1251165 Alberta Ltd. v. Stuart Reginald Jobb, 2013 ABQB 533

Court of Queen ’ s Bench of Alberta Citation: 1251165 Alberta Ltd v Wells Fargo Equipment Company Ltd, 2013 ABQB 533 Date: 20130916 Docket: 1203 12762 Registry: Edmonton Between: 1251165 Alberta Ltd. and Stuart Reginald Jobb Appellants - and - Wells Fargo Equipment Finance Company Ltd. Respondent _ ________________________________________ ______________ Reasons for Judgment of the Honourable Mr. Justice Robert A. Graesser _________________________________________ ______________ Appeal from Order of W. Breitkreuz, Master in Chambers on March 20, 2013 Docket: 1203 12762

Introduction [ 1 ] This is an appeal from the decision of Master W. Breitkreuz ordering payment of security for costs by the Plaintiffs as a precondition of their being able to pursue their claim in this matter. Background [ 2 ] 1251165 Alberta Ltd. and a related corporation Blackhorse Transportation Ltd. leased a specialized trailer from the Defendant, Wells Fargo Equipment Finance Company, on February 20, 2007.

Stuart Reginald Jobb is a director of both 1251165 and Blackhorse, and personally guaranteed performance of the lease. [ 3 ] As with other transactions of this nature, 1251165 and Blackhorse (the “Customer”) located the trailer and arranged to have Wells Fargo purchase it and lease it to them. The purchase price of the trailer was approximately $200,000.00.

The lease agreement essentially financed the purchase price and approximately $100,000.00 worth of refurbishment costs for the trailer. [ 4 ] The Customer was obliged to make an initial payment of $30,143.63 to Wells Fargo and then 48 monthly payments of $4,312.98. Upon making the final payment of $250.00 the Customer was entitled to a transfer of the trailer. [ 5 ] Because of the downturn in the economy, the Customer fell into arrears under the lease agreement, having by then made 37 of the required payments.

Blackhorse went into bankruptcy. 1251165 did not go bankrupt but acknowledges that it has no assets other than this claim against Wells Fargo. All told, the Customer had paid all but about $50,000.00 of the payments under the lease agreement. Wells Fargo seized the trailer in May, 2010, as it was entitled to do under the agreement. It gave notice to sell to the Customer in June, 2010. [ 6 ] The trailer was sold by Wells Fargo in late October or early November, 2010 for $15,000.00. [ 7 ] 1251165 and Mr.

Jobb (the “plaintiffs”) allege that the trailer was worth far more than $15,000.00 and that Wells Fargo knew that the price it sold the trailer for was significantly under fair market value. Accordingly, Wells Fargo was not acting in good faith and in a commercially reasonable manner when it sold the trailer. [ 8 ] Much of the evidence in Mr. Jobb’s affidavits in support of this appeal relates to the merits of the claim against Wells Fargo.

He swears that the value of the trailer when it was sold was at least $200,000.00. [ 9 ] The trailer had been seized as well by another creditor, Alberta Treasury Branches, who held security on the trailer to secure business loans it had with the Customer. It appears from the materials that ATB released its seizure and claim against the trailer when it became satisfied that it was not likely that the trailer would sell for more than was owed to Wells Fargo (some $50,000.00 at the time of seizure). [ 10 ] The affidavit of Wells Fargo’s corporate representative sets out the details of the seizure and eventual sale.

Mr. Cuthbert swears at para. 9 “In all of the circumstances, I believe the sale of the Trailer was commercially reasonable.” He swears that after application of the sale proceeds, the debt owed to Wells Fargo is $34,818.71. [ 11 ] The plaintiffs commenced this action on August 24, 2012 claiming damages against Wells Fargo totaling $500,000.00. Wells Fargo defended, and counterclaimed for the $34,818.71 shortfall. [ 12 ] In January, 2013, Wells Fargo applied for security for costs, based on its representative’s affidavit swearing to a good defence on the merits and pointing to the impecuniosity of the plaintiffs.

