NEP Canada ULC v MEC OP LLC, 2017 ABQB 152

Court of Queen’s Bench of Alberta Citation: NEP Canada ULC v MEC OP LLC, 2017 ABQB 152 Date: 20170302 Docket: 1201 09690, 1201 13832 Registry: Calgary

Between: 1201 09690 NEP Canada ULC Plaintiff - and - MEC OP LLC, MEC OP Transaction 1 ULC and Merit Energy Company LLC Defendants And Between: 1201 13832 Gayden Carr Plaintiff - and - NEP Canada ULC and Newton Energy Partners, LLC Defendants _______________________________________________________ Memorandum of Decision on Costs of the Honourable Mr. Justice E.C. Wilson

_______________________________________________________ [1] In my decision on the merits of this litigation (2017 ABQB 28), I concluded with the direction that if the parties could notagree on costs, then I would do so based solely upon written submissions. [2] Counsel have not come to any agreement on costs and, accordingly, have filed written submissions on the matter. [3] Both Carr and Merit seek solicitor-client costs. NEP says solicitor-client costs are not appropriate.

NEP says that Merit’sapplication for any cost award arising from the trial of an issue is premature and should be dealt with during the trial of the main actionwhich is scheduled to be heard in 2018. [4] Carr submits that “the primary reason for seeking enhanced costs is the Defendants’ unproven allegations that amount tofraud, deceit and conspiracy” (Brief, para 3). [5] Merit repeats the above justification for seeking solicitor-client costs but also relies upon “the unfounded allegations ofdishonesty and impropriety” levied against the four members of the Deal Team (Brief, para 2).

Merit submits that its cost claim for thesuccess it achieved in the trial of an issue is warranted and, as my decision on the issue being tried was final, it is not premature toadvance its claim. NEP had wanted the trial of an issue to be hived off from the entire law suit and had successfully rebuffed Merit’sappeal of the case management judge’s direction to set a trial of an issue (2016 ABCA 201). As was said by Slatter, J.A, in hisconcurring judgment when describing the case management judge’s order for the trial of an issue: 39 This is a most unusual situation.

This is not an order severing ‘liability from remedy’ as is occasionally directed. It is not even anorder that a discrete cause of action or issue be resolved. Rather, it directs that one discrete fact, the knowledge of four individuals abouta specific report be tried. ... In all of these circumstances therefore, Merit submits that costs can and should be awarded flowing from my decision on the trial of anissue.

Overview [6] In my view, NEP’s submission concerning prematurity is inextricably bound up with its position that the claim for solicitor-client costs is unjustified. (See NEP Brief paras 21-23.) [7] Accordingly, I will first deal with the question whether solicitor-client costs should be awarded. [8] In my opinion, the answer is no.

The following explains how I came to that position. [9] It was clear to the Court that NEP’s claim against Merit included a clear contention that all four members of the Deal Teamhave lied under oath when they individually claimed not to have read the RAE Report prior to the closing of the transaction and that allfour members of the Deal Team had also agreed to deceitfully deny reading the RAE Report if ever asked. [10] In the trial of an issue and in the wrongful dismissal action, I rejected NEP’s claims. [11] Carr and Merit submit that where allegations of dishonesty, fraud and the like are made and are dismissed as beingunfounded, solicitor and client costs should be awarded. [12] With respect, that is not the law. [13] In Hamilton v Open Window Bakery Ltd., 2004 SCC 9 the Court said the following at paragraph 26: 26 In Young v.

Young, (SCC), [1993] 4 S.C.R. 3 (S.C.C.), at p. 134, McLachlin J. (as she then was) for a majority of thisCourt held that solicitor-and-client costs “are generally awarded only where there has been reprehensible, scandalous or outrageousconduct on the part of one of the parties”. An unsuccessful attempt to prove fraud or dishonesty on a balance of probabilities does notlead inexorably to the conclusion that the unsuccessful party should be held liable for solicitor-and-client costs, since not all suchattempts will be correctly considered to amount to “reprehensible, scandalous or outrageous conduct”.

