of those cases.

In both of those cases,however, the Plaintiff did not carry on business in Alberta and had no assets in Alberta; that is not the case here, and is a materialdistinction. [18] To synthesize, each case where security for costs is sought must be considered on its own merits. Different considerationsapply where the Plaintiff is a corporation than when the Plaintiff is an individual. The onus is on the Applicant to make out a basis forsecurity for costs; otherwise there would be an application in almost every case.

In cases involving a corporate Plaintiff the requirementsof Rule 4.22 are less stringent than those of s. 254 of the Alberta Business Corporations Act. However, in considering such anapplication against a corporate Plaintiff the court should be mindful that a limited company can be a “one-way valve”, against whichthere may be no recourse at the end of the day. [19] On the evidence provided to me in this case, I am persuaded that it is not likely that the Plaintiff has sufficient exigible assetsor the ability to pay costs awards against it.

In such circumstances it is appropriate to award security for costs to the Applicants. I willaward such security only for the anticipated steps up to the completion of questioning. At that point, a further application may be made,if the Applicants consider it appropriate, and the Court can then look at the costs incurred to that point, the sufficiency of the securityordered below, and may consider the merits of the actions at that stage. [20] I am awarding security for costs in each Action in Column 3 of

Schedule “C” of the Rules of Court, as that appears toreasonably reflect the size of the two claims. I have reviewed pro forma Bills of Costs provided by the Applicants; to my mind theycontemplate a number of steps that do not appear warranted or likely to occur.

Further, estimates of the time required for questioning areexcessive. [21] In the result I direct that the Plaintiff post security for costs in favour of the Applicants Khangura, Lee, Tang, LongbowFinancial Corp., Greenfield Holdings Corp. and Greenfield Financial Planning Ltd. in each of the 2009 Action and the 2010 Action, inthe amount of $10,000 in each Action. I direct that the Plaintiff post security for costs in favour of the Applicants Gill and Dhaliwal inthe 2010 Action in the further amount of $10,000.

The security is to be deposited in cash with the Clerk of the Court within 45 days ofthe filing of the Order consequent on these Reasons; failing which the Applicants may apply to have the Actions dismissed against them. Heard on the 7th day of June, 2011. Dated at the City of Calgary, Alberta this 11th day of July, 2011.

R. J. Hall J.C.Q.B.A. Appearances: Emi R. Bossio and Edward W. Halt, Q.C. for the Plaintiff Josef G. A. Kruger, Q.C. for the Defendants Michael D. Mysak for the Third Party