Wells Fargo points specifically to a judgment against Mr. Jobb by ATB for approximately $260,000.00. [ 13 ] The plaintiffs acknowledge that they are without funds to post security for costs in any amount, but argue that the trailer was worth more than $200,000 and they planned to use the proceeds of sale to pay off the ATB debt. [ 14 ] It is clear from the conflicting affidavits that there is an issue over the value of the trailer and its condition at the time of the sale by Wells Fargo.

The hearsay evidence put forward by Wells Fargo’s representative indicates that the trailer may have been worth as much as $40,000.00 (subject to an inspection) but recovering even that amount would not have paid off Wells Fargo, let alone allowing the plaintiffs to deal with their other major creditor, ATB. The application was heard by Master Breitkreuz on March 20, 2013. The essence of his oral decision is as follows: MR. MOORE: Now, the affidavit that discusses the value of the trailer is a separate affidavit, and, as I said, we’re not party to that action.

We weren’t actually given that affidavit when we were served with notice of this application. So we weren’t able to cross-examine the affiant on his evidence. We’re asking, Sir, that that evidence not be relied on when determining to award security for costs. Decision MASTER BREITKREUZ: Well, it is available, and it seems to me to be reliable. I think what I should do – I think it is very harsh

putting the end to a lawsuit that may have some merit to it. Obviously your client thinks it has some merit to it. MR. MOORE: Yes, Sir. MASTER BREITKREUZ: Obviously your firm thinks it has some merit to it. MR. MOORE: Yes. MASTER BREITKREUZ: But I think where there is a question of good faith in proceeding there should be some security placed. I amgoing to start with just a little under half of what Mr. Rowan is requesting and with leave to apply to increase that when? Say afterdiscovery stage. And then you will both be able to assess the merits of your clam better and the merits of the defence.

Issues [15] The Plaintiffs identify the following issues: 1. standard of review from the Master’s decision; 2. whether the existence of a counterclaim affects the ability of a Defendant to obtain security for costs; 3. if the Defendant is partly or wholly responsible for the impecuniosity of the Plaintiff, should security for costs be ordered? and 4. did the Master err by failing to give reasons? Standard of Review [16] It is common ground that the standard of review has been determined by the Court of Appeal to be correctness, followingBahcheli v. Yorkton Securities Inc., 2012 ABCA 166.

Impact of counterclaim [17] The plaintiffs argue that the existence of a counterclaim that deals with the same issues as the claim is a factor which shouldweigh against the granting of security for costs. They cite Attila Dogan Construction v. AMEC Americas Ltd., 2011 ABQB 175 andCaskey v. Guardian Insurance Co. of Canada, (1994), (AB KB), 148 A.R. 251 (Q.B. (Master)).

Connection Between Defendant and Plaintiffs’ Impecuniosity [18] The plaintiffs argue that the actions of Wells Fargo prevented them from being able to deal with the ATB and as a result, theylost not only the trailer but ended up with a large judgment against them. The judgement would have been considerably less if WellsFargo had acted in a commercially reasonable manner and realized the market value of the trailer. [19] The plaintiffs cite John Wink Ltd. v. Sico Inc., (1987), (ON SC), 15 C.P.C. (2d) 187 (Ont. H.C.).

In thatcase, Reid J. stated at paras. 7 – 9: 7 The defendant having shown a prima facie case, the ball returned to plaintiff's court. Plaintiff chose to rely on its poverty ratherthan deny it, and rested on the gross injustice that would be the result if poverty caused by the defendant secured the defendant against atrial. 8 There can be no question that an injustice would result if a meritorious claim were prevented from reaching trial because of thepoverty of a plaintiff. If the consequence of an order for costs would be to destroy such a claim no order should be made.

Injustice wouldbe even more manifest if the impoverishment of plaintiff were caused by the very acts of which plaintiff complains in the action. 9 It is thus necessary to consider, where impoverishment has been shown or admitted, whether a claim should be allowed to proceedto trial, notwithstanding the risk to defendant of not being able to collect costs even if successful. Trainor J. says that specialcircumstances must be shown. Yet to do justice to both parties at this stage is a particularly difficult problem.

