Chubak v Corner Brook Farms Ltd, 2015 ABQB 806

Court of Queen ’ s Bench of Alberta Citation: Chubak v Corner Brook Farms Ltd, 2015 ABQB 806 Date: 20151216 Docket: 1401 13662 Registry: Calgary Between: Catherine Chubak, Glenn Chubak, Kurt Chubak and Sheila Chubak Plaintiffs - and - Corner Brook Farms Ltd., Jerry Hodge and Audrey Hodge Defendants _______________________________________________________ Memorandum of Decision of A. R. Robertson , Q.C., Master in Chambers _______________________________________________________ Introduction [ 1 ] This application relates to issues of set-off and when it is available.

The issue is not straight-forward because the party advancing the counterclaim for set-off (for a damage claim) is not the party that owes the debt on which the claim is advanced. The issue involve mutuality: perhaps what “mutuality” means, and how it is or is not relevant to the set-off of claims.

The Claim [2] The plaintiffs, (the “Chubaks”) sold the shares of Carnwood Contracting Ltd. (“Carnwood”) to Corner Brook Farms Ltd.(“Corner Brook”) and took as part payment a promissory note from Corner Brook. The defendants Jerry Hodge and Audrey Hodge (the“Hodges”) guaranteed payment of the $450,000 owing by Corner Brook to the Cubaks. [3] Corner Brook has not paid what is owing for those shares. The Chubaks ask for

summary judgment against Corner Brookand as against the Hodges as guarantors. The Claim for Set-off [4] In response to what is otherwise a straightforward debt claim by the Chubaks, the defendants argue that they have a set-offclaim. They claim that the Chubaks, who were the former shareholders and former principals of Carnwood, have been competing with,and soliciting business from, customers of Carnwood in violation of agreements not to do that. [5] The difficulty with this set-off claim is that Carnwood is not a party to this dispute.

The agreements said to be violated bythe Chubaks are as between Carnwood and the Chubaks. The debt the plaintiffs sue on is owed to the Chubaks by Corner Brook, not byCarnwood. Corner Brook bought the shares and it owes the money. Carnwood, which claims a set-off for damages, is only partly (75%)owned by Corner Brook.

The remaining shares in Carnwood are owned by Evan Hodges, son of Jerry and Audrey Hodge. [6] The defendants themselves do not have any damage claim against the Chubaks. [7] Carnwood had initially tried to advance a counterclaim in these proceedings to assert the set-off claimed, but since it is not adefendant, its counterclaim was advanced improperly. By consent order the counterclaim was struck.

Carnwood then advanced separateproceedings against the Chubaks for damages alleged to have arisen from the breaches of the separate agreements. [8] Although that is the claim that is sought to be set off, I do not have those other proceedings before me. Mr. Hodge deposesthat nothing has happened since the Chubaks defended Carnwood’s claim, which means that Carnwood has not yet even served itsaffidavit of records. [9] The evidence that is presented here by the Hodges and Corner Brook is not especially compelling to support a stay ofexecution, which is an alternative response to the application for

summary judgment. There is some evidence of competition and loss ofbusiness by Carnwood, largely hearsay and without many details. It is described below. [10] Mr. Glen Chubak swore an affidavit in support of the claim for

summary judgment, but he was not cross-examined. [11] The typical argument in support of a set-off claim, expressed in basic terms, is that A sues B in debt, and B claims a set-offfrom A either in debt or on the basis of a damage claim. But here, the damage claim is not owed by B. It claims to set off damagessought by C against A. [12] It is clear that there is no mutuality here at all, regardless of how “mutuality” is defined. There never was. The debt claim,which is the subject of this lawsuit, was always owed by Corner Brook to the Chubaks.

The obligations under the separate agreement,which is the subject of a different lawsuit, were always owed by the Chubaks to Carnwood. [13] The defendants argue that both the promissory note/debt claim and the obligations under the separate agreement arose at thesame time, from one “global transaction”. The defendants say that Carnwood would not have required the obligations from the Chubaksbut for the transaction involving the sale of shares giving rise to the promissory note for a portion of the purchase price.

