Dingwall v. Foster, 2013 ABQB 424

Court of Queen ’ s Bench of Alberta Citation: Dingwall v. Foster, 2013 ABQB 424 Date: 20130726 Docket: 0803 04671 Registry: Edmonton Between: Terry Dingwall, Hyunik Yang and Hyunsuk Chai Plaintiffs - and - Ronald Foster, Patrick Cochrane and Frederick Dornan Defendants _______________________________________________________ Supplementary Reasons for Judgment of the Honourable Mr. Justice Brian R. Burrows _______________________________________________________ [ 1 ] On July 24, 2012 I issued my decision ( 2012 ABQB 476 ) in the application of the Plaintiffs Terry Dingwall and Hyunsuk Chai for

summary judgment in their action to enforce in Alberta a judgment granted to them by the Supreme Court of Nevada, U.S.A. in February 2010 against the Defendants. The Nevada judgment was for $US 3,660,084.74 plus pre and post judgment interest. $US 2,891,013.40 of that amount was recovered by the Plaintiffs in derivative proceedings they took on behalf of a Nevada corporation, Innovative Energy Solutions Inc. (IESI). [ 2 ] The Defendants raised various objections to the granting of the

summary judgment application at the original

summary judgment hearing. I dismissed all of them and concluded that the Plaintiffs had satisfied the tests for

summary judgment. I also concluded, however, that I could not grant the judgment sought until issues which arose between the time the application was argued and the time of my decision in relation to the bankruptcy of IESI were addressed.

[ 3 ] I described the unresolved issues in the following passage from my July 24, 2012 Reasons: Conclusion [88] In my view the Applicant Plaintiffs have satisfied the tests for

summary judgment. However I cannot grant the judgment they seek until the issues described below are addressed. Implications of the Bankruptcy of IESI [89] As previously noted, IESI was petitioned into bankruptcy in Nevada on January 9, 2007. [90] After the Plaintiffs recovered judgment in the Nevada District Court, the Plaintiffs and IESI ’ s trustee in bankruptcy entered into a settlement agreement which was approved by the United States Bankruptcy Court for the District of Nevada on July 18, 2008. [91] The settlement agreement provided for the dismissal of the claims brought by IESI against Mr.

Dingwall (that is, the original claims to which the claims brought by Mr. Dingwall, and which resulted in the judgment now sought to be enforced, were a counterclaim). The settlement agreement also provided for the distribution of proceeds of enforcement of the Nevada judgment. The proceeds would be used first, to pay unpaid costs of enforcement; second, to reimburse the Plaintiffs for enforcement costs they had paid; third, to pay the costs portion of the judgment; and fourth, to pay the portion of the judgment recovered derivatively on behalf of IESI and the damages recovered by Yang and Chai.

Funds available for this fourth stage of payment would be divided 20% to IESI and 80% to Yang and Chai until IESI was fully paid, and then 100% to Yang and Chai. [92] The agreement was reached before the decision of the Nevada State Court, when the judgment to be enforced included the punitive damages and duplicative damages which did not survive the appeal.

The materials do not indicate that it was amended after the appeal decision reduced the amount of the judgment but the agreement recorded that the parties to it agreed to execute such additional documents and perform such further acts as might be reasonably necessary to give effect to the purposes and provisions of their agreement. [93] At the time these applications were argued, it appeared that this agreement provided reasonable assurance that any proceeds of the enforcement of the judgment which ought to go to the benefit of IESI would in fact do so. [94] Recently, however, counsel for the Plaintiffs advised that the United States Bankruptcy Court issued a “ Final Decree ” in the bankruptcy of IESI on March 16, 2012.

The Final Decree says: FINAL DECREE The estate of the debtor noted below has been fully administered: Innovative Energy Solutions, Inc. It is ordered that Timothy S Cory is discharged as trustee of the estate of the above named debtor.

The

Chapter 7 case of the above named debtor is closed. [95] I will require further submissions as to the implications of this Final Decree. Does IESI still exist? Does IESI continue to have a beneficial interest in the damages awarded derivatively? If not, who, if anyone, does? If IESI ’ s beneficial interest in the judgment continues, is there a mechanism for ensuring that the benefit of any enforcement recovery realized that ought to go to IESI or the current owners of that beneficial interest, will do so? If not, what mechanism should be put in place?

