HVC Canada Ltd v EllisDon Construction Services Inc, 2016 ABQB 105

Court of Queen ’ s Bench of Alberta Citation: HVC Canada Ltd v EllisDon Construction Services Inc, 2016 ABQB 105 Date: 20160218 Docket: 1403 00977 Registry: Edmonton Between: HVC Canada Ltd. Plaintiff - and - EllisDon Construction Services Inc., Chartis Insurance Company, Zurich Insurance Company, and Continental Casualty Company Defendants - and - EllisDon Construction Services Inc.

Plaintiff by Counterclaim - and - HVC Canada Ltd Defendant by Counterclaim Corrected judgment: A corrigendum was issued on February 24, 2016; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Reasons for Judgment of L.A. Smart , Master in Chambers

_______________________________________________________ Introduction [ 1 ] HVC Canada Ltd (HVC) entered into a stipulated price Subcontract with EllisDon Construction Services Inc. (EllisDon) to perform electrical and mechanical work for a building being constructed by EllisDon for the University of Alberta known as the Innovation Center for Excellence. On May 7, 2013 EllisDon gave written notice to HVC stating it was in default under its obligations under the Subcontract and gave 48 hours to remedy its default.

On May 10, 2013 EllisDon declared HVC in default of the Subcontract and advised HVC that it would take the necessary steps to correct HVC’s default and set off any costs, losses or damages against any funds due and owing to HVC. Succinctly, HVC takes the position that they were not in default under the Subcontract and that the circumstances relative to the alleged default arose from the conduct of EllisDon. [ 2 ] In January, 2014 HVC issued a Statement of Claim in this Action seeking damages for breach of contract in the amount of $1,872,169.21 plus GST and interest.

EllisDon filed a Statement of Defence and Counterclaim on March 14, 2014 seeking damages against HVC arising from its default under the Subcontract for $4,700,000. HVC filed a Reply to Statement of Defence and a Statement of Defence to Counterclaim. [ 3 ] Since August, 2013 HVC has not carried on any business and has no assets in Alberta or in any other jurisdiction. EllisDon applies for security for costs the amount of $750,000 which it states is reasonable in the circumstances of this Action as it has a contractual entitlement to solicitor and its own client costs in the Subcontract.

Discussion [ 4 ] Justice Wakeling made a detailed examination of the tests to be applied when considering whether to make an order for security for costs in Amex Electrical Ltd v 726934 Alberta Ltd , 2014 ABQB 66 (Amex).

Section 254 of the Business Corporations Act , RSA 2000, c. B-9 applies in this case and provides as follows: “In an action or other legal proceeding in which the plaintiff is a body corporate, if it appears to the court on the application of a defendant that the body corporate will be unable to pay the costs of a successful defendant, the court may order the body corporate to furnish security for costs on any terms it thinks fit.” [ 5 ] Once it is established on balance that a body corporate will not be able to pay the costs of a successful defendant, Wakeling J sets out a number of factors for the court to consider which in

summary are as follows:

a) Whether the applicant is seeking security for steps already taken;

b) Whether the applicant has applied for a security for cause order at the earliest opportunity;

c) Whether the resolution of the issues presented by the respondent’s action is not important to the greater community;

d) The merits of the claim and the defence;

e) Whether a security for costs order will prevent the respondent from prosecuting its action or whether a corporate respondent’s shareholders have assets or given guarantees; and

f) Whether the applicant has counterclaimed and how the issues raised by the counterclaim relate to the main claim. [ 6 ] There is no dispute in this case that HVC would not be in a position to pay costs. EllisDon does not seek security for steps already taken and has applied at an early stage in these proceedings. As a practical matter the counterclaim is one of set off and although the amount claimed exceeds that of the claim of HVC the ability to collect on any judgment would be remote at best.

In my view factors a, b, and f have little application in determining the appropriateness of security for costs in this case. [ 7 ] HVC made a lengthy, detailed and cogent argument that its claim will be successful at trial. EllisDon responded with perhaps somewhat less compelling argument that it has a full defence to the HVC claim. As noted by Chief Justice Wittmann in Attila Dogan Construction and Installation Co v AMEC Americas Ltd , 2011 ABQB 175 , “ It is neither possible, nor desirable, for the Court at this stage to determine which party’s case is stronger”. In my view that observation applies here.