That may be trueas far as written agreements are concerned, although the obligations of the Chubaks expressed in the agreements with Carnwood wouldhave substantially mirrored their pre-existing common law duties as directors and employees of Carnwood prior to the sale. Thosecommon law duties apparently were not previously written down. [14] As the duties all arose out of the same “global transaction”, the defendants say that the law of equitable set-off does notrequire mutuality of parties, and they refer to a Supreme Court of Canada decision in support.

Accordingly, the defendants defend thisdebt action on the basis that another party, Carnwood, which is not a defendant in this action, has a damage claim against the Chubaks. Set-Off: Legal and Equitable Legal Set-Off [15] Legal set-off is not available here, because it requires “mutual debts”. Also, when one claim is a damage claim, the analysisunder the concept of “set-off at law” ends. Set-off at law only applies where the cross-obligations are both debts. Equitable Set-Off [16] Equitable set-off is sometimes available where one of the claims sounds in damages rather than debt.

Equitable set-off isallowed in some circumstances where the set-off arises out of a damage claim where the claims arise “out of the same contract or seriesof events which gave rise to the assigned money sum or was closely connected with that contract or series of events”, as stated by theSupreme Court of Canada in Holt v. Telford, [1987] 2 S.C.R. 193, at para. 27. [17] However, the reference to “the assigned money sum” in the passage just quoted (which I have emphasized) underscores whythe analysis in Holt v.

Telford does not assist the defendants here. (I return to this passage, below.) Assignments and Their Impact [18] Holt v. Telford did not involve a damage claim at all. The Court described the facts in paragraph 38:

In essence, what happened here was that the Telfords and Canadian Stanley “swapped” parcels of land. The Telfords bought land fromCanadian Stanley and gave a mortgage to Canadian Stanley but they also sold land to, and received a mortgage from, Canadian Stanley.The mortgages were entered into on the same date. The purchase price for both parcels was the same, namely $265,000. Except for theJanuary 31, 1981 payment, the payments under the two mortgages were on the same dates and for the same amounts.

It is these twolatter payments under the Canadian Stanley mortgage and the Telford mortgage that the Telfords seek to set-off against each other.Because the Telford mortgage and the Canadian Stanley mortgage are part of the land exchange deal, being part of the consideration forthe reciprocal transfers, they are, in my view, closely connected and meet the requirements for an equitable set-off. They were made withreference to another. It would be unfair to enforce only one side of the land exchange agreement. [19] However, Canadian Stanley assigned its receivable from the Telfords to Mr. and Mrs. Holt.

After it did that, there was nomore “mutuality” of the debts. [20] Mr. and Mrs. Holt sued, and the Telfords attempted to assert a right of set-off notwithstanding the fact that they now owedmoney to someone different than the parties who owed them money. [21] The facts were unusual, in that when Canadian Stanley assigned its receivable, neither it nor its assignee gave any notice toMr. and Mrs. Telford. [22] The Telfords first learned of the assignment when the Holts sued them.

The question focused on whether the Telfords wereentitled to set off a debt where the obligations had clearly been mutual at the outset, but one party had later assigned its debt to the other.The issue before the Court (on this point) was, did the loss of this mutuality mean that it could no longer be set off? [23] The Court reviewed the history of the development of the law of set-off and, in particular, the statement by the BritishColumbia Court of Appeal in Coba Industries Ltd. v. Millie’s Holdings (Canada) Ltd., , [1985] 6 W.W.R. 14, quoted atparagraph 26 of Holt v.

Telford: “Once a debt is assigned, it is owed to a third party and the debts are no longer mutual cross-claims”. [24] The essence of the Supreme Court’s opinion appears in paragraph 27 of Holt: Equitable set-off is available where there is a claim for a money sum whether liquidated or unliquidated [citation omitted]. Moreimportantly in the context of this case, it is available where there has been an assignment. There is no requirement of mutuality.

Theauthorities to be reviewed indicate that courts of equity had two rules regarding the effect of a notice of assignment on the right of set-off.First, an individual may set-off against the assignee a money sum which accrued and became due prior to the notice of assignment.

Andsecond, an individual may set-off against the assignee a money sum which arose out of the same contract or series of events which gaverise to the assigned money sum or was closely connected with that contract or series of events. [Emphasis added.] [25] There is no discussion about a “set-off” as between parties who were never cross-parties to a transaction. [26] The Court considered, amongst other cases, Newfoundland (Government of) v.

