Arhum & Huzaifa Enterprises Ltd v., 2013 ABQB 333

Court of Queen ’ s Bench of Alberta Citation: Arhum & Huzaifa Enterprises Ltd v. 1231993 Alberta Ltd, 2013 ABQB 333 Date: 20130607 Docket: 1203 01806 Registry: Edmonton Between: Arhum & Huzaifa Enterprises Ltd, Nadeem Khaleeq, Irfan Javed, and Noman Javed Plaintiffs/Respondents - and - 1231993 Alberta Ltd, Ruvendra Rajoo, Majeed Abdul Satar and John Doe Defendants/Applicants _______________________________________________________ Reasons for Judgment on Application for Security for Costs of the Honourable Mr.

Justice Donald Lee _______________________________________________________ Introduction [ 1 ] The Defendants (“Applicants”) in this action have made an application seeking an Order of this Court directing the Plaintiffs (“Respondents”) to post security for costs under the provisions of the Alberta Rules of Court , Alta Reg 124/2010, r 4.22. Background Facts

[ 2 ] The Corporate Defendant/Applicant, 1231993 Alberta Ltd., is an Alberta Corporation (“1231993 Alberta Ltd.”) and the owner of the lands and premises in Two Hills, Alberta, municipally described as Plan 8921504, Block 21, Lot B, excepting thereout all mines and minerals (“the Lands”). The Defendants, Ruvendra Rajoo (“2nd Applicant”) and Majeed Abdul Satar (“3rd Applicant”) are directors of 1231993 Alberta Ltd. [ 3 ] The Corporate Plaintiff/Respondent, Arhum & Huzaifa Enterprises Ltd, is an Alberta Corporation (“A & H Enterprises Ltd”), recently revived on February 5th, 2013.

Nadeem Khaleeq (or “2nd Respondent”) and Irfan Javed (or “3rd Respondent”) are both directors and shareholders of A & H Enterprises Ltd. The 2nd Respondent is employed as an instrument technician at RJV, an oil and gas company. The 3rd Respondent is currently a taxi driver with “Viper Taxi” in Lloydminster, AB/SK.

Noman Javed (or “4th Respondent”) is a brother of the second plaintiff/respondent and worked at the Esso gas station business of A & H Enterprises Ltd. [ 4 ] On August 26, 2009, 1231993 Alberta Ltd., as the Vendor, entered into an “Agreement for Sale” with A & H Enterprises Ltd., the Purchaser, for the purchase of the Lands, described as “lands and premises” in the agreement to include the operation of the Esso gas station located on the Lands, (“Agreement #1”) at the purchase price of $400,000 (four hundred thousand dollars).

Under the agreement, the purchase price was to be paid by the Purchaser to the Vendor on the first day of each month in “equal consecutive monthly installments” of $10,000 (ten thousand dollars) starting from December 2009 to March 2013, when the full balance of principal and other charges was anticipated to become due and payable.

Under the terms of Agreement #1, it was agreed by both parties that in the event of the purchaser’s “default in any payment” to the vendor and the “Vendor retakes possession of the Lands and Premises, the Vendor shall reimburse to the Purchaser 60% of the payments made by the Purchaser to the Vendor.” [ 5 ] A & H Enterprises Ltd. took possession of the Lands on or about August 26, 2009 and apparently, made some renovations to the property before making the first monthly payment of $10,000 on December 1, 2009 under Agreement #1.

A & H Enterprises Ltd. failed to make any further payments after this under Agreement #1. [ 6 ] On February 18, 2010, A & H Enterprises Ltd. entered into a second “Agreement for Sale” with 1231993 Alberta Ltd. (“Agreement #2”) in respect of the same property at the purchase price of $450,000 (four hundred and fifty thousand dollars). The monthly installments to be paid by A & H Enterprises Ltd. was revised to enable it pay a lesser amount of $5000 (five thousand dollars) from March 2010 to February 2018.

Agreement #2 includes the provision that in the event of the purchaser’s “default in any payment” to the vendor and the “Vendor retakes possession of the Lands and Premises, the Vendor shall reimburse to the Purchaser 50% of the payments made by the Purchaser to the Vendor.” [ 7 ] Between March 1, 2010 and May 1, 2010, A & H Enterprises Ltd. made three payments under Agreement #2, which totalled $15,000 (fifteen thousand dollars).

Although A & H Enterprises Ltd. initially made the June 2010 monthly installment payment, it was refunded on June 15, 2010 by 1231993 Alberta Ltd. at the request of A & H Enterprises Ltd. which acknowledged that the refund “would constitute a default of payment under the terms of” Agreement #2.