Regardless, based on the argument and evidence before me I am satisfied that EllisDon has a reasonably meritorious defence which when considering other factors may weigh in favor of granting security for costs. [ 8 ] As Respondent HVC must provide evidence that a security for costs award would prevent it from prosecuting its claim. Its direct evidence consists of an affidavit sworn by its Chief Executive Officer, James Clarke who states that HVC will not be able to pay any security for costs and would be forced to discontinue if such an order was made.

Although this statement in and of itself would be insufficient, through questioning it is clear that HVC has ceased business operations and has no assets. In addition, there is evidence from EllisDon that there are numerous judgments against HVC and other liabilities that cannot be satisfied. To that extent I believe there is sufficient evidence before me to conclude that a security for costs award could well prevent the prosecution of the claim by HVC. However, there is also evidence that the shareholder HVC Holdings Ltd has assets in Alberta.

Furthermore the shareholders of HVC Holdings Ltd and the shareholders of those shareholders have assets in Alberta. Finally, it is Mr. Clarke’s evidence that the shareholders of the shareholders are paying HVC’s legal bills in this action. There is no evidence from or on behalf of HVC setting out the extent of the assets held by the shareholders or the ultimate shareholders nor as to their ability to raise funds or otherwise guarantee payment of costs should HVC become liable.

[ 9 ] What is plain is that those who may be the ultimate beneficiaries of any judgment are prepared to fund HVC’s costs but are not prepared to assume the risk of liability for costs to the Defendant in the event HVC is unsuccessful. This is precisely the mischief described by Justice Côté in Calmont Leasing Ltd v 32262 BC Ltd, 2002 ABCA 290 as a one-way valve. [ 10 ] Finally, HVC argues that this is a matter which is of importance to the community. It points to the provision in the Subcontract which would oblige EllisDon to pay additional amounts arising from delay.

It says that there was a strong motivation for EllisDon to wrongfully terminate the contract in the circumstances and that this conduct caused the impecuniosity of HVC as evidenced by its financial statements. It is then in that sense a concern to the community as parties should not be able to terminate obligations under a contract with impunity. In my view this is not a matter of particular interest to the community but rather is a private dispute between two contracting parties.

Amount of Security [ 11 ] Under the terms of the Subcontract EllisDon if successful would be entitled to legal costs on a solicitor at its own client basis arising from a breach of the Subcontract. Counsel for EllisDon has arrived at a figure of $750,000 as an appropriate amount for security. Some $300,000 to $400,000 of that figure is for anticipated experts fees. The cost to complete document disclosure and questioning is estimated to be in the range of $95,000 to $135,000 with a trial estimated to be between $65,000 and $75,000.

Conclusion [ 12 ] Despite the very capable argument of counsel for HVC, I have concluded that security for costs ought to be ordered in the circumstances. The ostensible unwillingness of the ultimate beneficiaries of the action to accept responsibility for costs significantly outweighs the other factors which may support a decision to the contrary. Nonetheless, at this stage of the action and in order to permit this action to proceed at least through questioning, I am of the view that security in the amount of $250,000 is sufficient.

Further application may be made as the action progresses for additional security if the circumstances warrant. [ 13 ] The amount of the security may be by payment into court of the sum or by bond delivered to EllisDon. In addition I would encourage HVC and EllisDon to explore the acceptability of a guarantee or guarantees from shareholders or others. If the parties require assistance in dealing with that alternative, they may apply to me for further direction.

In the event satisfactory security is not provided within 90 days from the time that the Order arising from this decision is entered, the claim of HVC is dismissed without further order of the Court. Based on the representations of counsel for EllisDon, in such an event, the counterclaim would also be dismissed. [ 14 ] If the parties cannot agree on costs of this application, they may approach me for a ruling in that regard within the next 60 days by providing brief written submissions. Dated at the City of Edmonton, Alberta this 18 th day of February, 2016. L.A. Smart M.C.C.Q.B.A. Appearances: Andrew W.

Wilkinson Field Law for the Defendants/Plaintiff by Counterclaim Richard B. Drewry, Q.C. for the Plaintiff/Defendant by Counterclaim

_______________________________________________________ Corrigendum of the Reasons for Judgment of L.A. Smart L.A. Smart, Master in Chambers _______________________________________________________ The Appearances were revised to correct the name of counsel that attended from Field Law.