HVC Canada Ltd v EllisDon Construction Services Inc, 2016 ABQB 602

Court of Queen’s Bench of Alberta Citation: HVC Canada Ltd v EllisDon Construction Services Inc, 2016 ABQB 602 Date: 20161024 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 _______________________________________________________ Reasons for Decision of L.A. Smart , a Master of the Court of Queen’s Bench of Alberta

_______________________________________________________ Introduction [ 1 ] These matters arise out of my Reasons for Decision on February 18, 2016 granting security for costs in favor of EllisDon and the Order approved by Counsel and filed on March 2, 2016. In my Reasons I directed the security of $250,000 was to be provided within 90 days from entry of the Order. The Order prepared and entered provided a specific deadline of May 18, 2016 being 90 days from my Reasons. My Reasons also encouraged the parties to explore the acceptability of a guarantee or guarantees from the shareholders or others.

In the event they required assistance in dealing with that alternative, I provided that application may be made to me for further direction. [ 2 ] On May 20, 2016, counsel for HVC set down an application for May 26, 2016 for an order to allow the provision of guarantees of the shareholders of HVC in the amount of $125,000 each as well as seeking an order to extend the period of 90 days for placement of security as stipulated in my Reasons.

That application was made before Master Schulz who adjourned the application to a future date when I would be available to hear the matter and to permit questioning on the affidavits filed in support by the shareholders. It stipulated that it was without prejudice to the respective rights of the parties and $10,000 of the amount of security for costs was to be paid into court or trust before May 31, 2016. [ 3 ] EllisDon firstly takes the position that the application was out of time as under the terms of the Order the action was already dismissed.

Secondly, it points to the inadequacy of the material setting out the financial circumstances of the shareholders used in support of the application and the value of the guarantees per se in light of other creditors’ potential claims. In this latter regard during the course of the application, counsel for HVC indicated that the shareholders could provide security for the guarantees by way of a mortgage(

s) against their principal residences. Time [ 4 ] It is true that it is the Order that speaks of a Court’s determination not the reasons delivered. However, in this case the Order does not reflect an express direction given in my Reasons. Having regard to the circumstances, I am of the view that the time can be extended to permit the assessment of the proposed alternate security pursuant to rule 13.5(2). Alternative Security [ 5 ] The affidavits filed by the two shareholders attach as an exhibit a “Statement of Financial Position”.

The most significant asset in each case is their personal residence held by them as joint tenants with their spouses. The respective equity is $475,000 and $215,000 held jointly with their spouses based on bald, approximate valuations made by the shareholders. On questioning, it was acknowledged that HVC has an indebtedness of approximately $1.1 million to Canada Revenue Agency for payroll source deductions, GST and penalties. No demand has been made upon the shareholders in their capacity as directors of HVC in relation to their personal liability for these obligations.

In addition, Sovereign General Insurance Company has issued a Statement of Claim against the shareholders claiming indemnification for advances of approximately $1.5 million pursuant to performance and labour and material bonds on another project. No Statement of Defence has been filed, however, I was informed that whether or not the advances constitute proper payments recoverable under the indemnities is in dispute. Security in support of the indemnities in the form of a general security interest over all of their personal property has been registered.

Finally, both of the shareholders have RRSP holdings of around $100,000 which would be exempt from execution. [ 6 ] Counsel for the shareholders suggest that neither CRA or Sovereign are actively pursuing the shareholders as realistically the only chance of a significant recovery against them would arise from success in this action albeit there is no evidence to that effect. In a sense this suggestion is supportive of the concern expressed by EllisDon that there is little substance to support the guarantees offered by the shareholders.

Decision [ 7 ] The purpose of the security for cost rules is not primarily to defeat legitimate litigation but rather to ensure that those bound up in that litigation can reasonably expect to receive their costs should they be successful. As I noted in my earlier reasons the Plaintiff has presented evidence supporting a compelling case.

Nonetheless Counsel for EllisDon has raised legitimate concerns as to the ability to ultimately recover on the guarantees offered. [ 8 ] Noting the offer of mortgage security against the residences and having regard to the foregoing, I propose the following alternative as satisfactory security: 1. Each of the shareholders must provide a joint and several guarantee limited to $250,000; 2. In support of the guarantees the shareholders will provide security in the form of a mortgage charge(

s) totalling $250,000; 3. Evidence of value in the form of a comparative market analysis prepared by a realtor or an appraisal by a certified residential appraiser establishing not less than $250,000 in equity in the interest(

s) charged after taking into account all prior charges including but not limited to mortgages, secured lines of credit and taxes. [ 9 ] When providing this alternative, I am mindful that one of the shareholders share in his jointly held residence may well be

insufficient to satisfy the net equity requirement provided above if security as between the shareholders is to be equal. This may require the participation of his spouse or, alternatively, the charging of any shortfall in equity against the net equity of the other shareholder. That will be a matter to be resolved as between and among the shareholders and spouse(s). [ 10 ] Agreement to provide the foregoing guarantees and mortgage security together with the evidence of value shall be provided within 30 days of the date of these Reasons.

Registration of the security is to be completed no later than 60 days from the date of these Reasons. In the event the guarantees and mortgage security are not provided, the action and counterclaim are dismissed. Costs [ 11 ] I have been asked to resolve the question of costs arising from the original application for security and the costs for this application. It has been brought to my attention that there was an amendment to the contract as between the parties such that the provision includes entitlement to “legal costs”.

In my view, this language is insufficient to establish entitlement to costs on a “solicitor and own client” basis. HVC’s claim is for $1.8 million which puts the matter under Column 5 of

Schedule C of the rules. EllisDon is entitled to costs on that column for an application requiring a written brief and for 3.5 days of questioning being $12,500 together with its reasonable disbursements for the original application for security. [ 12 ] While it might be said that EllisDon was not successful in that it failed to have this action struck, its opposition to the proposed alternative offered as security was justifiable in the circumstances.

Noting the need for two attendances and questioning on affidavits EllisDon shall have its costs related to this application which I fix in the amount of $4000 all-inclusive. The $10,000 held in trust pursuant to the order of Master Schulz shall be paid to counsel for EllisDon for application as against the above costs. Dated at the City of Edmonton, Alberta this 24 th day of October, 2016. L.A. Smart M.C.C.Q.B.A. Appearances: Richard B. Drewry, Q.C. Emery Jamieson LLP for the Plaintiff/Defendant by Counterclaim Andrew W. Wilkinson Field Law LLP for the Defendants/Plaintiffs by Counterclaim