3S Resources Inc v Improvisions Inc, 2015 ABQB 754

Court of Queen’s Bench of Alberta Citation: 3S Resources Inc v Improvisions Inc, 2015 ABQB 754 Date: 20151127 Docket: 1203 17870 Registry: Edmonton Between: 3S Resources Inc, Nick Sandu, Terezia Sandu and Nickolletta Sandie Applicants - and - Improvisions Inc and Len Gibeault Respondents Corrected judgment: A corrigendum was issued on November 30, 2015; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice S.J.

Greckol _______________________________________________________ I. Introduction [ 1 ] This litigation concerns a claim by the Plaintiffs, 3S Resources Inc, the Sandus and Ms. Sandie, that a renovation by Defendants Improvisions and Gibeault, went terribly awry. The Defendants claim they were represented by a solicitor who decided not to oppose a default judgment, intending instead to litigate the facts only at the hearing as to the quantum of damages. [ 2 ] However, the Defendants were bound by the facts asserted in the claim, leaving only the matter of assessment of damages.

The Defendants retained a new solicitor who brought application to set aside the default judgment, relying on authority that permitted such a step when responsibility for the default judgment lay at their solicitor. So it was that the default judgment was set aside with an Order for thrown away costs. [ 3 ] The Defendants disputed the scope of thrown away costs, on the basis that the application to open up the default judgment properly attracted the ordinary rule of costs to the winner since the point required litigation once the Plaintiffs did not relent, and the position taken by the Defendants was correct.

II. Legislation [ 4 ] The Court has discretion in exercising its power to award costs. The Alberta Rules of Court , AR 124/2010, and decided cases provide factors for consideration. Rule 10.33 identifies these factors: 10.33(1) In making a costs award, the Court may consider all or any of the following: (

a) the result of the action and the degree of success of each party; (

b) the amount claimed and the amount recovered; (

c) the importance of the issues; (

d) the complexity of the action; (

e) the apportionment of liability; (

f) the conduct of a party that tended to shorten the action; (

g) any other matter related to the question of reasonable and proper costs that the Court considers appropriate.

(2) In deciding whether to impose, deny or vary an amount in a costs award, the Court may consider all or any of the following: (

a) the conduct of a party that was unnecessary or that unnecessarily lengthened or delayed the action or any stage or step of the action; (

b) a party’s denial of or refusal to admit anything that should have been admitted; (

c) whether a party started separate actions for claims that should have been filed in one action or whether a party unnecessarily separated that party’s defence from that of another party; (

d) whether any application, proceeding or step in an action was unnecessary, improper or a mistake; (

e) an irregularity in a commencement document, pleading, affidavit, notice, prescribed form or document; (

f) a contravention of or non-compliance with these rules or an order; (

g) whether a party has engaged in misconduct. III. Issues [ 5 ] The issue that the Defendants raise is whether the Order for thrown away costs ought to include costs for the successful application to open up the default judgment. IV.

Facts Chronology of Events [ 6 ] It is necessary to reiterate the chronology of events leading to the present application concerning the proper scope of the Order for thrown away costs. [ 7 ] The Plaintiffs filed a Statement of Claim on December 3, 2012, alleging that though the Defendants were paid, they did not complete renovation work to their home as required by the construction contract.

Further, the Statement of Claim alleges that the Defendants, as suppliers, engaged in a consumer transaction and engaged in unfair trading practices contrary to the Fair Trading Act , RSA 2000, c F-2. [ 8 ] The Defendants filed Statements of Defence on December 18, 2012. [ 9 ] Improvisions swore an Affidavit of Records on April 24, 2013.

Shortly after, the Defendants’ original solicitor left the law firm and another solicitor in the law firm assumed conduct of the file. [ 10 ] On October 2, 2013, Master Smart issued an Order requiring, among other things, that Gibeault serve a sworn Affidavit of Records and that both Defendants produce the records listed in their Affidavits of Records. [ 11 ] On November 5, 2013, the Plaintiff filed an application to strike Gibeault’s Statement of Defence and to require Improvisions to produce records. [ 12 ] On November 12, 2013, Master Smart issued an Order directing that Gibeault’s Statement of Defence be struck for a failure to serve an Affidavit of Records.

On November 26, 2013, Gibeault was noted in default. The Order of November 12, 2013, also required Improvisions to provide copies of the producible records. Improvisions failed to comply and consequently, its Statement of Defence was struck. On December 3, 2013, Improvisions was noted in default.

