FastTrack Technologies Inc. v. 104 Street Law Office Management Ltd., 2012 ABQB 639

Court of Queen ’ s Bench of Alberta Citation: FastTrack Technologies Inc. v. 104 Street Law Office Management Ltd., 2012 ABQB 639 Date: 20121017 Docket: 1103 06564 Registry: Edmonton Between: FastTrack Technologies Inc. Plaintiff (Respondent) - and - 104 Street Law Office Management Ltd., Roy Nickerson, Trudy Nickerson, Westering Heights Estates Ltd., KSA Holdings Inc., David Mercer, Paul Foisy, and Mariana Foisy Defendants (Applicants) _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice J.H.

Goss _______________________________________________________ Introduction [ 1 ] This is an application under Rule 3.68 to strike the Statement of Claim filed herein on the grounds that it is an abuse of process and/or frivolous, irrelevant or improper. The Applicants also request an order that the certificate of lis pendens filed against the

lands in this action be discharged. [ 2 ] The Statement of Claim was filed on April 21, 2011. It describes prior litigation (Prior Action) between Castledowns Law Office Management Ltd. (Castledowns), 1131102 Alberta Ltd. (Vendor) and FastTrack Technologies Inc.(FastTrack) and events subsequently occurring, including a transfer of land from the Vendor to Castledowns and thereafter from Castledowns to 104 Street Law Office Management Ltd. (104 Street).

The Prior Action arises out of commercial real estate contracts entered into by the Vendor in 2006 with both FastTrack and Castledowns regarding lands described as Plan 1750R, Block 26, Lots 3 and 4 excepting thereout: the most westerly 1.75 feet in perpendicular width throughout of Lots 3 and 4, excepting thereout all mines and minerals (Property). Evidence Considered [ 3 ] Counsel for FastTrack argues that the only facts which the Court can consider in this application are the pleadings filed in this action (to date, only the Statement of Claim), along with any prior court decisions.

The Applicants did not comply with Rule 6.11(1) (

f) by requesting, on notice, the Court ’ s permission to submit evidence taken in another action. [ 4 ] The Applicants submit that all of the relevant facts are contained in previous court decisions in the Prior Action. I have relied upon the facts as described in those decisions. The Prior Action [ 5 ] The sequence of events in the Prior Action is described by the Court of Appeal in Castledowns Law Office Management Ltd v FastTrack Technologies Inc , 2012 ABCA 219 . [ 6 ] The Vendor agreed to sell an office building to FastTrack, but then accepted a higher offer from Castledowns.

FastTrack’s lawyer rejected the Vendor’s attempts to terminate its agreement. The Vendor then informed Castledowns that it would not sell the building to it. Castledowns sued the Vendor for specific performance and FastTrack for the removal of the caveat it had filed to protect its interest in the Property. FastTrack defended and counterclaimed for interference with contractual relations and wrongful filing of caveats, seeking damages and costs. [ 7 ] All actions were consolidated and set down for trial. FastTrack and the Vendor entered into a standstill agreement.

An order was obtained which severed liability from damages for the purpose of trial, and the former was tried in May 2007. The trial judge granted Castledown's claim for specific performance, directed that FastTrack's caveat be discharged, and dismissed all other claims. [ 8 ] FastTrack appealed and unsuccessfully applied in July 2007 for a stay of the trial judgment pending appeal. At that time, all parties knew that renovations would be carried out in anticipation of a law firm's occupancy. On August 14, 2007, the Vendor transferred the Property to Castledowns and received the purchase price.

All parties were aware of this at the time. A mortgage with a face value of approximately $1.7 million was then registered on title by Servus Credit Union Ltd. [ 9 ] On January 8, 2008, 104 Street was incorporated. It has the same five directors and the same registered office as Castledowns. The shareholders of both companies were either identical or related to one another. On May 20, 2008, a second mortgage, with a face value of $1.2 million, was registered against the title to the property in favour of the five shareholders of 104 Street, as second mortgagees.

On June 25, 2008, Castledowns transferred the property to 104 Street. FastTrack knew of this transfer no later than November of 2008. [ 10 ] The Court of Appeal allowed FastTrack's appeal from the trial judge's decision on liability on April 23, 2009. The order of specific performance in favour of Castledowns was set aside and the matter remitted to Queen’s Bench for resolution of outstanding issues. The Supreme Court of Canada dismissed Castledowns' leave to appeal application on January 28, 2010.

