Chic-Hog-O's Social Roast House Ltd v Virvilis Properties Ltd, 2016 ABQB 37

Court of Queen ’ s Bench of Alberta Citation: Chic-Hog-O's Social Roast House Ltd v Virvilis Properties Ltd, 2016 ABQB 37 Date: 20160118 Docket: 1403 16573 Registry: Edmonton Between: Chic-Hog-O's Social Roast House Ltd. Plaintiff - and - Virvilis Properties Ltd Defendant _______________________________________________________ Reasons for Judgment of W. S. Schlosser , Master in Chambers _______________________________________________________ [ 1 ] This is an application for Security for Costs. A direction that Security would be ordered was made at the conclusion of the application with reasons to follow on two points that came up over the course of argument:

i) What scale; and, ii) Whether the Order should be incremental. List of Authorities: 1) 1400467 Alberta Ltd v Adderley , 2014 ABQB 439 2) Golden Sing Restaurant Ltd v Re/Max Real Estate (Edmonton) Ltd , 1991 CarswellAlta 748 (QB) 3) Spectrum Centre for Physical Therapy & Athletic Rehabilitation Ltd v Filipenko , 2011 ABQB 340

4) Geophysical Service Inc v Encana Corp, 2015 ABQB 196 5) Attila Dogan Construction & Installation Co v AMEC Americas Ltd., 2011 ABQB 175 , 2011 ABQB175 6) 1251165 Alberta Ltd v Wells Fargo Equipment Finance Co, 2013 ABQB 533 7) Arhum & Huzaifa Enterprises Ltd v 1231993 Alberta Ltd, 2013 ABQB 333 8) Autoweld Systems Ltd v CRC-Evans Pipeline International Inc, 2011 ABQB 265 9) Amex Electrical Ltd v 726934 Alberta Ltd, 2014 ABQB 66 10) Royal Bank v Badger, 1993 CarswellAlta 106 (Q.B.) 11) 911502 Alberta Ltd v Elephant Enterprises Inc, 2014 ABCA 437 12) Metropolitan Stores of Canada Ltd v Unigraphics Manitoba Ltd, 1999 Carswell Man 119 (Q.B.) 13) Bank of Nova Scotia v R.P. & R.

Holdings Ltd, (AB KB), 1982 CarswellAlta 21 (Master) 14) Empire Life Insurance Co v Krystal Holdings Inc, 2009 CarswellOnt 1376 (S.C.J) 15) Alberta Treasury Branches v 1401057 Alberta Ltd, 2013 ABQB 748 16) National Trust Co v Mead, (SCC), [1990] 2 SCR 410 17) Christopher Bentley, John McNair & Mavis Butkus, Williams & Rhodes, Canadian Law of Defendant and Plaintiff, loose-leaf,6th ed, vol 2 (Toronto, Thomson Reuters Canada, 1998) 18) Rudd v Manahan (1913), (AB CA), 5 Alta LR 19 (SC) 19) Sinha v Sinha, 1998 ABQB 1041 20) Fairways Project Ltd v Melander, 2011 ABQB 6 21) Provalcid Inc v Graff, 2014 ABQB 453 22) Tracer Industries Inc v Shell Canada Ltd, 2004 ABQB 484 23) Terra Energy v Kilborn Engineering, 1995 CarswellAlta 490 (QB) at para 56, affd 1995 CarswellAlta 491 (CA) 24) Sprung Enviroponics Ltd v Calgary (City), 1990AR131, 1990 Carswel!Alta23 25) Beacon Hill Service

(2000) Ltd v Esso Petroleum Canada, 2000 ABCA 326 26) Prairie Land Corp v Concert Properties Ltd, 2004 ABQB 726 27) Canada Deposit Insurance v Canadian Commercial Bank, 1989 ABCA 150 28) Civil Procedure Handbook 2016, Rule 10.31, p. 1046 (and the cases cited there). 29) Re Gruending, 2001 ABQB 858 30) Crossing Co v Banister Pipeline (No. 2), 2003 ABQB 792 31) Zust Bachmeier Int Air Cargo v Klapatiuk (No. 2), 2006 ABQB 875 32) Spar Aerospace Limited v Aerowerks Engineering Inc. (No. 2), 2007 ABQB 688 33) Bowman v Ralph's Arctic Cat Sales & Services Ltd (No. 2), 2012 ABQB 205 Background Facts [2] Chic-Hog-O’s Social Roast House Ltd. brought Café Beirut and took over their lease.