Newfoundland Railway Co. 13 App.Cas.199(P.C. 1888), which it described (at paragraph 29) as “the seminal case on the right to set-off debts arising under the same or interrelatedcontracts.” [27] The Newfoundland case involved a damage claim sought to be set off as against a debt claim. As in Telford, the caseinvolved the question of whether set-off rights, which would otherwise exist, were lost because of an assignment by one party. The PrivyCouncil decided that they were not.

In Telford, the Supreme Court of Canada stated, in paragraph 29: The [Privy Council] found that the government was entitled to set-off their counterclaim against the assignees’ claim since the claim andcounter-claim had their origin in the same portion of the same contract and the obligations which gave rise to them were closelyintertwined. [28] The Supreme Court quoted from In re Pinto Leite and Nephews, [1929] 1 Ch. 221 at p. 223: It is, of course, well-settled that the assignee of a chose in action… takes subject to all rights of set-off which were available against theassignor, subject only to the exception that, after a notice of an equitable assignment of a chose in action, a debtor cannot set off againstthe assignee a debt which accrues due subsequently to the date of notice, even though that debt may arise out of a liability which existedat or before the date of the notice; but the debtor may set off as against the assignee a debt which accrues due before notice of theassignment, although it is not payable until after that date. [29] At paragraph 32, the Court also referred to its own decision in Canadian Admiral Corp. v.

L. F. Dommerich & Co., 1964CanLII S.C.R. 238. [30] Addressing the law relating to cross-claims that arise out of related contracts, in Telford the Court said (paragraph 33): Thus, cases involving debts that arise from the same contract or closely interrelated contracts form an exception to the general rule. Inthese cases a debt arising out of the contract or closely interrelated contracts may be set-off against the assignee even if the debt accruesdue after the notice of the assignment. [31] Neither Telford nor any of these other cases help the defendants here.

The references in the decisions about there being noneed for mutuality were made in connection with corresponding debt claims, or a debt claim and corresponding damage claim, where (

a) there were cross debts that were unrelated (not necessarily “mutual”, in that they arose in different contexts, but they involved thesame parties), or

(

b) there was no longer any mutuality because one (or both) of the debts had been assigned, although they were originally mutual(i.e. they arose under the same or related agreements between two parties, and they were therefore initially mutual cross-obligations). “Closely-Connected” Claims [32] The defendants rely on obiter dicta that appears in SemCanada Crude Company (Re), 2009 ABQB 252.

In that case NexenMarketing purported to set off amounts owed to it under contracts with SemCanada Crude Company and CEG Energy Options Inc.against amounts on by Nexen to SemCAMS ULC in the context of proceedings brought under the Companies’ Creditors ArrangementAct. The set-off was purported to be done even though the debts owed by Nexen were being set off against debts owed by differentcorporations. [33] The Court noted, at paragraph 7, that the claims at issue did not arise out of the same contract, and the Court reviewed EngageEnergy Canada, L.P. v. Blue Range Resource Corporation, 2000 ABCA 200, [2000] A.J.

No. 230 and Cam-Net Communications v.Vancouver Telephone Co., 1999 BCCA 751, [1999] B.C.J. 2855 in consideration of the principle that equitable set-off requires cross-claims to be so clearly connected with the debt claim, “that it would be manifestly unjust to allow [SemCAMS] to enforce paymentwithout taking into consideration the cross-claim”.

Paragraph 27 of Telford was quoted. [34] With this in mind it was mentioned, in passing, at paragraph 9 of SemCanada: It is therefore the claims that must be closely connected or that arise out of the same transaction, not the corporations that are parties tothe contracts.

The fact that the various SemGroup corporations may have marketed themselves as a group enterprise, using a singlecredit department or issued consolidated financial statements is of limited relevance to the question at issue: do these claims arise fromtransactions that are closely connected or from contracts that are interrelated? [Emphasis added.] [35] It is the passage that I have emphasized that the defendants rely upon. However, in the facts of the case, the Court concludedthat it was not appropriate to apply equitable set-off.

When addressing the “corporate group” issue, the Court commented (paragraph 13),“There is nothing in Telford that implies that the mere connection of membership in a corporate group is a sufficient connection toestablish a right of equitable set-off.” [36] Taking into account the fact that the set-off was asserted between related but different parties, the Court concluded that theclaims were not sufficiently connected. [37] A review of the three cases the Court relied upon, being Telford, Blue Range Resource Corp. and Cam-Net Communications,discloses that none of them involved different parties with no mutuality at any point in the facts.

