Maxim Power Corp v ACE INA Insurance, 2016 ABQB 539

Court of Queen’s Bench of Alberta Citation: Maxim Power Corp v ACE INA Insurance, 2016 ABQB 539 Date: 20160927 Docket: 1601 00034 Registry: Calgary Between: Maxim Power Corp. Plaintiff/ Defendant by Counterclaim - and - ACE INA Insurance Defendant/Plaintiff by Counterclaim _______________________________________________________ Reasons for Decision of the Honourable Mr. Justice R.J.

Hall _______________________________________________________ [ 1 ] The Applicant seeks a stay of the within action pending a determination of a related matter before the Courts. [ 2 ] The Applicant ACE INA Insurance (“ACE”) sold to the Respondent Maxim Power Corp. (“Maxim”) a “Management Protection Policy” which provided insurance against Directors and Officers liability.

In that policy, as amended by endorsements, the Insured Persons are, inter alia, the directors and officers of Maxim, but not Maxim itself. [ 3 ] ACE did not undertake any duty to defend the Insured Persons; but ACE agreed to reimburse Maxim for legal expenses incurred in defence of claims made against those Insured Persons. [ 4 ] This action, commenced by Maxim against ACE, seeks damages for expenses which Maxim has incurred, both before it gave written notice to ACE, and since. The action alleges that before Maxim gave notice to ACE, Maxim incurred in excess of $2.3 million in expenses.

The action alleges that ACE is contractually bound to reimburse Maxim for those expenses. Maxim further states that, since Maxim gave notice to ACE, ACE has paid some ongoing defence costs, but Maxim says ACE is not meeting its full contractual commitment to pay these ongoing, post notice expenses.

[5] In its Statement of Defence, ACE maintains that it is not required by the policy terms to pay any of the expenses incurred byMaxim before Maxim provided written notice of the claim; and ACE maintains that, since receiving notice it has met its obligations topay covered expenses, but that the rest of the claimed expenses have not been approved by ACE as required, or are not covered by thepolicy, or both. [6] ACE has also filed a counterclaim.

In the counterclaim ACE recites a provision in the policy which states: The Insurer shall not be liable for Loss on account of any claim alleging, based upon, arising out of, covered by or attributable to, inwhole or in part, directly or indirectly, any deliberately fraudulent or deliberately criminal act.

However, this exclusion shall not applyunless and until there is a final adjudication against any Insured as to such conduct. [7] “Loss” in that exclusion includes payment of expenses under the policy. [8] ACE maintains in its counterclaim that there has been a final adjudication against a Named Insured as to such fraudulentconduct, and that therefore ACE is entitled to recover the amounts which it has expended in relation to this matter. However, at theapplication before me, counsel for ACE acknowledged, that, while the U.S.

Federal Energy Regulatory Commission (“FERC”) hadmade such a finding against one of the Insured Persons, that matter has now been referred to the United States District Court, District ofMassachusetts, for a determination of the matter; and hence there has not yet been a final adjudication.

Therefore the counterclaim ofACE is a contingent claim, and the contingency may or may not occur in the future. [9] ACE applies before me for a stay of the within action, pending a final adjudication as to whether any Insured committed afraudulent or criminal act. [10] For the applicable law, the Applicant relies upon the decision of Associate Chief Justice Wittmann, as he then was, of thisCourt, in Jardine Lloyd Thompson Canada Inc. v Western Oil Sands Inc., 2006 ABQB 933 (“Jardine”) as setting out the test for a stay ofproceedings.

In that case the stay was sought on the basis that there was a related arbitration preceeding ongoing. [11] ACJ Wittmann referenced the binding decision of the ABCA in Alberta Province v Alberta Union of Provincial Employees(1984) 1984 ABCA 130 , 53 AR 277 CA (AUPE), at para 9-10: The first and basic question to be addressed in such cases is whether the issues in the action sought to be stayed are substantially thesame as those in the ‘test action’. If they are not, a stay will not be ordered... If the issues are substantially the same, a stay may andshould be ordered if other tests are satisfied.

Having thus concluded that the issues in the two proceedings are substantially the same, the remaining principles to be considered indetermining whether this was a proper case for a stay are those set out by Scott L.J., in St. Pierre v South American Stores Ltd., [1935]All E.R. 408 (C.A.), at p. 414:(

i) a mere balance of convenience is not a sufficient ground for depriving a plaintiff of the advantages ofprosecuting his action in English Court if it is otherwise properly brought. The right of access to the King’s Court must not be lightlyrefused; (ii) in order to justify a stay two conditions must be satisfied, one positive and the other negative; (

a) the defendant must satisfythe court that the continuance of the action would work an injustice because it would be oppressive, or vexatious to him, or would be anabuse of the powers of the court in some other way, and (

b) the stay must not cause an injustice to the plaintiff. On both the burden ofproof is on the defendant. [12] ACJ Wittmann noted that the AUPE decision was considered by Master Funduk in Bank of British Columbia v Sitko (1986) (AB KB), 68 AR 65 (“Sitko”). Master Funduk wrote at paras 38-39: If an adjudication in the first action does not necessarily dispose of the issues in the second action it cannot be said there is a trueduplication of proceedings in all respects.