Some have expressed orespoused the view that the question is to be answered by assessing the merits of plaintiff's claim, i.e., the likelihood of success. Themerits, however, are merely a consideration in making "such order for security for costs as is just" and are by no means determinative. Iagree with Master Sandler, who observed in Hawaiian Airlines, Inc. v. Chartermasters, Inc. et al. (1985), (ON SC), 50O.R. (2d) 575, 50 C.P.C. 224, that in most cases, coming to a conclusion on the merits of a claim upon a motion for security for costs islikely to be impossible.

This was also recognized by Trainor J. in Warren Industrial Feldspar Co. Ltd. v. Union Carbide Canada Ltd.Although he regarded the merits of plaintiff's case and its prospects of success as relevant considerations in deciding whether to grantrelief from posting security for costs, he did not treat them as determinative.

Reasons [ 20 ] The plaintiffs agree that it would be of no benefit for the matter to be returned to masters’ chambers for a rehearing. The court on appeal has the same jurisdiction as did the master, and can make its own decision in the event it concludes the master was in error. This ground of appeal was not pursued. Analysis [ 21 ] The starting place is Rule 4.22 regarding applications for security for costs The rule 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. [ 22 ] There is little or no substantive change between the current rule and old rule, although the new rule expressly invites the court to consider the merits of the action. There is no basis to conclude that the old case law should not generally continue to apply. While the new rules are intended to improve access to justice, they were not intended to accomplish that purpose by favouring or disadvantaging either party. The quest for efficiency, economy and speed do not absolve an impecunious party from having to put up security for costs in appropriate cases.

Defendants should be at no greater risk under the new rules of obtaining an uncollectable cost award in the event they successfully defeat the claims against them than they were before November, 2010. Plaintiffs should have no greater or lesser obligations regarding security for costs. [ 23 ] Here, the defendant has satisfied general requirements of an application like this by swearing to a good defence on the merits and specifying the nature of it (that it acted in a commercially reasonable manner).

The evidence indicates that the plaintiffs are individually and collectively unable to put up any security for costs, confirming the defendant’s fears that if it succeeds in defending the claim, it will be unable to collect its costs. [ 24 ] The rule is discretionary, and notwithstanding that the defendant may have a reasonable prospect of successfully defending the claim, and that it will not likely be able to recover any costs in the event of its success, the court still has a discretion as to the amount and terms of any security ordered, or indeed as to whether security should be ordered at all. [ 25 ] The plaintiffs argue two factors which they say favour refusal of security in this case.

Firstly, they point out that Wells Fargo has a counterclaim against them on the lease agreement based on the shortfall resulting from the sale it effected. The same issues will have to be tried on the counterclaim as in the plaintiffs’ claim: the details of the sale, the value and condition of the trailer, and the commercial reasonableness of Wells Fargo’s actions. [ 26 ] In Attila Dogan , AMEC pursued security for costs based on Attila Dogan’s lack of connection with Alberta. Attilia Dogan argued that security should be denied because AMEC had a counterclaim against it and litigation was going to proceed.

Wittmann A.C. [ 27 ] Wittmann J. (as he then was) pointed out that the mere existence of a counterclaim does not automatically exclude the availability of security for costs on the main claim, following Tracer Industries Inc. v.

Shell Canada Ltd. , 2004 ABQB 484 . [ 28 ] He continued at para 20: 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…Where the counterclaim adds significant complexity to the action, with the potential to prolong discoveries and trial, this may be a relevant factor in refusing security or in determining the amount.” [ 29 ] In Atilla Dogan , Wittman A.C.J. granted AMEC’s application and ordered Atilla Dogan to post security for costs.

