Manson Insulation Products Ltd. v Crossroads C&I Distributors, 2013 ABQB 702

Court of Queen ’ s Bench of Alberta Citation: Manson Insulation Products Ltd. v Crossroads C&I Distributors, 2013 ABQB 702 Date: 20131129 Docket: 0903 17546 Registry: Calgary Between: Manson Insulation Products Ltd. and Knauf Insulation GMBH Plaintiff - and - Crossroads C&I Distributors, Yellow Cross Operating GP Inc., carrying on business under the firm name and style of Crossroads C&I Distributors, Johns Manville Canada Inc., Johns Manville and Johns Manville Corp.

Defendants And Between: Crossroads C&O Distributors, Yellow Cross Operating GP Inc., carrying on business under the firm name and style of Crossroads C&I Distributors Plaintiffs by Counterclaim - and - Manson Insulation Products Ltd. Defendants by Counterclaim - and - Manson Insulation Inc., Shawn Tilson, Keith Eaman and 518162 Alberta Ltd. Defendants by Counterclaim - and - Shawn Tilson and Keith Eaman Third Parties Table of Contents

I. ......... INTRODUCTION .. 3 II. ....... FACTUAL BACKGROUND .. 3 A. History of Relationship among Parties . 3 B. Allegations . 3 III. ......

SUMMARY TRIAL APPLICATION AND OBJECTION .. 5 IV. ...... LEGAL PRINCIPLES GOVERNING

SUMMARY TRIALS . 6 V. ....... FINDINGS . 8 _ ________________________________________ ______________ Reasons for Decision on Objection to

Summary Trial of the Honourable Mr. Justice G.H. Poelman _________________________________________ ______________ I. INTRODUCTION [ 1 ] The primary defendants and plaintiffs by counter-claim (Crossroad C&I Distributors, or “New Crossroads”, and Yellow Cross Operating GP Inc., or “Yellow Cross”) filed an application for

summary trial, seeking dismissal of part of the action of the plaintiffs (Manson Insulation Products Ltd, or “New Manson”, and Knauf Insulation GMBH, or “Knauf”). One of the plaintiffs, New Manson, responded with an application that the

summary trial not be permitted to proceed. [ 2 ] The issue for determination on this application is whether the proposed

summary trial, to determine basic issues of contractual

interpretation, should be permitted to proceed. II. FACTUAL BACKGROUND A. History of Relationship among Parties [ 3 ] New Manson commenced this action on November 5, 2009, seeking to enforce and obtain damages for breach of a “Distribution Agreement” made on June 6, 2008 between Manson Insulation Inc. (“Old Manson”) and Crossroads C&I Distributors Inc. (“Old Crossroads”).

Under the Distribution Agreement, Old Manson appointed Old Crossroads as exclusive distributor of insulation products and the parties undertook minimum supply and purchase obligations to each other. [ 4 ] Old Manson and Old Crossroads had a business relationship for many years before the Distribution Agreement. Through that relationship, Old Manson provided industrial insulation products to Old Crossroads. [ 5 ] Shortly after the Distribution Agreement was made, New Crossroads acquired the assets of Old Crossroads.

Shortly after that transaction, New Manson (an affiliate of Knauf) acquired the assets of Old Manson. [ 6 ] The product purchased from Old Manson (before and after the Distribution Agreement was made) was insulation made from glass fibers manufactured by a flame-attenuated process at a facility in Brossard, Quebec. By the end of 2008, the Brossard facility was closed and New Manson provided a different glass fiber insulation product.

The replacement product was manufactured by Knauf at facilities in Indiana. [ 7 ] In October 2009, New Crossroads began to purchase its products from another distributor, the defendants Johns Manville Canada Inc., Johns Manville and Johns Manville Corp. (collectively, “Manville”). It refused to take any more products from New Manson. B. Allegations [ 8 ] The allegations of the plaintiffs, as set forth at length in their amended amended statement of claim, can be broadly described as follows: a. The Distribution Agreement, although made between Old Manson and Old Crossroads, became binding on New Manson and

New Crossroads. b. The Distribution Agreement required New Crossroads to purchase its insulation products from New Manson, even after those products came to be sourced from Knauf. While the new product involved a different manufacturing process, it was equal or superior to the product formerly made at Brossard. The Distribution Agreement allowed New Manson to unilaterally change the product. c. New Crossroads engaged in a course of conduct, unknown to New Manson, designed to enable it to avoid its obligations under the Distribution Agreement and make new procurement arrangements with Manville. d.