Thereafter, A & H Enterprises Ltd. failed to make any further payments under the agreement. [ 8 ] On June 15, 2010, the 3rd Applicant (Majeed Satar) and the 4th Respondent (Noman Javed) were involved in an oral altercation for which the 3rd Applicant was criminally charged, and in respect of which he subsequently entered a Peace Bond for one year. [ 9 ] On July 2, 2010, a final Notice of Default was served on A & H Enterprises Ltd. that Agreement #2 would be declared “null and void within 30 days unless [it] rectified its default in payment.” On August 5, 2010, A & H Enterprises Ltd. was notified that Agreement #2 was “null and void,” that 1231993 Alberta Ltd. would be exercising its right to repossess, and A & H Enterprises Ltd. should “immediately remove its inventory and vacate the Lands and Premises.” [ 10 ] The Corporate Applicant, 1231993 Alberta Ltd. retook possession of the Lands, either in August 2010 (as alleged by Respondents) or October 2010 (as alleged by Applicants).

And retained all the monies paid by A & H Enterprises Ltd., the Corporate Plaintiff/Respondent, as monies owed under the two agreements. [ 11 ] In the within action, A & H Enterprises Ltd., the 2nd Respondent and the 3rd Respondent have sued for, inter alia , recission

of the Agreements, a declaration of equitable interest in the Lands, reimbursement of the 50 - 60% of the $65,000 paid towards the purchase under the terms of the two agreements, lost revenue ($1,000,000 plus interest), missing inventory, monies owed to creditors ($350,000 plus interest) and punitive damages for civil conspiracy.

The 4th Respondent claims general and punitive damages for assault against the 3rd Applicant. [ 12 ] 1231993 Alberta Ltd. filed a counterclaim against A & H Enterprises Ltd., the 2nd Respondent and the 3rd Respondent for, inter alia , breach of contract ($453,219.58), damages for out-of-pocket expenses for inventory removal and cleanup of the Lands, a declaration that the defendants by counterclaim hold no beneficial, equitable or legal interest in the Lands and an Order of this Court discharging the caveat registered on title of the Lands.

Issue [ 13 ] The main issue in this application is whether it is just and reasonable to issue an Order for Security for Costs against the Plaintiffs/Defendants by Counterclaim in this matter?

Law [ 14 ] The Business Corporations Act , RSA 2000, c B-9, s 254 provides: In any action or other legal proceeding in which the plaintiff is a body corporate, if it appears to the court on the application of a defendant that the body corporate will be unable to pay the costs of a successful defendant, the court may order the body corporate to furnish security for costs on any terms it thinks fit. [ 15 ] Rule 4.22 of the Alberta Rules of Court provides that: 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. [ 16 ] I turn to consider the parties’ arguments in relation to each of these factors, and followed by my analytical comments respectively. Discussion (

a) Likelihood of enforcing the order or judgment against assets in Alberta [ 17 ] The Applicants submit that the evidence before this Court is that A & H Enterprises Ltd has no assets in Alberta and was set up, primarily, to operate the gas station business. And since the termination of Agreement #2, it has never conducted any other business.

They also contend that none of the individual Respondents has provided any evidence of their assets in Alberta. The 3rd Respondent, Irfan Javed and the 4th Respondent, Noman Javed are frequently away from Canada to Pakistan, their home country, on prolonged visits; and whenever they are in Canada, reside with another brother in Lloydminster. [ 18 ] The Respondents acknowledge that it is not likely that an order or judgment would be enforceable against the corporate Respondent, A & H Enterprises Ltd.

However, this should not defeat its meritorious claim since the evidence before this Court is that the Applicants were arguably responsible for the impecuniousity, after the Respondents had expended “money and sweat” on developing the Lands and buildings thereon. Notwithstanding, the individuals are not judgment proof, based on the evidence.

They are willing to sign and deposit with this Court undertakings making them personally liable for costs awarded against the corporate Respondent: 590863 Alberta Ltd v Deloitte and Touche Inc , 2012 ABQB 98 at para 32 , 540 AR 1 (Alta Master) [ 590863 Alberta Ltd ]. [ 19 ] The absence of clear evidence as to the assets of both the corporate and individual Respondents in this application weighs in favour of the grant of a security for costs order. (

b) Ability of the respondent to pay the costs award [ 20 ] The Applicants contend that A & H Enterprises Ltd, the corporate Respondent has provided no evidence as to its ability to pay costs. While the Noman Javed led no evidence at all on this issue, Nadeem Khalleq and Irfan Javed simply deposed that they are employed and “should be” in the position to pay costs by the time this matter goes to trial.

