FAST Industries Ltd Appellant - v. -, 2017 ABQB 240

Court of Queen’s Bench of Alberta Citation: FAST Industries Ltd v Sparta Engineering Ltd, 2017 ABQB 240 Date: 20170404 Docket: 1503 08800 Registry: Edmonton Between: FAST Industries Ltd Appellant - and - Sparta Engineering Ltd Respondent _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice J.E. Topolniski _______________________________________________________ I. Introduction [ 1 ] This appeal turns on whether the Master in Chambers was correct in granting

summary judgement on the basis that there is no merit to the defendant, Sparta Engineering Ltd.’s claim for legal set-off: FAST Industries Ltd v Sparta Engineering Inc , 2016 ABQB 215 (Decision). Central to the determination was that the debt against which the claimed set-off arose (primary debt) was not mature before the plaintiff’s notice of intention to restructure under the Bankruptcy and Insolvency Act , RSC 1985, c B-3 ( BIA ) and since Sparta had only a quantum meruit claim, it was caught by the stay of proceedings effective on the NOI filing. [ 2 ] For the reasons that follow, the Master correctly concluded that Sparta’s claim does not meet the test for legal set-off and

summary judgment is warranted.

II. The Standard of Review [ 3 ] The standard of review of a Master’s Decision is correctness: Bahcheli v Yorkton Securities Inc , 2012 ABCA 166 (Alta CA) at para 20 ; Boyd v Cook , 2013 ABCA 27 (Alta CA) at para 24 . [ 4 ] Appeals from a Master are hearings de novo : Bahcheli at para 3 . III.

Background [ 5 ] The chronology of events and factual background are relatively straightforward and well detailed in the Decision. [ 6 ] FAST Industries Ltd and Sparta Engineering Inc are in the oilfield equipment business and have a history of contracting with one another for equipment maintenance and repair. [ 7 ] In late 2014, the (now released) defendant, CWC Energy Services Corp retained Sparta to service an oilrig.

In turn, Sparta retained FAST, which it had done business with previously, to do aspects of the work. [ 8 ] Like their previous dealings and contracts, all of which were verbal, the agreement made between FAST and Sparta is skimpy on details. The deal, which was made by FAST’s director, Brett Wetthuhn, and Sparta’s Vice-President, Jason Thomas, spoke only to the scope of the work (both understanding the scope was subject to change) and an estimated price (while nothing turns on it since the invoiced amount is admitted, Thomas says the estimate is $250,000 while Wetthuhn says it was $300,000 - $350,000).

There was no discussion of invoicing and when payment would be due. However, both Wetthuhn and Sparta’s officer and director, Matt Fox, understood that FAST would invoice when the work was finished as per their past dealings. Wetthuhn also understood, that as with the parties’ past dealings, there would be no progress payments. [ 9 ] At the time of the agreement, FAST owed Sparta $111,249.08.

Fox thought that amount would be set-off from the invoiced amount for this job, but does not recall sharing that view with anyone from FAST. [ 10 ] The work took some five months to complete, and on April 1, 2015, Sparta paid FAST $100,000 and collected the oilrig, which still had some small “non-essential” work to be done on it. On April 6 th , FAST invoiced Sparta $348,586.68 plus GST crediting Sparta with the $100,000 payment made by it April 1 st . The invoice states “TERMS Net 30 Due Date 06-May-2015”.

The invoiced amount included the yet to be completed “non-essential” work, which was ultimately finished on May 1, 2014. [ 11 ] Sparta refused to pay the invoice, and on June 12, 2015, FAST sued for the full amount owing under the invoice. Sparta defended claiming set-off the $111,249.08 FAST owed it before the subject contract. [ 12 ] Complicating this otherwise straightforward transaction is FAST’s filing a Notice of Intention to make a Proposal (NOI) under

Part X of the Bankruptcy and Insolvency Act , RSC 1985, c B-3 ( BIA ) on March 5, 2015. This was something Sparta learned of on March 31 st (some three plus weeks later). FAST’s creditors voted in favour of the proposal on June 8, 2015, and it was later sanctioned by the Court. It appears that Sparta chose not to cast a vote at the creditors’ meeting. IV. The Parties’ Positions [ 13 ] Sparta argues that the Master incorrectly assessed the evidence and incorrectly applied the law of set-off.