They purported to exercise the optionto renew the lease. The Defendant disputes the renewal. [3] When the lease was up Chic-Hog-O’s sought an interlocutory injunction to keep Virvilis Properties Ltd. from putting themout. This application did not succeed. Hillier, J., acknowledged that there were ‘serious and proper issues to be tried’, but also noted thatthere was a central credibility issue that weakened the predictability of the outcome of the case. The injunction application failed on theissues of irreparable harm and balance of convenience.

[ 4 ] Chic-Hog-O’s is a closely held (two person) Alberta corporation. Its assets are a slight; being the restaurant’s stock and trade. It has significant debt, it has no income and had only modest net income when it was operating. Hillier, J. observed that the undertaking in damages giving in support of the injunction application was ‘noticeably week’. [ 5 ] The corporation’s straitened circumstances are due, in large part, to the lack of premises, which Chic-Hog-O’s says it is the Defendant’s fault.

The net result of all of this is that the corporation is immune from all but the most modest costs award. [ 6 ] The learned Chamber’s judge at the injunction application ordered costs on 2.9 times column 3 for that application; apparently taking into account the complexity of an injunction application, the nature and scope of the materials filed and the urgency and the requirement for accelerated performance in dealing with the injunction application. The costs totalled $34,249.46; which has been paid. [ 7 ] The Plaintiff’s Affidavit of Records was served April 24, 2015.

The Defendant’s Security for Costs application was taken out May 22 (returnable June 4 but adjourned to the Special heard January 11, 2016). The Defendant’s Affidavit of Records was served June 22, 2015. When Should the amount of Security be Determined? [ 8 ] A determination of the amount of costs should be the first order of business in a Security for Costs application (note Geophysical Service Inc , per Laycock, M. at para 27 ). [ 9 ]

Section 242 of the Business Corporations Act , RSA 2000, c B-9 requires the Court to consider whether ‘it appears ... that the body corporate will be unable to pay the costs of a successful defendant.’ Two factors under Rule 4.22, (4.22(

a) and (b)), are to like effect. [ 10 ] In my view the Court cannot determine the ability of a party to respond to a costs award until the amount is determined. It is not like liability and quantum in a tort action; in this context, ‘liability’ depends on quantum. How much? [ 11 ] This is a

schedule C, column 3 action. The Applicant seeks solicitor client costs to the end of the action in the amount of $143,789.07. The Plaintiff argues that if security for costs is awarded it should be based on column 3 and the security required to be posted should be paid incrementally. [ 12 ] As noted, Justice Hillier awarded costs of 2.9 times column 3 for the injunction application. The multiple of column 3 was in recognition of the complexity and timing of the injunction application. The parties were under some pressure to have the matter dealt with before the lease expired and the tenant was out.

The application itself required production of most of the key documents – this is not a document rich lawsuit – and there was also extensive cross examination on affidavits for the application, covering most of the ground that questioning in the action would. [ 13 ] This is an action to compel performance of a lease renewal, or damages. The lease itself contains a provision for solicitor and client costs (clause 7.06(d)); though this is for the enforcement of tenant’s covenants. There is no corresponding provision for the costs of compelling landlord’s obligations.

Even if the Court were to declare that the lease had been renewed and order its specific performance, an award of solicitor and client costs would not be automatic. Further, I do not see anything about the nature or conduct of this case that would take it into the realm of indemnity costs if the landlord were to win the lawsuit. [ 14 ] Rule 10.31 is the starting point for a Costs determination.

Schedule C costs are an option, but this measure is neither presumed nor binding: Civil Procedure Handbook 2016, Rule 10.31, p. 1046 (and the cases cited there). [ 15 ]

Schedule C is now roughly 16 years old. Some cases recognize this by starting with the

Schedule and using a percentage or a multiplier to take this into account: eg Re Gruending , 2001 ABQB 858 ; Crossing Co v Banister Pipeline (No. 2) , 2003 ABQB 792 ; Zust Bachmeier Int Air Cargo v Klapatiuk (No. 2) , 2006 ABQB 875 ; Spar Aerospace Limited v Aerowerks Engineering Inc. (No. 2) , 2007 ABQB 688 .

I acknowledge that an inflationary adjustment can be problematic especially if litigation is protracted: Bowman v Ralph's Arctic Cat Sales & Services Ltd (No. 2) , 2012 ABQB 205 , per Park, J. (and the cases cited there). [ 16 ] The other cogent factor in this case is that now much of the work to the end of questioning has been done, and partly paid for in Justice Hillier’s costs award. [ 17 ] The Amex case tells us that security for costs should be prospective, and not for steps already taken. I interpret this here to mean from the date of the application, not the hearing.