What is mandatory is that the issues be the same in both actions and that an adjudication in one action regardless of what the adjudicationis, automatically disposes of the issues in the second action. [13] ACJ Wittmann considered a different approach taken by the Ontario High Court in Boart Sweden Ab v Nya Stromnes Ab(1988) OJ No 2839 (H.C.) (“Boart”) where it was stated (para 22): It would be idle to proceed with the tort claims in Canada at the very same time that the arbitration proceeds in Sweden, even though thecauses of action and the parties are not identical, when the factual basis of the tort claims is so tied up together with the matters beingdecided in the arbitration and when there is an obvious overlap between the witnesses required for the difference proceedings in the twodifferent countries.

And at paragraph 28 of Boart: The matters in dispute in the Ontario action are inextricably bound up with the matter which the parties agreed to arbitrate. It would bemischievous to continue to litigate pending arbitration matters which depend so much on the facts which form the basis of the arbitration. [14] ACJ Wittmann preferred the reasoning in Boart to that of Sitka.

He stated: In my view, the approach taken by the Court in Boart, which is consistent with the two English decisions and Nanisivik and Marineserve,is preferable to the more strict approach exemplified by Master Funduk’s application of the AUPE test in Sitko. This Court is bound bythe decision in AUPE, and must apply the test therein.

However, it is appropriate to apply that test in the context and the spirit of theauthorities cited above, which suggest that the Court must have a view to the efficient resolution of disputes and the efficientmanagement of the resources of the Court and the parties. [15] Counsel for ACE also refers to Rule 1.4(

h) of the Alberta Rules of Court providing the Court with discretion to adjourn or stay

all or part of an action or proceeding where to do so advances the purpose or objectives of the Rules; and Rule 1.2 which identifies the need for parties to resolve disputes efficiently, fairly and with the least expense possible. [ 16 ] Counsel for Maxim took no exception to these statements of the applicable law. [ 17 ] In result I take the law to be that, if the issues in this action are inextricably bound up with the issues before the U.S.

District Court; if ACE satisfies me that the continuance of this action would work an injustice because it would be oppressive or vexatious to ACE; and if a stay would not cause an injustice to the plaintiff Maxim; then I should exercise my discretion to stay this action to avoid duplication and to save court time, and expense to the defendants. [ 18 ] ACE says there is no injustice to Maxim if this action is stayed. ACE will continue to pay its share of ongoing defence costs which ACE approves.

ACE will pay into court the amount which Maxim maintains is presently unpaid and owing under the insurance policy. [ 19 ] ACE says that making it face this claim when it has not yet been determined in the U.S.

District Court whether an Insured Person committed fraud, would be oppressive or vexatious to ACE, because ACE may ultimately be entitled to a return of the monies which it has outlayed and any additional amounts determined to be payable in the within action. [ 20 ] ACE says a stay would have the salutary effect of eliminating expense in the Alberta action and eliminating court time in Alberta, which may become unnecessary if the decision of FERC is upheld by the U.S.

District Court. [ 21 ] Maxim claims that ACE is contractually bound to pay the pre-notice expenses of $2.3 million, and to pay substantially more of the post-notice expenses than it has been paying. Maxim says that ACE is breaching its contractual obligation to pay these expenses when they are incurred, and that Maxim has a right to have those issues determined in this action. [ 22 ] Maxim notes that it owes nothing to ACE; the counterclaim put forth by ACE is a contingent claim; it only will arise, if there is a final adjudication that an Insured Person’s actions were fraudulent or criminal.

Only then would ACE have any claim to be reimbursed. [ 23 ] Maxim says ACE entered into a contract to pay covered expenses as they are incurred. There is nothing oppressive or vexatious about Maxim suing to enforce the contract. [ 24 ] Maxim says that the proposed stay would work an injustice to Maxim, because it would delay its contractual right to be reimbursed as and when the expenses are incurred. [ 25 ] I agree with Maxim. ACE seeks a stay of this action so it can wait and see if there is a final adjudication that fraud has been committed by an Insured Person.

ACE knows that its counterclaim is a contingent claim only and cannot succeed unless there is a determination of fraud or criminal conduct by an Insured Person in U.S. District Court, including any appeal therefrom. [ 26 ] That is not what ACE contracted to do. It contracted to pay whatever expenses are covered by the policy, as they were incurred. It contracted that it would only seek reimbursement after a final determination of fraud or a criminal act by an Insured Person.

It now seeks to avoid, or delay a determination of what amounts, if any, are owing by it to Maxim, based upon a contingent event. [ 27 ] While the issue in the U.S. District Court, i.e. whether fraud was committed by an Insured Person, is the same as the issue in the Counterclaim; it is not the issue in the claim. [ 28 ] The continuation of this action will not work an injustice to ACE.

ACE made a contract and the claim maintains that ACE is in breach of the contract; it is not vexatious or oppressive that such a claim proceed. [ 29 ] A stay of this action would cause an injustice to Maxim, who is entitled to timely reimbursement if the expenses incurred are covered by the Policy. [ 30 ] For these reasons, the Application for a Stay by the Applicant ACE is dismissed. [ 31 ] In giving these reasons, I make no findings as to the ultimate merits of the Plaintiff’s case seeking reimbursement.

The action is not frivolous or vexatious, nor is the defence. [ 32 ] If the parties cannot agree, they can address me regarding costs of this application. Heard on the 14 th day of September, 2016. Dated at the City of Calgary, Alberta this 27 th day of September, 2016. R.J. Hall J.C.Q.B.A.

Appearances: Louise Novinger Grant / Alison Scott for Maxim Power Corp. Eric Dolden / Cecilia Hoover for ACE INA Insurance