What is the current status of the agreement reached between the now discharged trustee in bankruptcy and the Plaintiffs? [96] In my view it will be necessary for the parties to address these and possibly other questions that arise as implications of the bankruptcy and the Final Decree. Further argument to address these questions will likely be necessary.

I invite counsel to make arrangements to appear in open chambers to discuss these questions and an appropriate procedure for determining them. [ 4 ] Counsel for the Plaintiffs, Terry Dingwall and Hyunsuk Chai, and for the Defendant Frederick Dornan appeared before me to address these issues on June 6, 2013. Both filed further evidence and submissions. The further evidence included the affidavits of Nevada lawyers who are familiar with the Nevada law relevant to my questions. Such affidavits were filed by both sides.

The Plaintiff Hyunik Yang and the Defendants Foster and Cochrane did not participate. [ 5 ] There have been some further developments since my July 24, 2012 decision was issued. In particular:

a) In July 2006, Mr. Dingwall took proceedings against IESI for wrongful dismissal from his position as President of IESI. Those proceedings had been stayed when IESI went into bankruptcy. In February 2011, Mr. Dingwall applied to the Nevada Bankruptcy Court and was granted leave to proceed with his wrongful dismissal claim despite the bankruptcy of IESI. The claim was determined by arbitration on notice to the Trustee in Bankruptcy. In September 2011, Mr. Dingwall obtained an arbitration award of $US 1,988,320. The arbitration award was confirmed and judgment in respect of it was issued by the Nevada District Court on January 4, 2013.

b) On January 30, 2013, the same court issued an order appointing a Receiver over IESI. The Receiver took steps to restore IESI to good standing with the Nevada Secretary of State.

c) On March 1, 2013, the Receiver executed an amendment to the settlement agreement described in paragraph 91 of my July 2012 Reasons quoted above. Mr. Dingwall has also signed the amendment. At the time of the hearing of the present application in June, Mr. Chai ’ s endorsement had not yet been received but it was expected. I understand Mr. Chai is in Korea.

d) On March 21, 2013, a Certificate of Existence with Status in Good Standing was issued in respect of IESI Inc. (the name of which had been changed by adding “ Inc. ” to avoid confusion with another company which had been incorporated during the time that IESI ’ s registration status was revoked). [ 6 ] These developments answer most of my July 2012 questions. I am satisfied that IESI continues to exist, and that it continues to have beneficial entitlement to the damages awarded derivatively to IESI in the proceedings prosecuted by the Plaintiffs.

Practically, since its debts exceed its assets, its creditors will be entitled to the benefit of those damages. I am also satisfied that the court supervised receivership provides a mechanism for ensuring that the benefit of the derivative judgment will go to those who ought to receive it. I am also satisfied that the agreement governing how the product of enforcement proceedings will be distributed among the Plaintiffs has been amended to account for changes in circumstances since it was entered. [ 7 ] Mr. Dornan took the position that the agreement could not be amended without Mr. Yang ’ s consent.

I doubt that is so since Mr. Yang has renounced any personal entitlement under the judgment (see paras. 3, 60 and 61 of my July 2012 Reasons). But whether or not that is the case, the concern that caused me to ask the question has been satisfied. My concern was to be sure that the portion of the judgment recovered derivatively on behalf of IESI will go to the benefit of IESI (or, as its debts exceed its assets, its creditors).

The materials demonstrate that there is a person, the court appointed Receiver, who is responsible to see that the assets of IESI are properly dealt with and to report to the Nevada Court as to his actions. Indeed the order appointing him requires him to report to the Nevada Court at least every three months.

[ 8 ] On the hearing of this application Mr. Dornan raised a concern in respect of the judgment Mr. Dingwall has recovered in the wrongful dismissal proceedings. He noted that Mr. Dingwall ’ s claim was originally in the amount of $745,000 but in the arbitration proceedings he was awarded substantially more than that, $1.9 million. This raised Mr. Dingwall ’ s proportional entitlement in the distribution of IESI ’ s assets from 39% to 54%. Mr. Dornan suggested this was suspicious. [ 9 ] Be that as it may, it is not Mr. Dornan ’ s concern. The proportional size of Mr.