New Crossroads took positions with New Manson that the Distribution Agreement was unenforceable and later that it was released from its obligations because of New Manson’s breaches of contract in failing to provide the described products. e. New Crossroads breached the Distribution Agreement by failing to purchase minimum quantities of insulation from New Manson, and failing to use all commercially reasonable efforts to market and sell New Manson’s products. It also breached duties of good faith. f.

New Crossroads breached duties of confidence owed under the Distribution Agreement and otherwise by disclosing confidential and proprietary information of New Manson and Knauf to Manville, to assist the establishment of a new arrangement by which New Crossroads would obtain its insulation products from Manville. g.

Manville and New Crossroads’ general partner, Yellow Cross, interfered with New Manson’s economic interest in the Distribution Agreement and Knauf’s economic interest in supplying New Manson with products that would be sold under the Distribution Agreement to New Crossroads; and used unlawful means such as breach of contract (both express terms and good faith obligations), breach of confidence, conspiracy and inducement to breach contract. h.

New Crossroads and Manville conspired against New Manson and Knauf, and committed unlawful acts in furtherance thereof, including breaches of confidence, inducement to breach contract, breach of contract (both express terms and good faith obligations) and interference with economic relations. i. The Distribution Agreement should be rectified to provide that the insulation supplied did not have to be manufactured by Old Manson or New Manson, if the plaintiffs’

interpretation of the Distribution Agreement is not accepted. [ 9 ] New Crossroads’ pleadings raise a wide range of defenses and counterclaims. Once again in broad terms, its allegations are as follows: a. Shawn Tilson and Keith Eaman owned all of Old Manson’s shares, and fifty percent of Old Crossroads. They sought to sell Old Manson’s brands and Distribution Agreements to an affiliate of Knauf. To increase the value of these assets, they sought a long term Distribution Agreement between Old Manson and Old Crossroads.

To obtain it, they suggested to other owners of Old Crossroads that they would support a sale of its assets (which was in contemplation) only if a Distribution Agreement was made. This was a breach of their duties of loyalty and candour, as directors, to Old Crossroads. b. The Distribution Agreement was not novated to include New Manson and New Crossroads. Thus, it was not binding after the sales of Old Manson and Old Crossroads. c. The insulation product New Manson began to sell to New Crossroads, made by Knauf, was different and inferior from the Brossard-manufactured product.

Thus, New Crossroads ceased to purchase from New Manson and instead made a new distribution agreement with Manville. d. The Distribution Agreement was not enforceable because there was no novation, it was voided based on Tilson’s and Eaman’s breaches, and it was incomplete and uncertain because the schedules on price and specifications were left blank. e. If the Distribution Agreement was enforceable, New Crossroads has no liability because New Manson was obligated to sell insulation made at the Brossard facility, or at least products made by New Manson.

The failure to provide such products was a breach of the Distribution Agreement. [ 10 ] The plaintiffs claim over $40 million, and New Crossroads seeks over $32 million in its counterclaim. C. Procedural History [ 11 ] As noted above, the action was commenced on November 6, 2009. It has expanded to include eleven parties and many amendments of pleadings. It has been under my case management since March 2011. [ 12 ] Discovery questioning has been mostly concluded, with sixteen witnesses questioned over a total of approximately thirty days.

More questioning is scheduled for the balance of this year, and at least one party seeks an extension of the

schedule into early 2014. [ 13 ] The parties and the court have targeted having the action tried before the end of June 2014, with an anticipated duration of three to four weeks. However, the trial has not yet been scheduled. III.

SUMMARY TRIAL APPLICATION AND OBJECTION [ 14 ] New Crossroads filed its application and supporting affidavits for

summary trial on January 24, 2013 (although it gave informal notice to other parties well before then). New Crossroads seeks to summarily try what it refers to as the “interpretation point.” It focuses on the only definition in the Distribution Agreement of the products for which the parties had minimum supply and purchase

obligations to each other: “glass fiber mechanical and air handling insulation products with the specifications set forth in

Schedule “A” [which was left blank] attached hereto manufactured and sold by [Old Manson].” Its

summary trial application seeks a finding that, because the

schedule was blank and New Manson made no insulation itself (but rather obtained it through Knauf), New Crossroads had no purchase obligations even if the Distribution Agreement was binding. Further, it argues that no evidence supports rectification of the Distribution Agreement to take away the requirement of manufacture by seller, or to resolve the problem of a blank specification schedule. [ 15 ] New Manson filed its application objecting to a

summary trial in October 2013. If the

summary trial is permitted to proceed, it will be held on two days: February 18 and 19, 2014. [ 16 ] In support of its application for

summary trial, New Crossroads has submitted affidavits of David Chapman (a principal of New Crossroads) and Charles Haun (a principal of Old Crossroads).