[ 11 ] On July 21, 2010, FastTrack advised that it would be seeking to amend its counterclaim for damages. It sought to plead events which had occurred since the first trial, to add a claim for specific performance and to have the Property transferred to it.

FastTrack also wished to add a number of new parties to the action, including 104 Street and the second mortgagees, and to add claims for wrongful interference with contractual relations, constructive trust and unjust enrichment against the proposed new parties. [ 12 ] After filing its amendment application, but before this Court heard that application, FastTrack filed (on April 21, 2011) the Statement of Claim in this action which is similar to the amendments which it sought to make in the counterclaim in the Prior Action. [ 13 ] On November 1, 2011, this Court dismissed the application to amend in the Prior Action on the basis that Castledowns had established non-compensable prejudice because FastTrack had not applied to amend until four years after trial of the action and third parties had acquired intervening interests.

The parties had properly relied on court decisions, court orders and Land Titles Registry proceedings in making decisions throughout that period. Further, the parties had relied on the fact that FastTrack's original counterclaim was for monetary compensation only - a remedy which would not interfere with their ability to deal with the land as they did. This Court rejected the argument that FastTrack's failure to obtain a stay of the trial decision pending appeal precluded it from seeking to amend its pleadings earlier. [ 14 ] The Court of Appeal upheld that decision.

Its reasons provide important context for this application. T he Court of Appeal rejected FastTrack ’ s argument that the only relevant prejudice was prejudice to a respondent ’ s ability to defend its case. It also rejected the argument that the parties would have understood that FastTrack was earlier claiming the Property itself, given FastTrack's caveat and the Vendor's offer to transfer title to whichever party the judge determined was entitled to it.

FastTrack had argued that the trial judge also recognized that it was claiming to acquire the Property in the first sentence of his trial decision: "[t]his action involves competing claims for specific performance..." [ 15 ] The Court of Appeal noted that FastTrack could not have advanced a claim for specific performance against Castledowns when the initial counterclaim was issued, because title to the Property was not then in Castledowns' name. It became possible only at the conclusion of the trial in 2007 when the Property was transferred into Castledowns' name.

Similarly, FastTrack could not have claimed an order that 104 Street Law transfer the Property to it before May 2008 when 104 Street Law acquired title.

The Court of Appeal held, however, that these facts did not explain why FastTrack delayed its application to amend its counterclaim until November 2011. [ 16 ] The Court of Appeal rejected FastTrack's reasoning that once it had lost at trial it had no reasonable hope of successfully applying to add a claim for specific performance to its pleadings, even though it anticipated a successful appeal. [ 17 ] It also rejected FastTrack ’ s argument that a new statement of claim seeking specific performance would have been precluded by issue estoppel.

The Court held that while Castledowns and other defendants could have argued issue estoppel, ultimately that argument would not have been successful at a re-trial because FastTrack succeeded in its appeal of the original trial decision. [ 18 ] The Court of Appeal concluded that none of these arguments addressed the delay in commencing a fresh action for specific performance from the time of the appeal decision in 2009 until April 2011. [ 19 ] As for prejudice, the Court of Appeal stated ( 2012 ABCA 219 ): 26 Prejudice can also arise where third parties have acquired intervening interests in property, which the applicant wishes later to claim directly by amending its pleadings.

An order at the next trial that the land must be transferred to FastTrack would involve undoing Castledowns' purchase of the land from the vendor, recovery of the monies it paid the vendor, payout or assumption of the Servus mortgage, and evaluation of the renovations to the lands.

These would be difficult, if not impossible to achieve even assuming that the corporate veil could somehow be pierced to allow recovery against the proposed individual shareholders of 104 Street Law. 27 FastTrack argued that it has an interest in the land which has priority over any interest that Castledowns and then 104 Street Law Office may have acquired as purchasers. It acknowledges establishing this priority would depend on proving fraud pursuant to s 60 of the Land Titles Act , RSA 2000, c L-4, or the Fraudulent Conveyances Act (1570) , 13 Eliz 1, c 5, sometimes called the Statute of Elizabeth .

To rely on these avenues to relief, FastTrack would have to establish that the land was conveyed to Castledowns with the intent of defrauding FastTrack and was not otherwise bona fide , a difficult proposition to maintain in the face of the knowledge that the transfer was ordered by the Court of Queen's Bench at trial.