The question in each case was whetherseparate contracts were sufficiently related so as to invoke equitable set-off, and in Telford whether the intervening assignmentprevented equitable set-off. The reference in Telford to there being no need for mutuality was in the context of the later separation of thetwo debts. “Mutual” Debts [38] What, exactly, did “mutuality” mean for set-off at law to be available? [39] There is mutuality when A contracts with B and owes money to B and B also owes money to A arising from the samebusiness affairs, although perhaps arising out of a different transaction.

However, if by coincidence B is A’s tenant, and owes rent,unconnected with the business affairs that gave rise to their other debts, the debt for rental arrears may not be a “mutual” debt that gaverise to set-off at law. It is simply an unconnected debt that happens to be between the same parties. It is a “cross-obligation” that may besusceptible to set-off. [40] Some insight comes from Rother Iron Works Ltd. v. Canterbury Precision Engineers Ltd., [1973] 1 All E.R. 394 (C.A., 1972)and CIBC v. Tuckerr Industries Inc., (B.C.C.A.). Tuckerr Industries appears to draw a distinction between (

a) mutualcross-obligations, that is where the character of the cross-obligations enjoy a mutuality, being in some way connected to each other, notco-incidental, and (

b) mere cross-obligations. [41] But it no longer matters exactly what was meant by “mutual” debts when considering set-off at law.

In equity cross-claims bythe same parties may be set off, if they are either debts or a debt and a damage claim that arises out of closely connected contracts. [42] All of the appellate court decisions referenced above address the concept of the lack of need for “mutuality” when applyingprinciples of equitable set-off in circumstances where there either was mutuality of debts – cross-obligations that were also mutual – orwhere the mutuality is said to have been lost because of an assignment.

But there was, at some point, some “mutuality”. [43] The question before the courts was whether the loss of mutuality meant that set-off was no longer available. Recent Discussions of Set-Off [44] The defendants argue that Five Oaks Inc. v. 784566 Alberta Ltd., 2000 ABQB 152 is binding precedent for the propositionthat there need never have been any mutuality (whatever the word precisely meant at law) for equitable set-off to apply. [45] The facts were unusual. Five Oaks Inc. was a mortgagee, owned by an individual named Gene Dub. Mr. Dub was an architectand also owned Gene Dub Architect Ltd.

He was the sole director and shareholder of both corporations. [46] Five Oaks Inc. sold land to 784566 Alberta Ltd. and took back a mortgage for part of the purchase price. The claim was thatthe land was intended to be re-financed, and the re-financing depended upon development approval, which in turn depended upon the

performance by Gene Dub Architect Ltd. of an architectural agreement with 784566 Alberta Ltd. It was alleged that Gene Dub Architecthad defaulted. [47] Therefore, the argument was that Gene Dub, through Five Oaks, was trying to take advantage through foreclosure of a breachof his own obligation through his own architectural corporation. On this

summary judgment application, the learned justice concludedthat there was at least a possible equitable set-off because of the discussion in Holt v. Telford. He allowed judgment, but stayed itsenforcement until such time as the cross-claim had been determined. [48] Five Oaks was recently considered by Wittmann, C.J. in two decisions involving the same dispute. In Attila DoganConstruction and Installation Co. v. AMEC Americas Ltd., 2015 ABQB 120 at para. 107 he said this: AD [Attila Dogan] points in this regard to Five Oaks Inc. v. 784566 Alberta Ltd. ... . In that case, on appeal from a Master, Clackson J.upheld a decision to stay enforcement of

summary judgment on a mortgage on the basis that the mortgage claim was clearly connectedwith a cross-claim under an architectural contract. There is nothing in Five Oaks Inc. to suggest that the potential for an equitable set-offis sufficient to operate as a defence such that

summary judgment should be refused entirely, and counsel for AD did not direct me to anyother authority that would support this proposition. The potential for set-off is no reason, in and of itself, to dismiss AMEC’s applicationfor

summary judgment. [49] Chief Justice Wittmann commented further on Five Oaks in a later decision in the Attila Dogan matter, reported at 2015ABQB 429, at para. 34: AD has cited Five Oaks Inc. v. 784566 Alberta Ltd., 2000 ABQB 152 in support of the proposition that the CounterclaimJudgment and the Remaining Claims are so closely connected as to allow for equitable set-off. In Five Oaks, the parties entered into apurchase and sale agreement relating to a building.