In doing so, he considered the fact that AMEC’s counterclaim did not raise the same issues as in Atilla Dogan’s claim against it, and that the counterclaim would not unduly complicate the action. [ 30 ] The Caskey case was cited by Wittmann A.C.J. with approval. In that case, Master Funduk held that where the issues in the counterclaim were the same as in the main claim, that is a “relevant fact” and “plays a

part in the exercise of the Court’s discretion to award or not award security to be given.” [ 31 ] In Caskey , the Master declined to order security for costs. [ 32 ] Wells Fargo referenced Ritter v. Hoag , 2003 ABQB 229 . In that case, Burrows J was faced with a similar argument as is raised here: a defendant with a counterclaim cannot obtain security for costs from the plaintiff.

[ 33 ] Burrows J held at para 29: [29] Before moving on to the plaintiffs’ application for security for costs in the counterclaim, it is necessary to note that the plaintiffs cited Specialty Steels v. Suncor [1997] A.J. No. 276 in opposing the defendants’ application for security for costs. In that case Fraser J. dismissed a defendant’s application for security for costs because the defendant had also counterclaimed. He said “. . . Suncor has counterclaimed and is therefore not in any event entitled to security for costs”.

In my view there is no general legal proposition that a defendant who counterclaims cannot obtain security for costs from the plaintiff. My reasons in that regard appear below (para. 40). [ 34 ] At paras. 40 and 41 he stated: [40] Before considering whether security for costs should be ordered against the defendants in the counterclaim, I wish to return to the Specialty Steels case mentioned above (para. [29]). In that case a defendant who had counterclaimed applied for security for costs against the plaintiff. The application was denied.

Fraser J. referred to the authorities cited above, in particular Athabasca Realty and Neck v. Taylor. He said: (para. 12) The Athabasca Realty case dealt with the application of a defendant by counterclaim for costs in respect of a counterclaim by a non- resident plaintiff by counterclaim (defendant). Nevertheless as was evidenced by the decision in Neck, the principle involved in respect of any application by a defendant who has advanced a counterclaim for security for costs in respect of the plaintiff’s claim is the same.

Assuming that the counterclaim arises out of the transaction which gives rise to the plaintiff’s claim, a requirement that the plaintiff give security for the costs of the defendant in defending the plaintiff’s claim would be to indirectly require the plaintiff to give security for the costs of the plaintiff by counterclaim (defendant) of prosecuting its counterclaim.

As stated by Master Funduk, it would require the plaintiff to give security for costs as a condition of it being allowed to defend the action by the plaintiff by counterclaim (defendant) and of having all the issues between those parties arising from the same transaction dealt with together. [41] The second sentence of that quotation is in error. The Neck case did not involve the application by a defendant who had advanced a counterclaim for security for costs in respect of the plaintiff’s claim.

It, like Athabasca Realty, was an application by a plaintiff for security for costs from a defendant who had counterclaimed. It is not authority for denying a defendant who has counterclaimed security for costs against a plaintiff. In my view, if the fact that a defendant has counterclaimed has any significance to the question of whether the plaintiff should post security for costs, it is but one circumstances to be considered with all the others.

In the case before me it has no significance to my decisions, previously explained (paras. [14] and [28]), holding that both plaintiffs should post security for costs. [ 35 ] I agree with Burrow J and his analysis. There is no bar against a defendant with a counterclaim obtaining security for costs against the plaintiff; similarly, there is no bar on the plaintiff getting security for costs against the defendants on its counterclaim. Defendants do not have to put up security to defend, but they may if they are advancing a counterclaim. [ 36 ] In John Wink Ltd. v.

Sico Inc. , Reid J was faced with a situation where the plaintiff relied on its poverty and argued that it would be a gross injustice if its poverty, caused by the defendant, protected the defendant from going to trial. [ 37 ] He held at para. 11: In my respectful opinion, unless a claim is plainly devoid of merit, it should be allowed to proceed. That is the only "special circumstance" that I would require.

While the adoption of this standard might allow some cases to go to trial that the trial will prove should not have proceeded, nevertheless, the danger of injustice resulting from wrongly destroying claims that should have been permitted to go to trial is to my mind a greater injustice. In my experience, there are very few claims that are entirely without merit that go to and through a trial. The onus on plaintiff is therefore not to show that the claim is likely to succeed.