[ 13 ] On April 23, 2014, the Plaintiffs applied in Justice Chambers for judgment against the Defendants under Rule 3.37. Browne J directed the matter to Special Chambers. [ 14 ] On September 5, 2014, the Rule 3.37 application for judgment was argued before me.

The Plaintiffs sought judgment based on the averments in the pleadings and affidavit evidence while the Defendants asked that there be a direction for a trial of the issue of damages with viva voce evidence. [ 15 ] Counsel for the Defendants acknowledged that the Defendants were bound by the facts alleged in the Statement of Claim, but sought a full hearing as to damages.

I declined to do so and instead, proceeded to assess damages based on the allegations of fact in the Statement of Claim and the affidavit evidence. [ 16 ] Judgment was granted for general damages in the sum of $6,000 and special damages in the sum of $53,856.71. [ 17 ] On October 16, 2014, the Plaintiffs brought application to settle the terms of the judgment, asking that their proposed form of judgment be signed and entered, with interest pursuant to the Judgment Interest Act , RSA 2000, c J-1, and costs. [ 18 ] On October 20, 2014, the Defendants brought application under Rule 9.15 requesting that the Court: a. set aside the noting in default of the Defendant Improvisions filed December 3, 2013; and of the Defendant Gibeault filed November 26, 2013; b. set aside the judgment for damages granted on September 5, 2014 against the Defendants Improvisions and Gibeault; c. reinstate the Statements of Defence of the Defendants; or alternatively, d. grant leave to the Defendants to file Statements of Defence. [ 19 ] These applications were heard on November 20, 2014. [ 20 ] The Defendants persuaded me that through a calamity of errors by their counsel, and no fault of their own, they were noted in default and the default judgment should be set aside.

In the Judgment at 2014 ABQB 746 , I held, at paras 52 and 53: [52] I conclude that the Defendants’ application under Rule 9.15 must be granted. They are entitled to defend their actions, their business dealings, their financial position and their reputation in the community, all of which are impugned by this lawsuit that alleges they breached a renovation contract and the Fair Trade Act .

The default judgment is set aside, as is the noting in default, and the Defendants are permitted to file their statements of defence. [53] The Plaintiffs are entitled to their thrown away costs – costs for the various applications taken that culminated in the default judgment that has been set aside. If the parties are unable to agree on the amount of those costs, or the time for payment of those costs by the Defendants, they may bring a further application before me for advice and directions. [ 21 ] The parties came back before me arguing over what the Defendants should pay as thrown away costs.

This should not have been a difficult application since the costs of useless proceedings should lie at the door of the Defendants, not the Plaintiffs who were innocent victims of the strategy employed by Defendants’ counsel to allow default judgment to be entered and contest the facts at a hearing to determine the quantum of damages. The Defendants have recourse to pursue recompense for any such thrown away costs, while the Plaintiffs do not. [ 22 ] The Defendants submit that the application heard on November 20, 2014, should not attract thrown away costs.

Rather, they say, only the applications preliminary to the application to open up the default judgment do. Counsel refers to Koppe v Garneau Lofts Inc , 2005 ABQB 727 , a decision of Slatter J, as he then was.

In Koppe , Slatter J undertakes an exhaustive consideration of the principles to be applied where an order for thrown away costs is issued. [ 23 ] The question that arises in this case is whether the Plaintiffs, who noted the Defendants in default, are entitled to costs of the applications that lead up to the motion to set aside the default judgment, as well as costs for the latter application, though they were not successful in opposing it.

Improvisations and Gibeault contend it is only the former costs that are thrown away, since once the Defendants established the legal entitlement to set aside the default judgment, the Plaintiffs should have relented.

The application proceeded because the Plaintiffs would not relent, and as they were wrong, the ordinary rule that costs are payable to the successful party must be applied. [ 24 ] In Koppe , at paras 18, 20, 22, and 23 , that question is answered in favour of the position advanced by the Defendants in this case, Improvisions and Gibeault. 18 The general pattern in these cases is that when a party makes a procedural misstep, that party will then assert to the respondent that it has the right to correct that misstep if it eliminates all the prejudice.