They argue 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”: Attila Dogan Construction v AMEC Americas Limited , 2011 ABQB 175 at para 13 , 504 AR 295, Wittmann CJQB [ Attila Dogan ]. [ 21 ] The Respondents submit that “there is no reason to believe that [they] would not, eventually, be able to pay any costs award.” They point to the depositions regarding their employment status. [ 22 ] Given the magnitude of the Respondents’ claims as outlined in their Statement of Claim, I am not persuaded that the anticipated net incomes of the individual Respondents, presently employed as an instrument technician and a taxi driver, would be sufficient to pay potentially substantial costs award in the within action, if ordered.

More worrisome is the situation of the Corporate Respondent which, by its own admission, is insolvent: Respondents’ Brief, para 5. These considerations suggest the palpable risks of inabilities of the Respondents to pay significant costs that may result from a prolonged litigation of this matter. Accordingly, in my view, this factor weighs in favour of granting an order for security for costs. (

c) The merits of the action [ 23 ] The Applicants submit that the facts of this case indicate clearly that the Respondents defaulted on both Agreements #1 and #2. Notices of Defaults were served by the Applicants; and they were received, signed and acknowledged by the Respondents. They denied the allegations of civil conspiracy and economic interference made by the Respondents which, they contend, cannot be supported by available evidence.

Further, that on the facts and pleadings, it is unclear that Nadeem Khalleq and Irfan Javed have a cause of action against the Defendants/Applicants, as both Agreements #1 and #2 were made between the Corporate Plaintiff/Respondent (A & H Enterprises Ltd) and the Corporate Defendant/Applicant (1231993 Alberta Ltd). As such, any claim for damages can only be advanced by A & H Enterprises Ltd, the Corporate Respondent in this application.

The Applicants submit that they have a meritorious defence to the statement of claim grounded in facts and the law of contract. [ 24 ] The Respondents replied that a close look at their Statement of Claim demonstrates that there are serious issues to be tried in this action. They submit that the Applicants interfered in their business and doomed it.

Further, both Agreements #1 and #2 contemplate the return or reimbursement of 50-60% of payments made by the Corporate Respondent to the Corporate Applicant “in the event [the Purchaser/Corporate Respondent] makes default in any payment to [the Vendor/Corporate Applicant]” and the claim in that regard has merit. Also, the Corporate Respondent and its directors claim equitable interest in the Lands in issue here, as they expended a lot of their money to develop the gas station, convenience store and restaurant on the said Lands.

And finally, the Applicants raised no defence to Noman Javed’s (i.e. the 4th Respondent) claim of assault; an omission which, along with existing court records, support the merit of his claim.

[25] In Autoweld Systems Limited v CRC-Evans Pipeline International Inc, 2011 ABQB 265 at para 22, 504 AR 288, leave toappeal to ABCA refused, 2011 ABCA 243, McMahon J observed that: The former Rule 594 required an affidavit from the applicant alleging a good defence on the merits and specifying its nature. I do not seethat Rule 4.22(

c) raises the bar or demands a higher standard or a more detailed inquiry into the merits. When the motion is broughtbefore document production and before oral questioning, none of that is realistic. What the new factor does do is broaden the consideration from only the merits of the defence to the merits of the action.

It thereforerequires a balanced view of the entire action as it then appears. (emphasis added) I agree with McMahon J’s statement on the current position of the law regarding this issue. [26] Thus, having reviewed and balanced the Statement of Claim and Statement of Defence to Counterclaim of the Respondents,as well as the Statement of Defence and Counterclaim filed by the Applicants, including all the supporting materials filed in this actionalong with parties’ submissions, I am satisfied that both the Plaintiffs/Respondents and the Defendants/Applicants have raised seriousand arguable issues.

Therefore, I conclude that there are merits to the within action. (

d) Undue prejudice and the respondent’s ability to continue the action [27] The Applicants argue that none of the Plaintiffs provided evidence that a security for costs award would unduly prejudicetheir ability to continue with the within action; and that in the absence of that evidence, it’s impossible for this Court to reach thatconclusion: Attila Dogan at para 19. [28] However, the Respondents submit that the two directors of A & H Enterprises Ltd, the Corporate Respondent have swornaffidavits, dated March 12 and 13, 2013, that neither the corporation nor the individuals have the ability to post security.