[ 20 ] Although not necessary in light of its conclusion on prejudice, the Court of Appeal opined that laches would have acted to bar the amendments, independently of whether any limitation period had expired, noting that laches and delay have always been an impediment to the grant of equitable remedies such as specific performance. The Court concluded that this case and the pending retrial are about damages alone, despite the ultimate conclusion that FastTrack, rather than Castledowns, was entitled to purchase the Property in 2006.

Pleadings Compared [ 21 ] The New Statement of Claim contains the same parties, facts and relief as the amended counterclaim which FastTrack sought to file in the Prior Action, with four exceptions: 1) the amendments in the Prior Action sought to add the Vendor as a defendant whereas the new Statement of Claim does not do so; 2) Castledowns was named as a defendant (by counterclaim) in the Prior Action while the new Statement of Claim does not do so; 3) the amendments in the Prior Action sought specific performance of the original contract between FastTrack and the Vendor; the new Statement of Claim does seek that relief, but there was a claim against the Vendor in a third claim which may be extant; 4) the amendments in the Prior Action listed “ financing and preparation costs incurred in the process of obtaining financing to complete the First Agreement ” as a particular of damage (para 40(g)); however, the prayer for relief in the Statement of Claim claims the same amounts as in the refused counterclaim amendments. [ 22 ] The Statement of Claim also includes a request that it be consolidated or tried consecutively with the Prior Action.

Parties ’ Positions [ 23 ] The Applicants argue that the Statement of Claim is materially identical to the refused counterclaim amendments sought by FastTrack in the Prior Action and if allowed to stand it would permit FastTrack to circumvent the refusal by the Court to allow FastTrack to amend its counterclaim in the Prior Action. Essentially, FastTrack is attempting to do indirectly what it has been refused leave to do directly, which amounts to an abuse of process.

The sale from the Vendor to Castledowns was arms-length and the mortgage was an arms-length transaction between Castledowns and Servus. [ 24 ] The Applicants also argue that where a claim is clearly doomed to failure, it is frivolous, irrelevant or improper and it may be struck pursuant to Rule 3.68(2)(

c) and under the Court ’ s inherent jurisdiction to prevent abuse of its process. The Statement of Claim is hopeless beyond doubt in that it is out of time, the action not having been brought within two years of the date when FastTrack knew the Property was transferred. [ 25 ] Counsel for FastTrack submits that a stringent test applies on an application to strike out a claim.

FastTrack notes that the order for specific performance in favor of Castledowns was undermined on appeal, and argues that the transfer from Castledowns to 104 Street was not an arms-length transaction; despite a $1.2 million encumbrance for improvements, the purchase price rose only $1,000 from the Castledowns purchase to the 104 Street purchase.

FastTrack suggests that the sale from Castledowns to 104 Street might have been part of a strategy to put the Property out of the reach of FastTrack, whether in relation to specific performance or damages. 104 Street was aware of the risk that the appeal would be granted when it purchased the Property. FastTrack argues that it could not have raised these claims until the Court of Appeal decision in April 2009.

[ 26 ] Further, FastTrack notes that the Court of Appeal in its 2012 decision did not decide the limitations issue. The two sets of litigation are independent in that the current one deals with matters occurring since the date of trial. FastTrack could not have successfully filed pleadings claiming an interest in the Property during the appeal process, regardless of when it learned that Castledowns had transferred the land to 104 Street, because of the dismissal of the stay application. The Statement of Claim goes beyond an in rem remedy and also includes a claim for damages.

It was the Vendor who entered into the backup offer with Castledowns and it was Castledowns that initiated litigation which it ultimately lost on appeal; FastTrack should not be penalized for a situation it did not cause. [ 27 ] FastTrack argues that the application to amend pleadings in the Prior Action was rejected due to a procedural hurdle based on prejudice to the parties, not the merits of the requested amendments. Therefore, the new Statement of Claim does not attempt to re- litigate matters already considered by the court.

The Court of Appeal expressly stated in its decision at para 11: “ No aspect of that separate action is before this court ” . [ 28 ] FastTrack also argues that the Court must assume that the pleadings in the Statement of Claim are true and capable of being proven at trial. The pleadings clearly disclose proper causes of action. The Applicants are relying upon defences that have not yet been proven, judicially considered or determined. The claim must go to trial for full determination.

