Do All Metal Fabricating Ltd. v. Embury, 2013 ABQB 135

Court of Queen ’ s Bench of Alberta Citation: Do All Metal Fabricating Ltd. v. Embury, 2013 ABQB 135 Date: 20120301 Docket: 1201 07364 Registry: Calgary Between: Do All Metal Fabricating Ltd. Plaintiff - and - Ken Embury Defendant _______________________________________________________ Memorandum of Decision of J.B. Hanebury, Master in Chambers _______________________________________________________ [ 1 ] This is an application for

summary judgment on the guarantee of a debt owed by Tough Enough Drilling Limited. At issue is whether the guarantor can rely on Tough Enough’s defence of set off to defeat

summary judgment on his guarantee. FACTS [ 2 ] Mr. Embury is the director and operating mind of Tough Enough. Tough Enough ordered a rig from Do All Metal Fabricating Ltd. who assured Tough Enough that the delivery time was 3 ½ months.

[ 3 ] On those representations, Tough Enough agreed to purchase the rig and provided a deposit. It also entered into a contract with another company to provide drilling services which were to commence in October, 2011, or as soon as the rig was ready. [ 4 ] The rig was not delivered in October and Tough Enough, at its own expense, supplied labor assistance to Do All during October and subsequently, believing that the completion of the rig was imminent. [ 5 ] Further delays occurred. Finally the rig was to be ready for load out on January 3, 2012.

However Tough Enough was indebted to Do All and needed more time to pay. To satisfy Do All, on December 31, 2011, Mr. Embury signed a personal guarantee up to a maximum of $2 million of the indebtedness owed by Tough Enough to Do All. [ 6 ] Further promises and further delays occurred and the rig was finally loaded out on February 6, 2012, approximately 4 months after the original delivery date. [ 7 ] Tough Enough arranged for transportation of the rig, using 20 semi trucks to pick the rig up on February 6, 2012. After two trucks had been loaded and were in transport, Mr.

Embury was told that he had to sign two invoices or Do All would not allow the continued loading of the rig. As the trucks were there, he signed them. They contained additional handwritten wording which acknowledged that he had inspected the goods and that they were in accordance with specifications and that he agreed to the amount invoiced. [ 8 ] Mr. Embury says that he did not have an opportunity to inspect the rig nor was he qualified to do so.

He also states that while the rig was being loaded out he had a conversation with the representative of Do All who indicated that Tough Enough would be entitled to some “chargebacks” in relation to the agreement. [ 9 ] Numerous problems occurred in relation to the rig, not all of which need to be listed here. A safety audit found that it was in contravention of occupational health and safety regulations. There was a fast line sheave failure that resulted in downtime.

A welder who worked on the rig provided an e-mail to Tough Enough in March, 2012, in relation to the delays, the haste in construction and stated that the rig was released “incomplete”. As well an e-mail was received by Tough Enough from the electrical foreman for Do All who worked on the rig speaking of problems with its construction. Certifications necessary to operate the rig were to be included upon its delivery and were not included nor subsequently provided. [ 10 ] Do All has invoiced Tough Enough for a total of $7,732,239.26. Tough Enough paid Do All $5,094,336.45.

It withheld payment of $2,637,902.81 on the basis of the damage caused by the delay in delivery, the deficiencies, the missing certifications, and the resulting loss to Tough Enough, details of which were provided. Mr. Embury’s evidence is that Tough Enough’s damages exceed $5,000.000.00. ISSUE [ 11 ] At issue in this case is the question of whether the wording in the guarantee permits Do All to obtain

summary judgment against Mr. Embury despite the defences, including set off, that may be available to the debtor, Tough Enough. ANALYSIS [ 12 ] The test on an application for

summary judgment is not in dispute. The Court must be satisfied that there is no genuine issue for trial. The bar on a motion for

summary judgment is high: Canada (Attorney General) v. Lameman , [2008] S.C.J. No 14, 2008 SCC 14 ; 732311 Alberta Ltd. v. Paradise Bay Spa & Tub Warehouse Inc. , [2003] A.J. No. 1502, para. 10 - 12 .

[13] Other terminology has also been used. It must be plain and obvious, or clear or beyond a real doubt that a

summarydetermination of the matter should be made: Tottrup v. Clearwater (Municipal District 99), [2006] A.J. No. 1532, 2006 ABCA 380,para. 10. [14] Do All relies on the guarantee and its wording to argue that the debt is owed and there is no genuine issue for trial. [15] Mr. Embury responds that he has two defences to the guarantee. First, the company was placed in financial difficulty as aresult of Do All’s failure to provide the rig on time and its failure to provide a fully functioning rig.

Second, he is entitled to claim set offagainst the amount outstanding as a result of the losses suffered by the company due to the problems with the rig. [16] Do All filed no affidavit evidence contesting the veracity of Mr Embury’s list of Tough Enough’s concerns and complaints.

Itsays that Do All can’t complain about anything that happened before the execution of the guarantee; that there is no evidence of thefinancial ruin of the company; and, set off is not a defence as the wording of the guarantee entitles it to judgment regardless. [17] As I have concluded that this application can be decided on the sole question of whether it is plain and obvious that there is nodefence of set off available to Mr.