It is merely to show that it is not almost certain to fail. [ 38 ] With respect, the approach taken by Reid J has the potential to gut the provisions for security for costs. The basis for an order for security for costs is that the defendant has an arguable defence, and if the defendant is successful at trial, it is unlikely to recover its proper costs because of the plaintiff’s poverty. [ 39 ] If the plaintiff’s poverty is proven, which is often the case in these applications, requiring the defendant to prove that the plaintiff’s claim is groundless or frivolous, that test sounds remarkably like the test for

summary dismissal of an action. [ 40 ] If all the plaintiff has to do is show that the claim is not almost certain to fail, defendants will rarely get security for costs. One might ask if the test is essentially the same as the test for

summary dismissal, why bother with security for costs? [ 41 ] In any event, I think what the John Wink shows is the nature of the discretion a judge has with respect to ordering security for costs. There are no absolutes. It is an area for the exercise of discretion based on what the court considers to be just and reasonable. [ 42 ] The court is required to consider the potential for enforcement of a bill of costs, the ability of the respondent to pay and the merits of the action. [ 43 ] Some basic principles can be drawn from the cases, and I do not profess that the following is exhaustive.

Rather, the following are some principles applicable to the facts and circumstances of this case. The plaintiff’s ability to pay a future cost award is always relevant; 1. The existence of a counterclaim is a factor to be weighed based on the extent to which the counterclaim is tied to the claim, or whether it involves mainly different issues from the claim;

2. The court must attempt to look at the merits of the action, as difficult as that may be on an interlocutory application; 3. The greater the likelihood of success for the plaintiff (if that can be reasonably assessed) the more the court should consider the potential unjustness of preventing a meritorious claim from proceeding; 4. The converse is true: the smaller the likelihood of success for the plaintiff (if that can be reasonably assessed) the slower the court should be in denying security when security would otherwise be appropriate; and 5.

Any connection between the plaintiff’s financial situation and the defendant’s conduct is relevant, especially if the defendant’s wrongful conduct is alleged to be the cause of the plaintiff’s impecuniosity [ 44 ] As with many applications, this analysis involves a balancing act: balancing the right of a plaintiff to pursue a claim and the right of a defendant to protection from false claims. [ 45 ] Alberta is a “costs” jurisdiction, meaning that the loser pays. There is no free ride in litigation.

Plaintiffs who win can expect to recover some of their costs in pursuing their successful claim; defendants who win and defeat the plaintiff’s claim can expect to recover some of their defence costs. [ 46 ] Security for costs has developed as a means of protecting defendants from frivolous claims, or claims by plaintiffs who have “nothing to lose” by making the claim in that if they lose, they don’t have the wherewithal to pay the defendant’s costs. [ 47 ] As best as the court can do on an interlocutory application, the court must determine if it can get to the stage of assessing “likelihoods”: is the plaintiff likely to succeed at least to some degree; or is the defendant more likely to defeat all of the claims? [ 48 ] Here, the plaintiffs’ claim boils down to whether or not the defendant acted in a commercially reasonable manner and determining the fair value of the trailer.

That will require some expert evidence on both sides. The mere fact that a machine purchased for some $200,000 and refurbished for a further $100,000 some three years before a forced sale for $15,000 is not conclusive one way or another. The extent to which a creditor may be required to hold off on sale for more favourable economic conditions, or expend further funds marketing the trailer or improving the trailer for sale are all issues for trial. [ 49 ] I cannot say that the plaintiff is more likely to succeed than the defendant.

There are certainly arguments both ways, and even the defendant suggests that the trailer may have been worth as much as $40,000 at the time.

That, however, does not necessarily mean that it was not commercially reasonable for a creditor to take the only offer available at the time. [ 50 ] The plaintiffs argue that it was placed in the impecunious position it finds itself in because the trailer was sold out from under them at a time when they could have used the value of the trailer to pay off its main creditor, the Alberta Treasury Branch. [ 51 ] The evidence before me shows that ATB seized the trailer first, and that it backed off attempting to manage the sale process in the face of Wells Fargo’s claim for some $50,000. [ 52 ] That suggests ATB doubted that after paying selling costs and Wells Fargo’s prior encumbrance, it would not recover much if anything towards its debt.