There was some time lag between the date the application was taken out and the hearing date of this Special. The action, of course, is not stayed in the meantime. This lag time in booking a Special should not work to the prejudice of the Applicant. [ 18 ] In my view, the Security for Costs assessment in this case should be determined for three stages: 1. The steps contemplated by

Part 5, Division 1 of the Rules (disclosure of information up to but not including expert reports); 2. Expert reports; and 3. Trial. Much of this work – or at least much of the groundwork has already been done.

Disclosure of Information [ 19 ] First of all, security should be provided on a straight

schedule C, column 3 basis for this stage including: 1. Review of documents, item 3(2) $1000; 2. Defendant’s Discovery of Records, item 3(1) $1000; 3. Preparation for questioning, item 5(1) $1000; and 4. Questioning (2.5 days), items 5(2) and 5(3) $5000. Total Fees $8000 Expert Reports [ 20 ] This case will likely involve expert opinion evidence going to quantum of damages. There are two components: 1. The time related to review of the Plaintiff’s expert reports and retention of Defence experts; and 2. The cost of the expert report itself.

Schedule C does not contain a particular line item relating to these events. I am prepared to allow, for Security for Costs purposes, $2500 for the Defendant’s review and evaluation of the Plaintiff expert reports. The Plaintiff has the primary burden with respect to damages; $1000 for the time spent relating to the retention of the Defendant’s expert (if necessary). The Applicant may apply to the Court for an adjustment of the Security to cover the Defendant’s expert report on proof of the disbursement; as was done by Wittmann, CJ., in Attila Dogan (at para 30). Trial [ 21 ] This is a matter that seems ideally suited to a

Summary Trial. Much of the evidence can go in by agreement. Witnesses can be produced (likely briefly) on the issues that involve credibility. This would require an application:

Schedule C, column 3, item 9(1) (application) $600. Item 10(1) of the

Schedule permits $6000 for preparation for trial. There should be an allowance under item 11 for 1.5 days (3 x $1500), and item 12 (written argument) $3000. Total Fees $14,100 [ 22 ] Both sides have two counsel. All of the counsel involved are experienced. It is my view that this is not a matter of such complexity that second counsel assistance is anything more than a luxury. Incremental payment? [ 23 ] Incremental Security for Costs Orders, or, staging of the security, should be encouraged. Security for Costs is about litigating on credit when you might not be good for it. It is not (or should not be) about de facto

summary judgment for economic reasons. I acknowledge that the Court can decline to make an award if it would prevent a meritorious case from going forward. But these applications are rarely clear enough to be all-or-none: a balancing is usually involved. And it is usually a question of degree: $30,000 to a ‘Ma and Pa’ operation might be what $11 million to a large corporation (Cf, Wittmann, CJ., Attila Dogan, at para 28). It is usually a question of balancing protection of the applicant for their costs in the lawsuit, with the risk of creating an impediment that the Respondent cannot overcome.

The limited means of a Plaintiff usually starts this process. But the Court should be cautious not to let these applications be used as a form of

summary determination for economics. Incremental Security for Costs Orders can solve that problem. [ 24 ] An incremental Security for Costs award would not only protect the Applicant: it would encourage the other party to think very carefully about whether it should take the next step and engage in the next phase of litigation. It would, at the very least, cause them to stop, look and listen before taking the next step.

However, I do not see that my discretion is so limited that positive evidence relating to a parties’ ability to prosecute an action is a necessary precondition for an incremental award (Wittmann, CJ., Attila Dogan, at para 28). [ 25 ] Security for Costs in this case is Ordered in three phases as above. Once phase one is complete, the action is stayed without further Order for a period of 30 days to permit the Plaintiff to provide security for the second phase, and so on.

If the security is not provided in that time frame, the action is dismissed without further Order. [ 26 ] The parties should enter into a litigation plan, and for this each side will bear their own costs. Heard on the 11 th day of January, 2016. Dated at the City of Edmonton, Alberta this 18 th day of January, 2016.

W. S. Schlosser M.C.C.Q.B.A. Appearances: Ryan Quinlan Richard Cotter, Q.C.(not appearing) Dentons Canada LLP for the Plaintiff/Respondent Sandeep Dhir and Lindsey Miller Field Law for the Defendant/Applicant