The agreement provided for a mortgage to the vendor, and included a provisionrequiring the purchaser to enter into an architectural agreement with a third party that was wholly owned by the same individual whoowned the vendor. The purchaser defaulted on the mortgage, the vendor commenced proceedings, and the purchaser counterclaimedbased on a breach of the architectural agreement. The issue at hand was whether the vendor could benefit from (effectively) its ownbreach of the architectural agreement. Clackson J. held, at para.18: The claim and cross-claim are clearly connected.

Both the Mortgage and the Architectural Agreement are the progeny of the SaleAgreement. Arguably there would be no sale without Mortgage, nor sale without Architectural Agreement. Therefore, no Mortgagewithout the Architectural Agreement. In those circumstances, it would be unjust to enforce the Mortgage without reference to its twin,the Architectural Agreement. [Emphasis added.] [50] Chief Justice Wittmann distinguished Five Oaks from the facts before him. [51] It is important to note that both Five Oaks and Attila Dogan go no farther than to discuss the potential for equitable set-off toapply.

Five Oaks was decided before the new approach to

summary judgment was enunciated in Windsor v. Canadian Pacific Railway,2014 ABCA 108, 2014 CarswellAlta 395, and subsequent cases. The learned justice would have been properly cautious in his approach,given the test for

summary judgment at the time. [52] The facts here are notably different than in Five Oaks. The lender in Five Oaks was owned and controlled by the same party.Through two different corporate vehicles he had allegedly caused the default on which he was trying to rely. Since one cannot benefitfrom one’s own wrong (which was Wittmann C.J.’s analysis of Five Oaks, as set out above), it would have been appropriate to grant thesummary judgment but allow the counterclaim to proceed before the debt could be enforced, as was done in Five Oaks.

But allowing astraightforward set-off and denying judgment would have required ignoring Foss v. Harbottle, (1843) 67 E.R. 189 and subsequent casesthat recognize the fundamental legal distinction between a corporate entity and its shareholders. Imposing a stay was a discretionarydecision that the Court accepted as appropriate. [53] Here, the purchasers of the debtor company have only weak evidence to justify the stay of enforcement, and the owners of thepurchased company, Carnwood, are not the same as the individual defendants.

As mentioned, 25% of Carnwood’s shares are owned byEvan Hodges, who is not a party to the proceedings. Accordingly, the Court cannot even simply ignore the rule in Foss v. Harbottle, andtreat Corner Brook (the shareholder, but only as to 75%) as if it were Carnwood.

Summary of Case Law [54] In the result, the law appears to be that where there has been an assignment of a debt, there is no longer mutuality if there oncewas. If the debts that are sought to be set off against each other were at one time mutual, but as a result of the assignment the mutualityhas been lost, set-off is no longer available at law.

The assignment has ended any mutuality. [55] However, as we see in Telford, where there were two transactions involving the same parties, each resulting in a debt, andthey were closely connected, after an assignment equity may step in and allow set-off notwithstanding the fact that different parties arethen involved. This approach is made on the basis that prior to the assignment the numbers could be netted against each other.

Theassignee does not stand in a better position than the assignor, especially when there has been no notice of the assignment given to theother party to the debt. [56] Equitable set-off also applies where one claim is not a debt, as we see in damage cases such as Newfoundland Railwaybecause, as quoted by the Alberta Court of Appeal in Blue Range Resource, quoting in turn a passage by Lord Denning in HenriksensRederi A/S v. T.H.Z.