In support of its objection application, New Manson submitted an affidavit from a legal assistant containing excerpts from discovery questioning of three witnesses, and documents referred to therein; New Crossroads responded with a legal assistant’s affidavit, containing additional transcripts from the same witnesses relied upon by New Manson. [ 17 ] New Manson has not yet conducted affidavit questioning of Chapman or Haun, or filed its own substantive affidavits. It intends to do so if its objection is not allowed. IV. LEGAL PRINCIPLES GOVERNING

SUMMARY TRIALS [ 18 ] The

summary trial procedure is codified in

Part 7, Division 3 of the Alberta Rules of Court. Rule 7.5 allows a party to apply for judgment by

summary trial “on an issue, a question, or generally” with an application in the required form, specifying what is to be determined and why it is suitable for

summary trial, and accompanied by the evidence to be relied upon. [ 19 ] A respondent may object to a

summary trial being heard, either at or before the hearing, on either or both of the grounds that: (

a) the issue or question raised in the claim, or the claim generally, is not suitable for a

summary trial; (

b) a

summary trial will not facilitate resolution of the claim or any part of it. [rule 7.8(1)]. The objection must be dismissed if, in the judge’s opinion: (

a) the issue or question raised in the claim, or the claim generally, is suitable for a

summary trial, and (

b) the

summary trial will facilitate resolution of the claim or a part of it (rule 7.8(3)] [ 20 ] If the respondent does not make a preliminary objection, it must file evidence on which it intends to rely at the

summary trial ten days or more before the date scheduled for the hearing: rule 7.6. That deadline has not yet arrived in this case. [ 21 ] Once a

summary trial has been held, rule 7.9 provides that the judge may either dismiss the application for judgment or give judgment in favour of a party. [ 22 ] Thus, a party is presumptively entitled to a

summary trial, but a respondent’s objection to the procedure may be ruled on either before or at the hearing. If the judge’s opinion is that “the issue or question raised in the claim, or the claim generally, is suitable for a

summary trial and

summary trial will facilitate resolution of the claim or a part of it,” the objection must be dismissed. [ 23 ] There are many authorities considering these rules and their predecessors – and the cases on the former rules are still relevant. [1] The authorities arise out of a variety of contexts, and generalizations of principles must be made cautiously. While the rules seem clear and straight forward, they necessarily entail the use of judicial discretion applied to the facts of each application. There are no hard-and-fast rules for determining whether something is “suitable” for a

summary trial, or whether a

summary trial will “facilitate resolution.” There are a broad range of factors to be considered, which include at least those identified by Read J. in Duff v. Oshust, as follows: 1. the amount involved; 2. the complexity of the matter; 3. its urgency; 4. any prejudice likely to arise by reason of delay; 5. the cost of taking the case forward to a conventional trial in relation to the amount involved; 6. the course of the proceedings; 7. whether all witnesses or only some were (will be) cross-examined in court; 8. whether there is a real possibility that the defendant can bolster its evidence by discovery of the plaintiff’s documents and witnesses; and

9. whether the resolution will depend on findings of credibility. [2] [ 24 ]

Summary trial is not necessarily precluded even where there are conflicting affidavits and the need to make findings on credibility and reliability of witnesses – although that need would be a negative factor to be considered. Where there is conflicting evidence, there must be a factual matrix on which the court would be enabled to justly prefer one party’s evidence over the other. [3] [ 25 ] Thus, while the range of factors to be considered is wide and the possible need to resolve conflicting evidence is not determinative, at root the question remains one of “suitability” and whether a

summary trial will facilitate resolution of at least part of the claim. [ 26 ] There is an additional procedural consideration. If a respondent’s objection to a

summary trial is dismissed before the hearing, the judge at the

summary trial still has the ability under rule 7.9 to dismiss the application for