However, allegations of fraud anddishonesty are serious and potentially very damaging to those accused of deception. When, as here, a party makes such allegationsunsuccessfully at trial and with access to information sufficient to conclude that the other party was merely negligent and neitherdishonest nor fraudulent (as Wilkins J. found), costs on a solicitor-and-client scale are appropriate: see, generally, M.M.

Orkin, The Law of Costs, (2nd ed. (loose-leaf)), at para. 219. [14] Thus an unsuccessful attempt to prove fraud or dishonesty does not automatically trigger the grant of solicitor-client costs.There is a required second step – that the attempt to prove fraud or dishonesty displayed “reprehensible, scandalous or outrageousconduct”. [15] An example of this qualifier is found in the above quote from Hamilton – where the party making an unsuccessful allegationof fraud at trial had access to information sufficient to conclude that the other party was merely negligent and neither dishonest norfraudulent and yet plowed ahead with its claim of deceit and fraud. [16] There is nothing in this case to properly support a suggestion that NEP engaged in reprehensible, scandalous or outrageousconduct in this trial.

[ 17 ] Let us not forget that all four members of the Deal Team did receive in their individual email inbox – at least once – the RAE Report. Clearly, all members of the Deal Team had the time and the wherewithal to read at least a portion of the RAE Report. The matters addressed in the RAE Report would reasonably appear to be of interest to at least some, if not all, members of the Deal Team.

Lastly, senior management members of Merit reporting to the Deal Team did read the Report when it was sent to them. [ 18 ] It is that background that had prompted NEP to argue that at least some members of the Merit Deal Team had to have skimmed, if not read, most of the Report and were lying under oath when they said otherwise. [ 19 ] I find that in all of the circumstances it was quite understandable for NEP to adopt the course that it took.

Further, there was nothing on the record before me which could have prompted NEP to conclude that the Deal Team’s collective failure to read the Report was better explained by collective negligence or disinterest or oversight or a combination thereof. [ 20 ] In short, I find that NEP’s conduct was anything but reprehensible, scandalous or outrageous. Indeed, I find that, in the circumstances, NEP’s conduct was reasonable, responsive and measured.

A failure to achieve its goal through cross-examination and argument doesn’t change the nature of that conduct. [ 21 ] Turning to solely address Mr Carr and his wrongful dismissal action, it will be recalled that I found that, prior to the transaction closing, he did know of the Report’s existence. Clearly, he had simply forgotten that when challenged by his boss some months later.

Thus, NEP’s attack upon Carr’s testimonial integrity is even more defensible, taking his admitted defect of memory into account. [ 22 ] NEP had also noted at trial that the collective failure to read the Report that had been emailed to all four men meant that the deal went ahead solely to the benefit of their corporate employer. NEP viewed all this with a jaundiced eye; it did not see a simple coincidence as an explanation.

In essence, I find that NEP had a genuine but mistaken belief regarding the actual knowledge of the four Deal Team members. [ 23 ] In all of the circumstances, I am satisfied that solicitor-clients costs are not justified for either the trial of an issue nor for the wrongful dismissal action. [ 24 ] Nor am I satisfied that the trial of an issue warrants enhanced costs. Merit boldly seeks a five time column 5 multiple without satisfactorily explaining why that, or any particular multiple, is warranted. No case authority is offered for comparison purposes.

Carr also seeks some multiple of column 4 as enhanced costs. Again, no satisfactory explanation for such a claim is provided. [ 25 ] I am not satisfied that enhanced costs are justified for either the trial of an issue nor for the wrongful dismissal action. [ 26 ] Finally, I am not persuaded that ordering costs flowing from my decision on the trial of an issue is premature. [ 27 ] I accept NEP’s contention that at the trial of the main action, it may be entirely successful.