This suggests that another creditor doubted that the trailer was worth much more than $40,000. [ 53 ] Correspondence attached to Mr. Jobb’s affidavit shows that an offer was made to him to purchase the trailer plus a gooseneck for $200,000. The offer was made on September 13, 2011. On February 21, 2012 Wells Fargo’s solicitor Mr. Pawlyk wrote to 1251165’s solicitor Mr. Payne stating: “if a real offer is presented in writing, Wells Fargo will not stand in the way of any due diligence required by the purchaser.” [ 54 ] Mr. Payne wrote Mr.

Pawlyk and ATB’s lawyer on February 15, 2012 referencing an expected offer for $225,000 and asking “if the offer is presented, what is each of your client’s position”. No more details of that are provided. [ 55 ] However, it appears by the time of that series of correspondence, the trailer had already been sold by Wells Fargo. And this was known to 1251165 based on a letter dated December 1, 2011 from Mr.

Payne to Samax Industries, the purchaser of the trailer from Wells Fargo. [ 56 ] There seems to have been a disconnect between Wells Fargo and its counsel, as its lawyer appeared to believe the trailer was still unsold in February, 2012. [ 57 ] No details are provided as to what occurred during the period from the sale of the trailer in October 2010 to the making of the offer in September, 2011. Wells Fargo invoiced the purchaser on October 20, 2010 although the offer from the purchaser is dated October 26, 2010. The purchaser provided a cheque for the purchase price on November 3, 2010.

Wells Fargo advised ATB that it sold the trailer on November 5, 2010. [ 58 ] The essence of 1251165’s claim is that Wells Fargo disposed of their security unreasonably and that it acted without good faith, relying on the provisions of the Personal Property Security Act , RSA 2000 c P-7. As evidence of Wells Fargo’s unreasonableness, the plaintiffs say they had a sale negotiated for $200,000 and this was thwarted by Wells Fargo selling the trailer. There is a conflict in the evidence as Wells Fargo says the plaintiffs’ proposed sale included accessories and the “gooseneck” which the plaintiffs had retained.

[ 59 ] Presumably, the plaintiffs argue that Wells Fargo should have held onto the trailer until the fall of September, 2011 rather than sell it. [ 60 ] It is curious that no one outside Wells Fargo and ATB, including Wells Fargo’s solicitor acting on enforcement of the security, appears to have known that the trailer had been sold in October 2010. Correspondence from Wells Fargo to ATB dated November 10, 2010 advises that the trailer was sold for $15,000. On November 15, 2010, Wells Fargo sent ATB confirmation of the sale and describes the sale date as November 5, 2010.

I do not know if anything turns on these various dates. [ 61 ] ATB did not obtain a judgment against Mr. Jobb until June 1, 2012 when it was awarded some $261,000.00. [ 62 ] From the facts before me, I cannot and do not conclude that the plaintiffs’ position is hopeless and bound to fail, and that Wells Fargo is certain to win. I have no idea why the plaintiffs were trying to sell the trailer in September, 2011 when it had already been sold by Wells Fargo in October, 2010.

ATB had in November, 2010 abandoned any claim it had to the trailer and knew of the sale. [ 63 ] I presume that Wells Fargo complied with the notice requirements for private sale under the PPSA . It is curious that the Act does not require notification to the debtor following a sale so it is conceivable that the plaintiffs were unaware that the trailer had been sold until sometime after September, 2011 when it received an offer, and early December, 2011 when it wrote to the purchaser from Wells Fargo.

They may have still been counting on their estimate of the value of the trailer to deal with ATB, even though ATB knew that the trailer had been sold. [ 64 ] I also cannot conclude that the plaintiffs’ woes were caused by Wells Fargo’s allegedly unreasonable sale. They had already defaulted in their obligations to Wells Fargo and ATB. A related company was in bankruptcy. [ 65 ] It is open to speculation as to how far $150,000 may have gone to satisfy ATB, when ATB’s registered judgment is $261,000.