summary trial. This procedure implicitly recognizes that the evidentiary record may not be complete when a preliminary objection is heard, or it may be difficult to make a final conclusion on whether a

summary trial judgment should be given until a full application is heard. [ 27 ] After a

summary trial has been conducted, rule 7.9(2) requires judgment to be given unless “the judge is of the opinion that it would be unjust to decide the issues on the basis of the

summary trial.” The word “unjust” seems in contrast to the question of whether a

summary trial is “suitable”, the wording used in rules 7.5 and 7.8, the latter dealing with objections before the

summary trial is heard. If the difference in words is to mean anything, perhaps there is a higher onus on a judge to make a ruling after the full

summary trial has been heard. [ 28 ] The provision in the rules allowing an early application objecting to the suitability of a

summary trial, which would usually be heard before the deadline for filing of a respondent’s evidence, suggests that an objection may be ruled on before filing all the evidence that may be available on a

summary trial. Rooke J. (now A.C.J.) seemed to contemplate that this would occur, recognizing that a party may not want to make the complete investment necessary for a substantive response in order to argue its objection. [4] As he noted, however, a respondent “must be able to point to some evidence, whether filed by his opponent or otherwise, in support of his opposition to proceeding to

summary trial.” [5] V. FINDINGS [ 29 ] The “issue” sought to be determined in this

summary trial is whether the Distribution Agreement by its words limited the minimum supply and purchase obligations to insulation products specified in a

schedule (which was blank) and manufactured by New Manson; and if so, whether the Distribution Agreement should nevertheless be rectified so that minimum obligations are not thus limited. [ 30 ] New Crossroads adduced discovery questioning evidence and affidavits from persons primarily involved in the negotiation, execution and performance of the Distribution Agreement.

The evidence includes documents incorporating many of the communications between the parties. [ 31 ] New Manson argues from this evidence and other discovery questioning that there are at least three areas of potential inconsistencies in the evidence. In my view, none of them are central to the fundamental question of what deal the parties made. Further, at this stage I am satisfied that the necessary factual matrix would be available to make necessary findings of fact, particularly considering that many communications between the parties occurred in writing. [ 32 ] If the evidence would enable

summary determination of the contractual

interpretation and rectification issues, there remain other factors to consider relating to whether the

interpretation issue is “suitable” for a

summary trial and whether the

summary trial will facilitate resolution of the claim or a part of it. [ 33 ] As can be seen from my review of the allegations in the pleadings, there are four main causes of action: breach of the Distribution Agreement, breach of confidence, inducing breach of the Distribution Agreement and conspiracy. [ 34 ] If New Crossroads succeeds in its

interpretation argument, New Manson’s contract action is significantly curtailed. The major part of that action would be lost. However, it has not ended. New Manson’s claims for breach of confidence are founded in part on the Distribution Agreement’s confidentiality provisions and its allegations of breach of duty of good faith are also based in part on the Distribution Agreement. In addition, the tort actions of conspiracy and inducing breach of contract would remain. [ 35 ] If New Crossroads is unsuccessful on its

interpretation argument, in addition to the other contract and tort issues, it would raise a number of significant defences to the contract action. Among other things, New Crossroads argues lack of novation (and thus no contract between New Manson and New Crossroads), inferior products offered by New Manson, unenforceability caused by uncertainty of terms, and voiding of the contract due to breaches of Tilson and Eamon. [ 36 ] In addition to these liability issues (on either result) there must be an assessment of damages. [ 37 ] The witnesses whose evidence is central to the proposed

summary trial are at least Chapman and Haun, and likely Tilson, Eamon and one or two others (New Manson has not yet filed its evidence, but indicated in argument whose evidence it would submit to complete the factual matrix). These witnesses all had significant involvement in the Distribution Agreement and the transactions by which Old Manson and Old Crossroads, or their assets, were sold. [ 38 ] New Crossroads fairly acknowledges that at least some of these witnesses would also be required to testify at a later viva voce trial, if a

summary trial decision did not result in a settlement. They were pivotal figures in the communications, events and transactions at the heart of the action – and thus have important evidence on most of the issues to be tried. [ 39 ] Further, the amount involved and its relationship to the cost of moving to a viva voce trial should be considered. As noted, the plaintiffs’ claims exceed $40 million, and the counterclaim exceeds $32 million. New Crossroads argues that the real amounts in issue