But that is not a reason to automatically deny Merit’s application on this ‘interlocutory’ decision. [ 28 ] It was NEP who sought and obtained the Order directing the trial of an issue. Merit opposed the Order and unsuccessfully appealed. It was a very narrow and discrete issue being tried – whether any members of the Deal Team actually knew of the Report’s existence and the Report’s contents. As earlier noted, Slatter J.A. described that very unusual nature of the Order. [ 29 ] My decision resolved that narrow issue that NEP wanted resolved.

While there was some discussion with counsel whether my decision would bind the trial judge through the devices of issue estoppel or res judicata, I do not believe that such concerns help resolve the question whether costs should be reserved to the trial judge. [ 30 ] I am satisfied that my decision is a final determination of the issue being tried and that Merit is entitled to its costs. Accordingly I will impose costs. See Anderson v Amoco Canada Oil & Gas 1998 CarswellAlta 1567 (Q.B.) at para 10 .

To the same effect see RFG Private Equity Limited Partnership No. 1B v Value Creation Inc. 2015 CarswellAlta 165 (Q.B.) . [ 31 ] As it relates to the trial of an issue, Merit is entitled to its costs on

schedule ‘C’ column 5, including the costs associated with having second counsel. While the issue of actual knowledge was narrow, it was part of the larger allegation of deceit and fraud wherein questions of constructive knowledge, wilful blindness, negligence and the like will be relied upon at the trial of the main issue. Clearly second counsel was and is actively involved in the larger issue. I am satisfied that his knowledge and advice would be relied upon to ensure that Merit was putting its best possible foot forward during the trial of an issue. [ 32 ] That said, I agree with NEP that some of Merit’s claims must be denied. They include:

i) all costs associated with the “bifurcation issue” before the case management judge and on the appeal; ii) all costs associated with the questioning of individuals (generally identified in NEP’s brief Volume 1 at paragraph 31) that did not relate to the issue being tried before me; iii) all costs associated with individuals whose role in the issue being tried before me is unclear (generally described in NEP’s brief at paragraph 32). [ 33 ] Turning to the claim for costs advanced by Carr in the wrongful dismissal action, NEP does not dispute the Bill of Costs with two exceptions. I agree with NEP’s arguments and deny Carr’s claims for

i) any costs arising from the bifurcation issue before the case management judge, and

ii) any costs claimed for second counsel given the extremely narrow issue that had to be dealt with and the minimal amount of evidence that Carr sought to rely on to defend his case. [ 34 ] In the result Mr Carr is awarded party-and-party costs of $59,369.33 inclusive of GST. [ 35 ] There is one final matter to address. It relates to the Formal Offer to Settle issued by Merit on April 15, 2015 and upon which Merit now relies to seek a doubling of costs. [ 36 ] I agree with NEP that my decision did not resolve its entire deceit claim nor the loss of opportunity claim.

Such resolutions were the sine qua non of the Formal Offer made by Merit (see the last paragraph of its offer). [ 37 ] Accordingly, I must conclude that the Formal Offer is irrelevant to my decision on costs. [ 38 ] In the circumstances I think it appropriate that the Formal Offer be sealed and not be opened except by Court Order. To accomplish this I believe it may be best to simply seal the Brief on Costs Submissions of MEC and the responding brief of NEP on the Trial of an Issue, Volume 1 and 2.

Should counsel have a better alternative they are at liberty to raise it with the Court. [ 39 ] In relation to the settling of costs, I find that there has been mixed success and accordingly each side shall bear their own costs. Dated at the City of Calgary, Alberta this 2 nd day of March, 2017. E.C. Wilson J.C.Q.B.A. Counsel: Munaf Mohamed Michael D. Mysak for the Plaintiffs/Defendants Roger F. Smith D. Robb Beeman for the Defendants Sabri Shawa, Q.C. For the Plaintiff Carr