Rule 3.68 [ 29 ] Rule 3.68 provides in part: 3.68(1) If the circumstances warrant and a condition under subrule (2) applies, the Court may order one or more of the following: (

a) that all or any part of a claim or defence be struck out....

(2) The conditions for the order are one or more of the following: ... (

c) a commencement document or pleading is frivolous, irrelevant or improper; (

d) a commencement document or pleading constitutes an abuse of process ... Law Abuse of Process [ 30 ] The Supreme Court of Canada held in Toronto (City) v Canadian Union of Public Employees (CUPE), Local 79 , 2003 SCC 63 , [2003] 3 SCR 77 at para 36 that unreasonable delay causing serious prejudice can amount to an abuse of process.

The Court explained: 37 ...Canadian courts have applied the doctrine of abuse of process to preclude relitigation in circumstances where the strict requirements of issue estoppel (typically the privity/mutuality requirements) are not met, but where allowing the litigation to proceed would nonetheless violate such principles as judicial economy, consistency, finality and the integrity of the administration of justice. ... 38 ...The policy grounds supporting abuse of process by relitigation are the same as the essential policy grounds supporting issue estoppel...The two policy grounds, namely, that there be an end to litigation and that no one should be twice vexed by the same cause,

have been cited as policies in the application of abuse of process by relitigation.

Other policy grounds have also been cited, namely, to preserve the courts' and the litigants' resources, to uphold the integrity of the legal system in order to avoid inconsistent results, and to protect the principle of finality so crucial to the proper administration of justice ... 42 The attraction of the doctrine of abuse of process is that it is unencumbered by the specific requirements of res judicata while offering the discretion to prevent relitigation, essentially for the purpose of preserving the integrity of the court's process... [ 31 ] The Alberta Court of Appeal noted in Reece v Edmonton (City) , 2011 ABCA 238 , 513 AR 199 at paras 16 and 17 that abuses of process can arise in many different contexts, and there is no universal test or statement of law that encompasses all of the examples.

It held that the courts have a residual discretion to prevent re-litigation of issues even when the preconditions for issue estoppel and res judicata are not present, enabling the court to prevent the misuse of its procedure in a way that would be manifestly unfair to a party to the litigation before it or would in some other way bring the administration of justice into disrepute. [ 32 ] The Court of Appeal further clarified in Calgary (City) v Alberta (Human Rights and Citizenship Commission) , 2011 ABCA 65 , 505 AR 115 at para 33 that there is no definitive test for finding an abuse of process and the focus of the analysis should be less on the interests or motives of the individual parties, and more on the integrity of the administration of justice.

The Court concluded in that case: 42 ...it is equally unacceptable to allow an attack on the previous decisions, by allowing proceedings that assume the possibility of "accommodation" that is inconsistent with the previous decisions .

Considerations of economy, consistency, finality and the integrity of the system of administration of justice require that this long running dispute be brought to an end. [ 33 ] In Misikew Cree First Nation v Canada , 2004 ABCA 279 , 354 AR 365 the Court of Appeal found that a decision earlier in the litigation disallowing amendments to a statement of claim on the basis that it contained new causes of action which were statute barred, applied to any later attempt to file a reply incorporating those new causes of action: 18 ...The appellants cannot do indirectly through a reply what has already been disallowed as amendments to their statement of claim.

A review of the disallowed amendments and the reply show that they are virtually identical. Frivolous, Irrelevant or Improper Pleading [ 34 ] The overall principles which the court must operate under in considering such applications were summarized by Fradsham P.C.J. in Alberta Rules of Court Annotated 2009 (Scarborough, Ont.: Carswell, 2008) at 197-98:

(1) It is well settled that the impugned pleadings must be read generously;

(2) The pleading will not be struck out if the flaws in it are capable of amendment.

(3) A pleading will not be struck out for want of a cause of action unless the flaw is plain and obvious and beyond doubt.

(4) The claim advanced must be hopeless to be struck out.

(5) The Statement of Claim should be struck out on a question of law only if it is a pure question of law requiring no evidence or no further pleadings.

(6) Care must be exercised in striking out part of a Statement of Claim only.

(7) Facts pleaded must be taken to be true.

(8) The Court should consider allowing an amendment before an order for striking... [35] In determining whether a claim is hopeless on the facts and therefore doomed to failure, the test is whether it is “plain andobvious that the action cannot succeed” (SE v Law Society of Alberta (1995), 1995 ABCA 429 , 174 AR 379, [1995] AJ No1021 (CA) at para 12; German v Major (1985), 1985 ABCA 176 , 62 AR 2, [1985] AJ No 1055 at para 14) or “beyond doubt”(Dumont v Canada (Attorney General), (SCC), [1990] 1 SCR 279, [1990] SCJ No 17 at para 2).