are less, but that is not admitted. The parties have largely completed their pre-trial steps, so the further expenditure of preparation for, and conduct of, a three to four week trial is not a significant factor in my decision. [ 40 ] No one suggests that there is urgency or risk of prejudice if the

interpretation points are not determined by

summary trial. [ 41 ] New Crossroads argues that because serious credibility issues have not been shown, the factual matrix can be established by affidavit evidence, questioning and documents. In addition it submits that the point to be tried is discrete, the issue is “suitable” and thus, under the rules, must be allowed to go to

summary trial. In my view, that is an overly-narrow construction of the rules. First, one consideration is whether resolution of the claim or part of it will be facilitated. Second, questions of suitability do not depend merely on an analysis of the question proposed for

summary trial. Suitability must be determined in the context of the action as a whole, because ultimately it is the action which must be resolved or determined. [ 42 ] Taking all these considerations into account, I find that

interpretation of the points put forward by New Crossroads should not be tried summarily. Whatever result a

summary trial might generate, many liability and damages issues would remain. Findings of fact would be made at

summary trial which may overlap with findings necessary at a viva voce trial with the same witnesses testifying orally. Strictly speaking, only a narrow

interpretation point may be at issue at the

summary trial, but it is possible that underlying findings of fact about the course of negotiations and dealings may be necessary. There is a serious risk of tying a later judge’s hands, or of contradictory findings emerging from the two proceedings. [ 43 ] The possibility of efficiencies is offset by the risk of inefficiencies. New Crossroads says if it succeeds at

summary trial, the heart of the plaintiffs’ claims will disappear, increasing the likelihood of settlement. It urges the investment of two days, in the hope that a longer trial will be avoided or shortened. [ 44 ] I find it unwise to bank on the odds of a win by New Crossroads at

summary trial, and then the odds of a settlement or much shorter trial. This action has been hard-fought. It is just as likely that whatever

summary trial judgment is given, a viva voce trial will proceed with the same witnesses. Even if it is somewhat shorter, that is a small saving to put against the risks. And if New Crossroads loses the

summary trial, the prospects of a settlement or shorter trial are even less. [ 45 ] The objectives of a

summary trial are laudable and it is an important tool in many cases. However, it would be misguided to interpret these procedures and the “Foundational Rules” (Part I of the Alberta Rules of Court ) as justifying avoidance of viva voce trials for even the smallest possibility of gains in efficiency. The viva voce trial developed and has been maintained in our common law system, with many important changes, because of the belief that it usually generates the most just result for the parties and our legal system. [ 46 ] One sometimes gets the impression that trials are to be avoided at almost any cost.

But in certain cases, the best course is to expedite the progress of a case to full trial for final judgment (subject to appeal) on all issues. This is one of those cases. [ 47 ] I therefore find that the objection to the

summary trial application should be sustained, and as a result the

summary trial scheduled for February 18 and 19, 2014 will not proceed. [ 48 ] The parties have leave to address the matter of costs if they are unable to agree. Heard on the 4 th day of November, 2013. Dated at the City of Calgary, Alberta this 29 th day of November, 2013. G.H. Poelman J.C.Q.B.A. Appearances: L.M. Grant Novinger, D. Chernichen, Q.C., J. Luu and J. Fink, for the Plaintiffs H. Poulus, Q.C. and J.S. McLean, for the Defendants Crossroads C&I Distributors, Yellow Cross Operating GP Inc., carrying on business under the firm name and style of Crossroads C&I Distributors D.

Reed, for the Defendants Johns Manville Canada Inc., Johns Manville and Johns Manville Corp. M. Sestito, for S. Tilson and K. Eaman

[1] Bonsma v. Tesco Corp. , 2011 ABQB 620 , para 27 ; SHN Grundstuecksverwaltungsgesellschaft MBH & Co. Seniorenresidenz Hoppegarten-Neuenhagen KG v. Hanne , 2012 ABQB 624 , 550 A.R. 129, para 15 . [2] 2005 ABQB 117 , 381 A.R. 386, para 24 . [3] Pecek v. Fedun , 2007 ABQB 133 , 427 A.R. 356, paras 13 and 14 . [4] Discovery Ridge Development Corp. v. Well International Holdings Corp., 2003 ABQB 406 , 337 A.R. 1, paras 63 and 65 . [5] Ibid, para. 65.