The plaintiffs suggest that a significant part of that amount is made up of ATB’s costs, which would have been much smaller had they been able to deal with the lawsuit earlier. There is no indication that Wells Fargo could have received $200,000 for the trailer any earlier than the fall of 2011 and it is unclear whether with that amount the plaintiffs could have settled with ATB and avoided judgment against Mr.

Jobb. [ 66 ] It is clear that if the matter goes to trial, expert evidence will be required concerning the value of the trailer at the time it was sold by Wells Fargo, as well as what constitutes commercial reasonableness in the context of realization on chattel security. Conclusion [ 67 ] The admitted poverty of the plaintiffs strongly favours an award of security for costs. There is nothing compelling to suggest that it would be unfair to require the plaintiffs to put up security.

Wells Fargo was entitled to seize the trailer and did so, gave notice of its intent to sell in June, 2010 (according to their statement of defence) and sold the trailer in late October, 2010 to the only bidder. [ 68 ] The plaintiffs had at least five months following the seizure and four months after the notice to deal with the trailer and find a buyer. By abandoning its interest in the trailer in November, 2010, ATB appears to have concluded that the trailer was not going to fetch more than $50,000 at the time.

Evidence of value comes from the same expert for both sides, and much of the assessment hinges on what components were with the trailer when Wells Fargo sold it, as well as the overall condition of the trailer at the time. [ 69 ] There is a temporal disconnect between Wells Fargo’s sale, and the activities of a year later when the plaintiffs received an offer on the trailer at least nine months after they learned that it had already been sold. [ 70 ] This is not a situation where the plaintiffs’ woes are clearly tied to the actions of the defendant.

Here, the plaintiffs must prove that Wells Fargo sold the trailer in bad faith, and not in a commercially reasonable manner. They must show that the trailer, if properly disposed of, would have realized more than was owed to Wells Fargo. To get much by way of damages, they must then show that the surplus (which would have gone to ATB because of its security) would have materially affected their dealings with ATB. [ 71 ] The plaintiffs might prove that Wells Fargo acted unreasonably.

But that will get them nowhere unless they prove the value of the trailer (presumably without the gooseneck) was more than $50,000 in October, 2010. If they prove both of those facts, they will get damages of significance only if they can establish that the surplus would have been large enough to materially affect the course of their dispute with ATB. [ 72 ] This is a far cry from a case alleging wrongful seizure, the consequences of which puts the plaintiff out of business. There, the plaintiff could, by proving a wrongful seizure, show a direct connection between going out of business and the seizure.

Here, the plaintiffs were already in default to two creditors, a related company was bankrupt, and the seizure was lawful. The argument is that Wells Fargo should have done more to market the trailer and held out for more, and that if it had done so, it would have got much more on the sale than was owed to it. [ 73 ] I considered hardship issues in Cormode & Dickson Construction

(1983) Ltd. v. 394300 Alberta Ltd. , 2008 ABQB 607 . There, ordering security for costs would have prevented the defendant (plaintiff by counterclaim) from being able to defend itself on the claim, as its defence was largely set off as a result of the counterclaim. The plaintiff by counterclaim did have assets (although not exigible) – approximately a million dollars tied up in court in the litigation itself.

There would have been funds available for the defendant by counterclaim’s costs unless it was entirely successful as plaintiff. [ 74 ] That case is more applicable to the situation of the plaintiff being able to get security for costs on the defendant’s counterclaim than it is to a case where the defendant seeking security has a counterclaim itself. [ 75 ] Wells Fargo has offered to discontinue its counterclaim in the event the plaintiffs do not put up the necessary security for costs, in an attempt to answer the argument that a defendant with a counterclaim should not be able to get security for costs against the

plaintiff as the proceedings will carry on whether or not the plaintiff provides security. [ 76 ] Here, the claim and the counterclaim are inextricably connected. Wells Fargo can likely put the evidence forward on its counterclaim easily. The defence to it is the same as the plaintiffs’ claim: Wells Fargo failed to act in good faith in a commercially reasonable manner. The same experts will be required on the value of the trailer and commercial reasonableness.