Kerans J.A. stated inGerman v Major: 61 I acknowledge that cases often should be permitted to go to trial where there are disputed questions of law.

On the other hand, where,as here, the question of law can be determined without a factual setting, the question can and should be determined before trial. [36] In considering whether it is plain and obvious or beyond doubt that a plaintiff’s claim is hopeless on the facts because of theexpiry of a limitation period the Alberta Court of Appeal held in Tottrup v Alberta (Minister of Environmental Protection), 2000 ABCA121, 255 AR 204: 8 ... the Court must assume that the allegations of fact made by the plaintiff are true. The Court then determines whether those factsdisclose a cause of action in law.

The test set out by the Supreme Court in Hunt v. Carey Canada Inc., (SCC), [1990] 2S.C.R. 959 at 980 is whether it is " ... 'plain and obvious' that the plaintiff's statement of claim discloses no reasonable cause of action."Caution is required before concluding that the plaintiff has no chance of success. The plaintiff is entitled to a broad reading of thepleadings. In my view, this is particularly important where a question arises as to the expiry of a limitation period...

Analysis [37] In my view, there is no logical reason why the principle in Mikisew against doing indirectly through a reply what has alreadybeen disallowed as amendments to a statement of claim would not apply equally to the causes of action in this Statement Claim where adecision has previously been made in the Prior Action to disallow amendments to the counterclaim therein involving the sameindividuals, entities, facts and causes of action. [38] Clearly, unreasonable delay causing serious prejudice can amount to an abuse of process.

That serious prejudice, resultingfrom delay and intervening events, was the reason the requested amendments were denied in the Prior Action. Those concerns andconclusions are equally operative within these new pleadings. [39] I find that to allow the Statement of Claim filed in this action to proceed would be inconsistent with the decision of the Courtof Appeal in the Prior Action and would violate the principles of judicial economy, consistency, finality and the integrity of theadministration of justice.

It would be a misuse of the judicial system and manifestly unfair to the parties to the earlier decision, bringingthe administration of justice into disrepute. The Court has the power and the duty to prevent such an abuse of process. [40] The Statement of Claim describes the transfer of the Property from Castledowns to 104 Street taking place on June 25, 2008.FastTrack knew, no later than November 2008, that the transfer to 104 Street had taken place. Under s. 3(1)(

a) of the Limitations Act,RSA 2000, c L-12 , a claimant has two years from the date the claimant knew of the injury within which to seek redress in a civil judicialproceeding. [41] FastTrack argues that its cause of action arose after that on one of two possible dates on which rulings of the higher courts inthe Prior Action determined that FastTrack was the party entitled to purchase the Property in 2006 and no further appeal of thatdetermination would be heard. This argument cannot succeed. Our Court of Appeal held in Laasch v Turenne, 2012 ABCA 32, 522 AR

168 at para 24 that discoverability in Alberta law generally refers to facts, not law; error, ignorance of the law or uncertainty of law does not postpone a limitation period. Pending related proceedings do not extend limitation periods. The Court of Appeal in the Prior Action also rejected a similar argument. [ 42 ] By April 2011 the limitation period had expired. The defendants are entitled to immunity from a claim raising this cause of action on these facts.

Therefore, this action is improper. [ 43 ] As well, s. 10 of the Limitations Act provides that a court may grant a defendant immunity from liability under the equitable doctrines of laches, notwithstanding that the defendant would not be entitled to immunity under the Act . The Court of Appeal made it clear in relation to the proposed amendments in the Prior Action that it would have found that laches barred the amendments in any event. That reasoning compels the same result here. Conclusion [ 44 ] The application to strike the Statement of Claim filed is granted.

The certificate of lis pendens registered against the Property shall be immediately discharged. Costs [ 45 ] The parties may speak to costs within 60 days of this decision. Heard on the 21 st day of September, 2012. Dated at the City of Edmonton, Alberta this 17 th day of October, 2012. J.H. Goss J.C.Q.B.A. Appearances: Joseph A. Caruk for the Plaintiff Elizabeth M. MacInnis, Q.C. Emmanuel Mirth

for the Defendants