Dingwall ’ s recovery compared to that of other IESI creditors will make no difference to the amount of Mr. Dornan ’ s liability. If the other creditors share Mr. Dornan ’ s suspicions, they may wish to pursue a remedy in the Nevada Courts. But the point has no relevance to the application before me. [ 10 ] At the hearing of this application counsel for Mr. Dornan suggested that the Nevada appointed Receiver of IESI would have to apply for recognition pursuant to s. 269 of the BIA . I understood him to suggest that the fact this has not been done creates an impediment to the granting of the

summary judgment sought before me. The point was raised for the first time in oral submissions. Counsel for Mr. Dornan suggested it was obvious. [ 11 ] I am not sure the point is as obvious as counsel for Mr. Dornan suggested. As I read s. 269 and the surrounding sections of the BIA they apply where there are foreign bankruptcy proceedings against a Canadian person or business.

Where the foreign proceedings are confirmed in Canada, Canadian proceedings against the person or business are stayed and the person or business is restrained from disposing of its property. [ 12 ] The provisions do not appear to have any application where a foreign entity seeks to enforce a judgment in Canada. The only enforcement proceedings contemplated in this action are against the Defendants who are resident in Canada. They will be the debtors. IESI will not be a debtor in Canada.

I cannot see that s. 269 has any application. [ 13 ] Further, I expect IESI will not itself be taking enforcement proceedings in Alberta. It will not directly be a judgment creditor. Formally, the Plaintiffs will be the judgment creditors. [ 14 ] As mentioned, the point was raised without prior notice. I consider it only for the purpose of determining whether it creates an impediment to me granting the order sought.

I am satisfied it does not. [ 15 ] As I indicated at the hearing of the application, if contrary to my reading of s. 269, it does create an impediment to the Plaintiffs as judgment creditors proceeding with the enforcement of the judgment, as distinct from being granted the judgment, Mr. Dornan may be advised to seek a stay of enforcement. If so, I do not consider myself seized of that aspect of the matter. Such application need not be made to me. [ 16 ] I am satisfied that subject to two points which I address below, the Plaintiffs are entitled to

summary judgment in this action. I shall confirm the details of that judgment below. [ 17 ] The first of the two further points requiring consideration concerns the portion of the Nevada judgment sought to be enforced that included monetary relief for Mr. Chai and Mr. Yang jointly in the amount of $149,910.55 (see paras. 1(

c) and 3 of my July 2012 Reasons). As mentioned, Mr. Yang has renounced all entitlement under the judgment. The question is whether this had the effect of reducing the amount recoverable in respect of that portion of the judgment by half to $74,955.28. One of the Nevada lawyers whose affidavit was filed on this supplementary hearing observed that the Nevada Court did not say whether Chai and Yang would hold the judgment jointly and severally or only severally.

The lawyer did not say whether or not there was Nevada law on the subject but did observe that where there is no relevant Nevada law on a point, Nevada Courts frequently look to California law for guidance. She said that California law provides that in the absence of evidence showing that a different distribution is appropriate, the joint judgment is presumed to be owned by the co-plaintiffs equally. I understand the suggestion to be that this means that the amount of the judgment recoverable by Mr.

Chai would be half of the original amount. [ 18 ] The original judgment in favour of Chai and Yang was for $17,000 costs and $132,000 attorney ’ s fees. Perhaps it would make a difference, at least in respect of the attorney ’ s fees, as to which of Chai and Yang paid them or is liable for them.

[19] The evidence both as to the foreign law and as to the equities between Chai and Yang is insufficient to permit me to reach adecision on this point. I suggested to counsel that this question might more properly be addressed to the Nevada Court in an applicationby Mr. Dornan if he wishes to pursue the point. I will stay enforcement of the judgment herein granted, as to $US 74,955.28 and pre andpost judgment interest thereon, for 120 days from the date this decision is issued to give Mr. Dornan an opportunity to file application inNevada to have the issue determined.