For example, it may assert that it has the right to amend a defective pleading, on payment of the costs of any wasted effort by the respondent. It might assert a right to open up a noting in default, because it has met the legal test for doing that (supra, para. 7(b)), again on payment of wasted costs. The respondent can do one of two things: it can acknowledge that the applicant has the right to fix the misstep, because the applicable test has been met, including that any prejudice can be eliminated on appropriate terms, or it can deny that the applicant has the right to correct the misstep.

In the latter situation, a new sub- dispute is created. There is now an issue as to whether the appropriate test (e.g. to amend, to adjourn, to open up noting in default, etc.) has been met. When this issue is litigated, the general rule should be that costs follow the event, subject of course to the Court's general jurisdiction over costs. Granting costs to an unsuccessful party only encourages unreasonable opposition to relief to which the applicant is entitled.

… 20 Likewise, if a party is noted in default, but asserts that it has met the test for opening up a default, it should be entitled to costs if successful. If the respondent denies that the defaulting party has the right to open up the default, and forces the matter to Chambers, then costs should follow the event. Again, it would be an undesirable result to allow respondents to defend such applications regardless of the merits of the applicant's position.

The applicant may have caused the noting in default, but it did not cause the subsequent court battle about whether it was entitled to open up the noting in default. … 22 It should be noted that in these situations the costs of determining whether the applicant is entitled to be relieved of its procedural misstep is not really "wasted". There is a dispute over the rights of the applicant to relief from its error, and the application resolves that dispute. Those efforts are not "wasted", because the dispute must be resolved.

Furthermore, those proceedings are not a direct result of the procedural misstep of the applicant; they are really brought on by the respondent's failure to accept that the applicant has made out its right to be relieved of the consequence of its procedural misstep. Where the applicant is entitled to relief the respondent should not unreasonably litigate the point. As a result, the rule that costs go to the successful party (Rule 607) should prevail over any rule about "wasted" costs. 23 In

summary, a distinction should be drawn between: (

a) the costs of the wasted work caused by the procedural misstep that is the source of the problem, and (

b) litigating the dispute over whether the person who took the misstep has the right to fix it. The principle that the Rules are prejudice-based, and that procedural errors should be forgiven if prejudice can be eliminated, must be balanced against the other rule that costs generally go to the successful party: Rule 607.

Subject to the overriding discretion of the judge over costs, only the first category of costs (paragraph (a)) are "thrown away". [ 25 ] I reluctantly conclude that the Defendants Improvisions and Gibeault are correct that the Plaintiffs are not entitled to costs for the application heard on November 20, 2014, since once the Defendants’ application to set aside the judgment was advanced, the Plaintiffs should have relented, and since they did not, and did not win the day either, they are responsible for the costs. [ 26 ] The Defendants have been obstreperous in this litigation, whether unwittingly or not.

The Plaintiffs are entitled to costs for all of the applications recited above, if costs for those applications have not been awarded already, because the steps taken to obtain default judgment have been thrown away. Costs for the application of November 20, 2014, are payable to the Defendants. There will be no costs payable to either party for this costs dispute, since the Plaintiffs cannot be faulted for their resistance to it, given the tortured history of these proceedings. [ 27 ] These thrown away costs are payable according to

Schedule C, not on a solicitor client basis. This follows the principled ruling of Veit J in Snihur v Grace , 2014 ABQB 150 at para 42 : 42 With respect to those who have a different opinion, in my view thrown away costs should be treated in the same way as other costs assessments. Since we rarely indemnify litigants for their legal costs, even where they are successful, I can discern no principled reason to indemnify a litigant for legal costs even before a final decision on success has been made. No matter how much time a lawyer has spent on a client's behalf, at the end of the trial if that lawyer's client wins, the only costs which the client can recover from the party opposite is set by

Schedule C. [ 28 ] Finally, I have urged the parties to cooperate in taking the steps necessary to return this matter to Provincial Court for a small claims trial on the merits, since so much time, effort and ink have been spilled to date, and still there is no resolution in sight. Heard on the 5 th day of November, 2015. Dated at the City of Edmonton, Alberta this 27 th day of November, 2015. S.J. Greckol J.C.Q.B.A.

Appearances: Nickolletta Sandie Unrepresented Phillip J. Prowse Prowse Chowne LLP for the Respondents/Defendants _______________________________________________________ Corrigendum of the Reasons for Judgment of The Honourable Madam Justice S.J. Greckol _______________________________________________________ Please note the appearances should appear as below: Appearances: Nickolletta Sandie Unrepresented Phillip J. Prowse Prowse Chowne LLP for the Respondents/Defendants