Rolimpex (“The Brede”), [1974] 1 Q.B. 233: When the contractor sues for the contract price, the employer can say to him: “you are not entitled to that sum because you have yourselfbroken the very contract in which you sue, and you cannot really claim that sum unless you take into account the loss you have

occasioned to me”. [ 57 ] Accordingly, a debt claim advanced against the opposing contractual party, who has been found himself a victim of breach of contract, usually cannot be enforced without the resolution of the damage claim. Rather than limiting this to claims arising out of one contract, the courts recognize that there may be different contracts between the same parties, but nonetheless very closely connected. In this circumstances, equity allows set-off. [ 58 ] But somewhere along the chain there must have been mutuality of parties, or the concept of set-off simply never applies. Five Oaks recognizes a potential otherwise, but in the context of the stricter

summary judgment test pre- Windsor . Application of the Law to Facts Stay of Enforcement [ 59 ] As indicated above, one of the defendants’ replies to the

summary judgment application is that if judgment is allowed, its enforcement should be stayed pending the outcome of the trial of Carnwood’s claim against the Chubaks. Then, we are told, if Carnwood obtains judgment against the Chubaks, it could be set off against the Chubaks’ judgment against the defendants. [ 60 ] But how would that work? We would still be faced with the problem we have now. Carnwood would have a judgment against the Chubaks, but the Chubaks would have a judgment against Corner Brook and the individual guarantors. They would be judgments against different parties.

One cannot be “set off” against the other without a new agreement, or without at least an assignment so as to make the parties cross-obligees arising from closely-related contracts. [ 61 ] Furthermore, the test for granting a stay of proceedings pending trial or pending appeal is the same: Attila Dogan Construction and Installation Co. Inc. v. AMEC Americas Limited , 2015 ABQB 429 at para. 12 , citing Bernum Petroleum Ltd. v. Birch Lake Energy Inc. , 2014 ABQB 652 , which is that (

a) there is an arguable issue, (

b) they will suffer irreparable harm if the stay is not granted, and (

c) the balance of convenience between the parties favours the granting of a stay. The court may otherwise grant a stay “where exceptional circumstances exist and it is fit and just to do so”: Attila Dogan , ibid . [ 62 ] Here, there is no meaningful evidence of irreparable harm, but to the extent there is, it is in relation to a dispute between the Chubaks and another entity, Carnwood. The remaining ground is “exceptional circumstances”, but generally this is done only for short- term stays of proceedings, or stays of enforcement, to prevent mischief.

Some Injustice Possible if Judgment is Granted with No Stay [ 63 ] I am aware that there may be some level of injustice here. The claim advanced by Carnwood is for damages for breach of written covenants not to compete and not to solicit business from Carnwood’s customers. The evidence tends to demonstrate, although it is not detailed and largely hearsay, that the Chubaks may have done that.

The Chubaks have not tendered any evidence at all to suggest that they are not in breach of their covenants to Carnwood. [ 64 ] No doubt the Chubaks feel that that Carnwood’s claim should be argued in the other proceedings, not in this action. Nonetheless, for the purposes of this application, I must assume that the uncontradicted evidence tendered is true; that is, that the Chubaks have been pilfering some of the business activities of the corporation that they sold to Corner Brook. [ 65 ] The defendants say that some of their evidence comes from a competitor of Carnwood, Mr.

Snell, who is the sole director of Win Oilfield Services Ltd. Mr. Snell formerly worked with Carnwood, when it was operated by the Chubaks. Mr. Hodge asserts (pages 16 and 17 of the transcript of his cross-examination) that a fellow who used to work with one Carnwood customer has moved to another company and that company has begun working with Mr. Chubak, but of course this means that the work is being done by a company that was not a customer of Carnwood.

Another customer advised that their work was under-bid by the Chubaks, without reference to the company name they now use. [ 66 ] Two of the customers that Carnwood previously serviced were to remain as customers of the Chubaks for certain purposes, and the Chubaks were allowed to continue part of their business activities provided that the work did not exceed $30,000 per year, which tends to muddy the waters regarding improper solicitation and competition. [ 67 ] Mr. Hodge asserts that Mr. Chubak has been disclosing confidential information to Win Oilfield Services Ltd., Mr. Snell’s company. Mr.

Hodge acknowledges that Mr. Snell has told him these things, “because the Chubaks had mistreated him in their business dealings”. [ 68 ] Mr. Hodge asserts that the Chubaks have been soliciting and obtaining customers from Carnwood and lists 10 companies, but Mr. Hodge does not provide much detail of the lost business or details of the allegations of solicitation. [ 69 ] Mr. Hodge also deposes that the Chubaks had agreed to continue to work with Carnwood after the transaction closed, but eventually they stopped.