The only difference would be that without having to face the plaintiffs’ claim if they cannot come up with ordered security, Wells Fargo would only be facing a dismissal of its claim if it was found in bad faith or being unreasonable. [ 77 ] The same issues will be tried one way or the other and the claim and counterclaim are closely connected, so the existence of the counterclaim is relevant. It is still there, and is only offered up conditionally on security being ordered and not placed. That offer is a significant factor to consider on this application.

Decision [ 78 ] I have a broad discretion with respect to this matter. While being mindful of Reid J.’s concerns in John Wink about preventing meritorious claims from proceeding, defendants should only be at risk for their costs in exceptional circumstances when it is clear that absent success in the litigation, the plaintiff will have no ability to satisfy a cost award against it. [ 79 ] Here, there are no compelling reasons to conclude that the Master erred in ordering security for costs. The plaintiffs have no ability to pay a future cost award if they are not successful.

While the counterclaim is relevant, the defendant offers to discontinue it if the plaintiffs fail to put up the necessary security so the action will be wholly disposed of in those circumstances. [ 80 ] I can draw no likelihoods from the evidence before me. I cannot conclude one way or the other at this stage who has the stronger case.

Further, while there may be a connection between the plaintiffs’ impecuniosity and the defendant’s actions, that is speculative and does not automatically flow from a finding that the defendant failed to act in a commercially reasonable manner. [ 81 ] Thus I find that the Master’s order that security be provided was correct. [ 82 ] I do take some issue with his quantification of the costs, however. [ 83 ] It is clear from case authority that security can be ordered progressively, and at various stages of the litigation. Here, the parties have not yet produced their records or had questioning.

Records and questioning will go a long way to filling in the present gaps in information and evidence. Security is generally not ordered for past costs. [ 84 ] Wells Fargo put forward a draft bill of costs on column 3, which is the appropriate column. [ 85 ] On the basis of two days of questioning and three days of trial, Wells Fargo’s bill of costs totals $20,600 in fees and $20,000 for disbursements. [ 86 ] For steps from now until the completion of discovery, fees are estimated at $6,000.00. Before the matter can be set for trial, the parties will have to obtain expert reports.

This is not a hugely complicated matter. Experienced counsel has projected $10,000 for experts including their attendance at trial (one from Germany). Curiously, both parties appear to be relying on the same expert regarding the value of the trailer.

Travel and travel time are likely to be a significant part of the overall estimate. [ 87 ] Once the parties have exchanged records, had questioning and have exchanged expert reports, it will be much more practical to assess the parties’ positions and the reasonable range of outcomes at trial. [ 88 ] At this stage, I direct that the plaintiffs provide security for costs in the amount of $10,000.00, with leave to the defendant to reapply for further security following questioning and before the matter is set for trial. [ 89 ] If the plaintiffs are unable to post security in the time and manner specified in Rule 4.23, both the claim and the counterclaim will be dismissed.

Comments [ 90 ] I would suggest as a threshold step, before the parties incur the cost of producing records and conducting questioning, that they engage the German expert as a joint expert and provide him with several sets of assumptions relating to condition, accessories and the presence or absence of the gooseneck. That information would allow both parties to better assess their risks in the litigation and that would likely be a fraction of the cost of proceeding through questioning before engaging experts.

With information as to value, from a mutually-agreed expert, the parties will then be able to focus on the real issues to be tried and put themselves in a better position for settlement, alternative dispute resolution or ultimately trial. Heard on the 10 th day of July, 2013. Dated at the City of Edmonton, Alberta, this 16 th day of September, 2013.

Robert A. Graesser J.C.Q.B.A. Appearances: Roderick C. Payne Hustwick Payne for the Appellants Kentigern A. Rowan, Q.C. Ogilvie LLP for the Respondent