If such application is filed, the stay of enforcement will continue until the application isdetermined, unless Mr. Dingwall or Mr. Chai applies to lift the stay on the basis that the Nevada application is not being pursueddiligently or for some other reason. [20] The second point which must be addressed is post-judgment interest. [21] In my July 24, 2012 Reasons I said: [87] The judgment which the Plaintiffs seek to enforce awarded post-judgment interest at the rate of 10.25% [See paragraph [1]above.] I understand that to be [the] post-judgment interest entitlement under Nevada law.

That aspect of the Nevada judgment is notenforceable in Alberta. As noted in the learned

article quoted in Pro Swing (quoted in paragraph [15] above), the Alberta law regardingpost-judgment interest would apply. [22] The quote referred to was from an

article by Professor Vaughan Black: “Enforcement of Foreign Non-money Judgments:Pro Swing v. Elta” (2006), 42 Can. Bus. L.J. 81, at p. 89: That is, [the Canadian court] always uses its own rules on such matters as the availability of garnishment, the effect of garnishment onemployment, the effect of a payment into court, the date of conversion from a foreign currency into the local money, and the properprocedures for seizure and attachment.

Likewise, even when enforcing a money judgment from [a foreign court, the Canadian court]employs its own exemptions legislation, its own rules for controlling competition among judgment creditors, and its own rules on post-judgment interest. In short, when a Canadian court recognizes a foreign judgment that says that the defendant must pay the plaintiff asum of money, that foreign judgment is simply evidence of a debt. The recognizing court goes about collection (or limiting collection)of that debt in its own way. [Italics in original.

Emphasis by underlining added.] [23] Both counsel agree that in paragraph [87] of my July 24, 2012 Reasons, I misinterpreted Professor Black. They are correct. The law is clear that the debt created by the foreign judgment and recognized by the domestic judgment will include post judgmentinterest ordered by the foreign court up to the date of the domestic judgment. Thereafter the domestic judgment debt will attract post-judgment interest according to the domestic law on that subject.

The point still in issue is whether I have a discretion to change the post-judgment interest component of the judgment sought to be enforced. [24] That I was wrong in paragraph [87] quoted above is clear from Livesley v. E.

Clemens Horst Company (SCC), [1924] S.C.R. 605, where Duff J., in the course of discussing the rule that in an action to recover damages for breach of contractmade and breached in another jurisdiction, the measure of damages is governed by the law of the other jurisdiction, the proper law of thecontract, and procedure is governed by the domestic law, said: The same rule prevails in actions upon foreign judgments. The principle upon which such judgments are enforced by the English courts,as stated by Blackburn J. delivering the judgments of the Court of Queen's Bench in Godard v.

Gray [[1870] L.R. 6 Q.B. 139.]; and inSchibsby v. Westenholz [[1870] L.R. 6 Q.B. 155.], -- following the judgments of Parke B., in Russell v. Smyth [[1842] 9 M. & W. 809 atp. 819.], and Williams v.

Jones [[1845] 13 M. & W. 628 at p. 633.] -- is that the judgment of a court of competent jurisdiction gives riseto a legal obligation to pay the judgment debt; and in an action upon such a judgment in an English court interest, if by the law of thejudgment itself it carries interest, is treated as an integral part of the judgment debt, and the rate is accordingly calculated in conformitywith the requirements of that law, whatever that rate may be.

If no interest is given by the foreign law, none can be recovered in anaction on the judgment in an English court unless, of course, interest, being specified in the judgment, is, by the terms of the judgmentitself, part of the judgment debt. Arnott v. Redfern [[1826] 3 Bing. 353.]; Douglas v. Forrest [[1828] 4 Bing. 686.]; Hawksford v. Giffard[[1866] 12 App. Cas. 122.] [25] In India (Union) v. Bumper Development Corp. (AB KB), [1995] 7 W.W.R. 80 (Alta Q.B.), the Plaintiff

sued on an English judgment and sought interest at the statutory rate provided by the English law. R. P. Fraser, J. said: (para. 76) The law of England provides for the payment of interest under the judgment. Under Livesley , (supra) this Court has no alternative but to award it to the date of this judgment. From that date the plaintiffs will have interest under the Judgment Interest Act (Alberta). [ 26 ] Mr. Dornan submitted that nevertheless I have a discretion under the Judgment Interest Act , s. 2(3) to deviate in the judgment to be granted on this application from the interest awarded by the Nevada Court. That

section provides:

(3) If it considers it just to do so having regard to changes in market interest rates, the circumstances of the case or the conduct of the action, the court may (

a) refuse to award interest under this Part, (

b) award interest under this Part at a rate higher or lower than the rate set out in this Part, or (

c) award interest under this Part for a period other than the period provided for in this Part. This

section is in the Part of the Act governing pre-judgment interest. [ 27 ] The authority relied upon to support the conclusion that this

section gives me a discretion to cancel or amend the post- judgment interest award in the Nevada judgment is Desert Plaza Partnership v. McCallum [1989] B.C.J. No 2164 (BCCA) . The Plaintiff there sued on a California judgment which did not expressly address post-judgment interest. The Plaintiff sought to have the B.C. judgment include interest at the rate of 10% per annum because the California statute provided for interest at that rate on the principal amount of an unsatisfied judgment.

The Plaintiff had previously recovered judgment in Alberta on the same California judgment but had not sought to include interest in the Alberta judgment. [ 28 ] The trial judge in B.C. held that the California judgment debt included the interest. The BCCA preferred to dismiss the appeal on the basis of the Plaintiff ’ s entitlement under the B.C. Court Order Interest Act . The BCCA decided that BC pre-judgment interest should be awarded from the date of the California judgment at the rate of 10%. By awarding interest under the B.C.

Act, the issue raised by the Appellant, that the Alberta judgment rendered the question of interest res judicata , was avoided. [ 29 ] In my view, this case provides little support for the proposition that an express entitlement to interest stated in a foreign judgment can be ignored or altered in a domestic action on the judgment. There was no interest provision in the California judgment which was the subject of the action in Desert Plaza . The BCCA did not purport to alter the judgment debt from that which was awarded by the foreign court.

It saw the California judgment as creating a cause of action for recovery of a debt in the amount specified in the judgment. The B.C. legislation obliged the court to award pre-judgment interest from the date that cause of action arose. The court ’ s only discretion was as to the rate. The court relied on the California legislation in determining the appropriate rate.

It is not possible, if one reads the case in light of the provisions of the B.C. legislation, to see the case as authority for the proposition advanced. [ 30 ] In my view, the amount of the judgment debt to be enforced is found in the Nevada judgment, including the post-judgment interest expressly awarded by the Nevada Court. The Judgment Interest Act gives me no discretion to excise the interest portion of that debt. [ 31 ] If I am wrong in that

interpretation and I do have the discretion Mr. Dornan suggests, I do not agree with his submission that the circumstances would justify exercising the discretion. His submission related mostly to features of the circumstances that occurred prior to or in the course of the appeal of the original judgment in Nevada. All of those circumstances were before the appeal court in Nevada. Nevertheless the judgment granted by the appeal court included the interest it did. The Nevada appeal court considered the interest award appropriate. If I had a discretion to deviate from that conclusion, I would not, in my view, be justified in doing so.

Judgment Awarded [ 32 ] I therefore grant: (

a) Judgment against Ronald Foster, severally, in such sum of money in the currency of Canada as shall yield the sum of $324,236.00 in U.S. currency as at the date of these Supplementary Reasons, in favour of Terry Dingwall, derivatively on behalf of IESI, representing compensatory damages awarded by the Nevada District Court and confirmed by the Nevada Supreme Court. (

b) Judgment against Patrick Cochrane, severally, in such sum of money in the currency of Canada as shall yield the sum of $265,373.43 in U.S. currency as at the date of these Supplementary Reasons, in favour of Terry Dingwall, derivatively on behalf of IESI, representing compensatory damages awarded by the Nevada District Court and confirmed by the Nevada Supreme Court. (

c) Judgment against Frederick Dornan, severally, in such sum of money in the currency of Canada as shall yield the sum of $220,815.56 in U.S. currency as at the date of these Supplementary Reasons, in favour of Terry Dingwall, derivatively on behalf of IESI, representing compensatory damages awarded by the Nevada District Court and confirmed by the Nevada Supreme Court. (