However, his affidavit is clear that it was the alleged breaches of the non-competition agreements that led to Corner Brook’s refusal to pay the rest of the purchase price, not their resignations from Carnwood. [ 70 ] Corner Brook and Carnwood are also unable to provide evidence as to the extent of the business that has been taken from Carnwood. They say that is because they have not yet obtained disclosure in the proceedings commenced by Carnwood. [ 71 ] The evidence provided by Mr.

Hodge includes a comparison of the 2012 income statement for Carnwood and the 2013 income statements for Win Oilfield Services Ltd., being the business now operated by the Chubaks. [ 72 ] Without the detailed information as to how much business the Chubaks are said to have taken from Carnwood, the defendants are unable to put a final dollar figure on it. Although the only numbers currently available are much less than the debt owing, they

suggest that the amount that should be set off, if it may be set off, is the entire amount of the debt claim. [ 73 ] It is understandable why the defendants do not want to pay the balance owing on the purchase agreement when the business operations of the company that they bought, through their corporation, are apparently being eroded by the Chubaks. However, for the reasons set out above the law of set-off does not help them. Honesty and Good Faith [ 74 ] The defendants also rely on the decision of the Supreme Court of Canada in Bhasin v.

Hrynew , [2014] 3 SCR 494, 2014 SCC 71 , where the Court said, at paragraph 60: Commercial parties reasonably expect a basic level of honesty and good faith in contractual dealings. While they remain at arm’s length and are not subject to the duties of the fiduciary, a basic level of honest conduct is necessary to the proper functioning of commerce.

The growth of longer-term, relational contracts that depend on an element of trust and cooperation clearly call for a basic element of honesty and performance, but, even in transactional exchanges, misleading or deceitful conduct will fly in the face of the expectations of the parties. [ 75 ] And at paragraph 65: The organizing principle of good faith exemplifies the notion that, in carrying out his or her own performance of the contract, the contracting party should have appropriate regard to the legitimate contractual interests of the contracting partner. [ 76 ] However, if the Chubaks are guilty of the activities as alleged by the defendants, one need not refer to this precedent for recovery.

It appears the Chubaks were fiduciaries of Carnwood, and at the time of the transaction they signed non-competition and non- solicitation covenants in favour of Carnwood. If those covenants are being breached, or if they have been breached, there is a remedy available to Carnwood. Perhaps injunctive relief is in order in the proceedings brought by Carnwood. I do not see Bhasin as applying here. Some Injustice Possible if Stay Were Imposed [ 77 ] There could easily be mischief worked if

summary judgment were not granted as sought. Allegations of breaches by the Chubaks, if there is only some small evidence to support the allegations, could very easily be used to frustrate a simple debt claim. [ 78 ] The defendants argue that that is not their intent here. They propose to pay the amount of the claim into court, not to be paid out of court until the damage claim has been resolved. That would eliminate any practical advantage for them to delay the claim.

There is some attraction to that, but the practical reality would be that the defendants would have secured their claim for damages with very little evidence. This would be a kind of attachment order for Carnwood’s damage claim, with no reference to

section 17 the Civil Enforcement Act , RSA 2000 c. C-15, or the test set out therein. Conclusion [ 79 ] This is, in the end, a simple debt claim. It was possible to have joined the shareholders, directors, employees and corporate entity together in a single contract with the purchaser.

For example, one agreement could have been created making payments on the promissory note conditional on compliance with the restrictive covenants, if the Chubaks had agreed. [ 80 ] But here that was not done, and what is now sought is, in reality, an order rewriting separate contractual relationships amongst separate parties so as to link them together on the premise that it was one “global transaction”. [ 81 ] It has been said that it is not the court’s job to create a contract or re-write an existing contract for the parties, with the exception of reading in, by implication, necessary provisions to a partly performed contract to which neither party had expressly addressed their minds, on the premise that had they done so they would have agreed to the terms implied by the court.

But here, all of the agreements expressly set out “entire agreement” provisions, preventing the Court from reading anything into them. [ 82 ] In the end, no defence has been provided to the Chubaks’ debt claim, so

summary judgment is granted as claimed. [ 83 ] The parties may approach the Court to discuss costs if they cannot agree. Heard on the 16 th day of October, 2015. Dated at the City of Calgary, Alberta this 16 th day of December, 2015.

A. R. Robertson, Q.C. M.C.C.Q.B.A. Appearances: Luke Rasmussen De Waal Law for the Applicants Aaron V. Robertson Martinson & Harder Law Office for the Respondents