Embury, it is unnecessary to consider his argument that the actions of Do All resulted in the financialruin of Tough Enough thereby releasing him from his guarantee. [18] The liability of a guarantor when the principal debtor has defences to the debt has been considered in a number of cases. [19] In Meridian Developments Ltd. v. Nu-West Group Ltd., 1984 ABCA 75, the Court stated that, prima facie, the guarantor’sobligations are co-extensive with those of the principal debtor.

However the terms of the guarantee may continue the guarantor’sobligation even when the creditor cannot pursue the debtor to collect the debt. See as well: First Investment Corp. v. Mehra, (1986) (AB KB), 71 A.R. 140 (Master). [20] The debtor can raise all of the defences that the principal debtor can raise both legal and equitable, including the right of setoff: 420093 B.C. Ltd. v. Bank of Montreal, 1995 ABCA 328[1]. [21] However, those defences can be rendered unavailable to the guarantor as a result of the wording in the guarantee.

TheSupreme Court of Canada noted that most guarantees are contracts of adhesion with the result that the guarantor has little if any ability tonegotiate terms. Therefore, particularly in the case of accommodation sureties, the court has construed guarantees strictly and beenvigilant in limiting guarantor’s liability to the precise terms of the guarantee. The words used to contract out of the protections usuallyafforded to a guarantor must be clear and any doubt or ambiguity is to be construed in favour of the guarantor: Manulife Bank ofCanada v.

Conlin, (SCC), [1996] 3 S.C.R. 415., para. 4, 15. [22] For example, a guarantor may be able to claim that he has been released from his guarantee when the creditor’s conductcaused the default of the debtor. A general clause in the guarantee permitting the lender to deal with the company as it saw fit was foundinsufficient to remove that defence and the creditor could not enforce the guarantee: Bank of Montreal v. Wilder, (SCC),[1986] 2 S.C.R. 551, para. 36. See as well: Jens Hans Investments Co. v.

Bridger, 2004 BCCA 340. [23] In the case of set off, if a guarantee seeks to remove the right to claim that defence, the words themselves or the implication ofthe words used must be clear: KKBL No. 348 Ventures Ltd. v. Tech Park Corp., 2003 BCSC 164, para. 12. [24] Do All relies on the wording found in paragraphs 9 and 7 of the guarantee to argue it is entitled to judgment. [25] In this case paragraph 9 of the guarantee provides that Mr.

Embury must accept any account stated by Do All as “conclusiveevidence of the amount which at the date of the account… is due by [Tough Enough] to [Do All] or remains unpaid by [Tough Enough]to [Do All].”

[26] Those words are not so clear and unambiguous that it is plain and obvious that set off cannot be raised as a defence. Anargument of set off does not necessarily dispute the original invoices, but claims a deduction against that amount. This was noted inCactus Restaurants Ltd. v.

Morison, 2010 BCCA 458 , 2010 B.C.C.A. 458, where the British Columbia Court of Appeal saidat paragraph 11 that an “equitable set-off, as distinct from a procedural set-off, is a substantive right held by a debtor that constitutes a charge against a chose in action for his debt.” The Court then quoted from the text Set-Off, 2nd ed. (Oxford: Clarendon Press, 1996), S.R.Derham, para. 56-58 where the author noted that in earlier times equitable set-off was only a procedural defence and it had no effect untiljudgment.

This situation has changed: ..However, a characteristic of the form of equitable set-off under discussion which has emerged in recent years is that it operates as atrue, or substantive, defence...It may be set up by a person indebted to another, not merely as a means of preventing that other personfrom obtaining judgment, but also as an immediate answer to his liability to pay the debt otherwise due... [27] While paragraph 9 acknowledges the amount of the invoices, it does not clearly or by clear implication remove the right to claimequitable set-off as a defence against that debt. [28] I turn next to paragraph 7 of the guarantee.

It provides: Any sum which may not be recoverable from the undersigned on the footing of the guarantee, whether for the reasons set out in theprevious sentence [which do not include set-off], or for any other reason, similar or not, shall be recoverable from the undersigned as sole or principal debtor in respect of that sum, and shall be paid to the lender on demand with interest and accessories[2]. [29] Those general words seek to change the nature of the contract from a guarantee to an indemnity in certain instances.

However,again, they do not refer specifically or by clear implication to set off as a circumstance whereby the guarantor waives his defences as aguarantor and becomes instead a principal debtor. [30] The guarantee signed by Mr. Embury does not specifically or by clear implication waive any right to rely on the defence of setoff. Therefore, in my view, the wording is insufficiently precise for this Court to say that there is no genuine issue for trial as to whetherMr. Embury can rely on the defence of set off to avoid liability for the amount claimed. [31] The defendant is entitled to its costs.

Heard on the 11th day of December, 2012. Dated at the City of Calgary, Alberta this 1st day of March, 2013.

J.B. Hanebury M.C.C.Q.B.A. Appearances: Melissa N. Burkett Osler, Hoskin & Harcourt LLP for the Plaintiff / Applicant Malinda Yuen Davis LLP for the Defendant / Respondent [1] See: contra, Cormode & Dickson Construction

(1983) Ltd. v. Harrison , 1999 ABQB 538 (Master), which does not refer to the Court of Appeal decision in 420093 B.C. and, unlike the Court of Appeal, is not binding on this court. [2] Accessories is the word used.