d) Judgment against Ronald Foster, Patrick Cochrane and Frederick Dornan, jointly and severally, in such sum of money in the currency of Canada as shall yield the sum of $2,080.588.41 in U.S. currency as at the date of these Supplementary Reasons, in favour of Terry Dingwall, derivatively on behalf of IESI, representing compensatory damages awarded by the Nevada District Court and confirmed by the Nevada Supreme Court. (

e) Judgment against Ronald Foster, Patrick Cochrane and Frederick Dornan, in such sum of money in the currency of Canada as shall yield the amounts below in U.S. currency as at the date of these Supplementary Reasons, in favour of Terry Dingwall, derivatively on behalf of IESI, representing pre-judgment interest on the amounts described in (

a) through (

d) above, as awarded by the Nevada District Court for the period October 20, 2005 to August 29, 2007, which amount was not altered by the Nevada Supreme Court: (

i) Against Ronald Foster: $61,733.65 (ii) Against Patrick Cochrane: $50,526.37 (iii) Against Frederick Dornan: $42,042.68 (iv) Against Ronald Foster, Patrick Cochrane and Frederick Dornan, jointly and severally, $396,138.33 (

f) Judgment against Ronald Foster, Patrick Cochrane and Frederick Dornan, jointly and severally, in such sum of money in the currency of Canada as shall yield the sum of $619,160.79 in U.S. currency as at the date of these Supplementary Reasons, in favour of Terry Dingwall, representing attorneys ’ fees and costs awarded by the Nevada District Court and confirmed by the Nevada Supreme Court. (

g) Judgment against Ronald Foster, Patrick Cochrane and Frederick Dornan, jointly and severally, in such sum of money in the currency of Canada as shall yield the sum of $149,910.55 in U.S. currency as at the date of these Supplementary Reasons, in favour of Hyunik Yang and Hyunsuk Chai, representing attorneys ’ fees and costs awarded by the Nevada District Court and confirmed by the Nevada Supreme Court.

(

h) Judgment against Ronald Foster, Patrick Cochrane and Frederick Dornan, jointly and severally, in such sum of money in the currency of Canada as shall yield $ ( to be calculated ) in U.S. currency as at the date of these Supplementary Reasons, in favour of Hyunik Yang and Hyunsuk Chai, representing pre-judgment interest on the amounts described in (

g) above, as awarded by the Nevada Supreme Court for the period October 20, 2005 to August 29, 2007. (

i) Judgment against the individuals identified in each of paragraphs (

a) to (

h) for Nevada post-judgment interest from August 30, 2007 to the date of these Supplementary Reasons, on the amounts of the judgments awarded in paragraphs (

a) through (

g) at the rate of 10.25% per annum in favour of Terry Dingwall, derivatively on behalf of IESI, (paras. (

a) through (e)), Terry Dingwall (para. (f)), Hyunik Yang and Hyunsuk Chai (paras. (

g) and (h)) as awarded by the Nevada Supreme Court. [ 33 ] As discussed in paragraph [19] above, I grant a stay of the enforcement of paragraph (

g) to the extent of $74,955.28, and of paragraphs (

h) and (i), to the extent of one half of the pre- judgment interest and judgment interest calculated in respect of $74,955.28 of the judgment awarded in paragraph (g), for 120 days from the date of these Supplementary Reasons to permit Frederick Dornan, if so advised, to apply in the Nevada Courts for determination of whether Hyunik Yang ’ s renunciation of his entitlements under the Nevada judgment results in any change to the amount of the judgment originally granted to Hyunik Yang and Hyunsuk Chai.

If such application is filed, the stay of enforcement will continue until the application is determined, unless Terry Dingwall or Hyunsuk Chai applies in this Court to lift the stay on the basis that the Nevada application is not being pursued diligently or for some other reason. Heard on the 6 th day of June 2013. Dated at the City of Edmonton, Alberta this 26 th day of July 2013. Brian R. Burrows J.C.Q.B.A. Appearances: Donald Wilson and Chris Jones for the Plaintiffs Terry Dingwall and Hyunsuk Chai Charles P.

Russell, Q.C. and Janet Patterson for the Defendant Frederick Dornan Conan Taylor for the Defendants Ronald Foster and Patrick Cochrane (did not participate)

The Plaintiff Hyunik Yang did not participate in the application.