Specificallythey deposed that the “corporation is insolvent, and neither [of the individual directors/plaintiffs, including the 4th Plaintiff] havesufficient funds to post $44,500.00 in costs to the Court [and if] such an order is made by the Court, [they] will be unable to proceed withthe action.” [29] The insolvency (a word synonymous with “impecuniousity”) of the corporation is further evidenced by its recent revival afterit had been struck from the corporate records on March 2, 2012 for failure to file annual returns. [30] It seems to me that our Court of Appeal made a distinction between impecuniousity of a corporate plaintiff and its ability toraise funds in some form whatever, given the provision of the Business Corporations Act.

In other words, that the fact that a corporationlacks fund or is impecunious does not automatically lead to a conclusion that it has no access to assets of some sort to use for the purposeof posting a security. In Sprung Enviroponics Ltd v Calgary (City), (1990), 1990 ABCA 23 , 103 AR 131, 72 Alta LR (2d) 237(CA) at 245, the Court unanimously stated that: [T]here is no evidence whatever that the plaintiff corporation could not post security. It apparently lacks funds and is out of business, butthat does not mean it lacks all access to assets anywhere, nor that it lacks every way to raise funds.

The owners of a limited liabilitycompany with few assets other than a cause of action, are in a very fortunate position. They can make the company sue; if it wins, theytake the proceeds as shareholders. If it loses, they can walk away from the company and the suit. That is why the Legislatures passedthese sections in Business Corporations Acts ... (emphasis added) See the Business Corporations Act, RSA 2000, c B-9, s 254 as quoted above in paragraph 14 of this Decision.

[ 31 ] Similarly, the Court of Appeal held that, in terms of consideration of undue prejudice and the respondent’s ability to continue an action, where the respondent is a body corporate, the circumstances are different: Calmont Leasing Ltd v 32262 BC Ltd , 2002 ABCA 290 at para 8 , 317 AR 331 (QL) [ Calmont Leasing ].

Côté JA observed in that case that: It is interesting that many of the decided cases which decline to order security for costs on the grounds that it would shut an impecunious plaintiff or appellant out from the court despite an arguable case, are cases where that plaintiff or appellant was an individual. Some of those arguments sound especially hollow in the case of a limited liability company. 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 creditors or shareholders (or both), but prevents any money from flowing in the opposite direction. ( emphasis added ) [ 32 ] In my view, the sworn evidence of the two directors of A & H Enterprises Ltd, the Corporate Respondent, in their affidavits of March 12 and 13, 2013, did not go as far as deposing that A & H Enterprises Ltd, which is a limited liability company, cannot or “has no way to raise any kind of security of any description.” While the deposition may be sufficient to cover the deponents that as individual plaintiffs they do not “have sufficient funds to post $44,500.00 in costs”, the case is different for A & H Enterprises Ltd as a Corporate Plaintiff.

In my opinion, our Court of Appeal is clear in its position that in the case of a limited liability company, such as A & H Enterprises Ltd, “it is particularly important that there be sworn evidence that the [corporate plaintiff] has no way to raise any kind of security of any description”: Calmont Leasing at para 8 . [ 33 ] In Autoweld Systems Limited v CRC-Evans Pipeline International Inc , 2011 ABCA 243 at para 18 , 515 AR 6 [ Autoweld Systems ABCA ], O’Ferrall JA held that: However, conspicuous by its absence was any evidence that the applicant [corporate plaintiff] could not raise the funds required to satisfy the security for costs order ... this absence of evidence is a telling factor in favour of finding that a security for costs order would not unduly prejudice the plaintiff ’s ability to continue its action .

Nor am I prepared to infer undue prejudice from the evidence which the respondents adduced in order to show that there was some question about the [corporate plaintiff]’s ability to pay a costs award ...

More evidence would be required to demonstrate undue prejudice. ( emphasis added ) [ 34 ] Thus, notwithstanding the fact that A & H Enterprises Ltd is insolvent or impecunious, the absence of categorical and clear evidence to the effect that, as a limited liability corporation, it has no way of raising any form of security whatsoever, leads me to conclude that a security for costs order would not unduly prejudice its ability to continue its action: Autoweld Systems ABCA at para 18; Calmont Leasing at para 8 ; and Attila Dogan at paras 13, 24. (

e) Other appropriate matters [ 35 ] The Applicants submit that the Counterclaim made by them for damages arising from the breach of Agreement #2 does not raise any additional issues outside the failure of the Respondents to pay the monthly installments due. [ 36 ] The Respondents submit that the existence of a counterclaim in this action can be a basis to deny the application for a security for costs order.

And in any event, where the counterclaim is so intimately interwoven with the issues in the Statement of Claim that those issues would still have to be addressed in the counterclaim, it may be appropriate to refuse security for costs: Attila Dogan at para 20. [ 37 ] I agree with the Respondents’ position that the issue of the breach of Agreement #2, particularly the Respondents’ failure to

[ 37 ] I agree with the Respondents’ position that the issue of the breach of Agreement #2, particularly the Respondents’ failure to pay the monthly installments, in the Applicants’ counterclaim is “intimately interwoven” with the Statement of Claim in the within action. In my view, the Applicants’ submission admits this much, when they concede that “the Counterclaim raises no additional issues”: Applicants’ Brief, para 36.

This factor weighs against the discretional grant of a security for costs order, subject to my observations below. [ 38 ] Significantly, I note that in Tracer Industries Inc v Shell Canada Ltd , 2004 ABQB 484 at paras 32 , 35, 364 AR 186 (QL), McMahon J rejected the proposition that the mere existence of a counterclaim constitutes ground for denying an application for a security for costs order.

I have additionally considered the special factor regarding the involvement, in this case, of a Corporate Plaintiff/Respondent, A & H Enterprises Ltd, that is admittedly insolvent and unable to respond to a costs award: Business Corporations Act , RSA 2000, c B-9, s 254; 590863 Alberta Ltd at para 29 . These latter considerations support the grant of a security for costs order, pursuant to Rule 4.22 (e). (

f) Is it just and reasonable to issue an Order for Security for Costs? [ 39 ] 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: Attila Dogan at para 25. Given my considerations and analytical comments on each of the Rule 4.22 factors above, I conclude that it is just and reasonable to issue an Order for Security for Costs as sought in this application.

Quantum and conditions of security for costs [ 40 ] The next issue for determination is the amount in which the security for costs should be posted and whether any conditions should apply. [ 41 ] The Applicants submit that it is just and reasonable for this Court to issue an Order directing the Plaintiffs/Respondents, jointly and severally, to pay into Court the sum of $44,500 as calculated in their proposed Bill of Costs, no later than 2 months from the date an Order issues.

And further that if the Respondents fail to post the ordered security, the Order should direct that the action be dismissed; and, the caveat and lis pendens registered by A & H Enterprises Ltd against the subject Lands be discharged. [ 42 ] The Respondents submit that if this Court considers it appropriate to order security for costs, the individual Plaintiffs, who are directors of the Corporate Plaintiff, should be ordered to make undertakings for personal liabilities for costs awarded against the corporate Respondent.

Alternatively, the posting of actual costs should be ordered until the end of questioning, not trial. [ 43 ] It is a trite legal principle that an award for security for costs is an exercise of the Court’s discretion; and “there is room within the scope of that discretion for a staged process, whereby security is posted at different points in the litigation”: Attila Dogan at para 28.

Also, where appropriate, conditions may be imposed by the Court ranging from a simple undertaking by directors or shareholders, to guarantees, bonds, letters of credit, or cash paid into court: 590863 Alberta Ltd at para 30 . [ 44 ] In my view, given the circumstances of this action, it is just and reasonable to order that security for costs be posted, at this stage, by the Respondents to the end of questioning. In the result, I fix the security for costs to be posted at $14,000, as calculated in the proposed Bill of Costs.

Conclusion [ 45 ] Therefore, I order that the Plaintiffs/Respondents, jointly and severally, shall provide security for costs in the sum of $14,000, by payment of cash to the Clerk of the Court, within 2 months from the date of the entry of this Order.

[ 46 ] All proceedings in this action are stayed until the security is provided, unless otherwise ordered. [ 47 ] If the Respondents fail to post the security for costs as ordered, within 2 months, the Applicants may apply to have the action dismissed and the caveat and lis pendens , registered by A & H Enterprises Ltd against the subject Lands, be discharged. [ 48 ] The Applicants will have the costs of this application in any event of the cause. Heard on the 27 th day of March, 2013. Dated at the City of Edmonton, Alberta this 6 th day of June, 2013. Donald Lee J.C.Q.B.A.

Appearances: Kember Handzic Emery Jamieson LLP for the Applicants Shawn Beaver Beaver Leebody Frank & Simic for the Respondents