In this regard, the claim is not merely a quantum meruit claim as the evidence shows that some 70 plus percent of the work was done at the NOI date and ascertainable labour costs then exceeded the set-off amount. Stated another way, the Master ought to have found that the requirements for legal set-off were established. [ 14 ] FAST contends that the Master correctly interpreted the evidence and the law by finding that the debt had not matured at the NOI date since the parties’ contractual intent was to invoice and require payment on completion of the work. V. Analysis 1. Legal Matrix a.

Summary Judgment [ 15 ] It is trite that today, Courts must resolve legal disputes in the most cost-effective and timely method available, provided the process selected ensures fairness between the parties. [ 16 ]

Summary judgment is available if there is no issue of merit genuinely requiring a trial because a fair and just disposition is available on the existing record. This will be the case when the process: (1) allows the court to make the necessary findings of fact; (2) allows the court to apply the law to the facts; and (3) is a proportionate, more expeditious and less expensive means to achieve a just result: Hryniak v Mauldin , 2014 SCC 7 (SCC) , Windsor v Canadian Pacific Railway , 2014 ABCA 108 at paras 11-16 (Alta CA). [ 17 ] In part, rule 7.3 of the Alberta Rules of Court provides:

7.3(1) A party may apply to the Court for

summary judgment in respect of all or part of a claim on one or more of the following grounds: (

a) there is no defence to a claim or part of it; (

b) there is no merit to a claim or part of it; (

c) the only real issue is the amount to be awarded. [18] Access Mortgage Corp

(2004) Ltd v Arres Capital Inc, 2014 ABCA 280, explains that a case has “no merit” if the movingparty’s position is so compelling that the likelihood of success is very high: para 45. Stated in another way, for the non-moving party'scase to have merit, there must be a genuine issue of a potentially decisive material fact in the case which cannot be summarily foundagainst the non-moving party on the record. [19] The mere assertion of a position by the non-moving party in a pleading or otherwise, or the mere hope of the non-movingparty that something will turn up at a trial, does not suffice.

The key is whether the circumstances require viva voce evidence to properlyresolve the case: Canada v Lameman, 2008 SCC 14 at paras 10 to 11, [2008] 1 SCR 372. b. The effect of the NOI [20] Section 97(3) BIA preserves legal set-off and equitable set-off where two persons are both debtors and creditors of the other:Workers’ Compensation Board v Husky Oil Operations Ltd, (SCC), [1995] 3 SCR 453.

Indeed, as noted in that case atpara 60: ...in the bankruptcy context, the law of set-off allows a debtor of a bankrupt who is also a creditor of the bankrupt to refrain from payingthe full debt owing to the estate, since it may be that the estate will only fulfil a portion, if that, of the bankrupt's debt.

Consequently, inthis limited sense the party claiming set-off has Parliament's blessing for the "reordering" of his priority in bankruptcy by virtue of theoperation of the law of set-off. [21] Because the effect of the set-off is to prefer one creditor over the general body of creditors, it is confined within narrow limitsand the requirement of mutuality is rigorously enforced: Re Bank of Credit and Commerce International SA (No 8), [1996] 2 WLR631.

Accordingly, s 69 of the BIA stays all proceedings against a bankrupt or a person who has filed a NOI including set-off of pre-bankruptcy and pre-NOI debts against post-bankruptcy and NOI debts: Vachon v Canada (Employment & Immigration Commission), (SCC), [1985] 2 SCR 417; Sabey, Re, [1996] BCJ No 2820 at para 16 (BCSC); Jones, Re, (2003) (ON CA), 66 OR (3d) 674 at para 14; Cobourg Felt Co., Re, (1925) (ON SC), 2 DLR 997 (Ontario Supreme Court, InBankruptcy); 728835 Ontario Ltd., Re, 3 CBR (4th) 211 (ONCJ, Gen Div, Commercial List), aff'd 728835 Ontario Ltd., Re (1998). [22] The longstanding policy reason for this limitation is that, notwithstanding s 97(3), the equitable rights of creditors cannot beundermined.

As noted in Cobourg Felt at paras 9 -10, allowing set-off from a post NOI debt against a debtor’s pre-NOI obligations isinconsistent with, and in effect, a fraud on the proposals contrary to equity and good conscience. In my view, the competing policyobjective of fostering continued relationships between restructuring entities or persons and their trading partners is trumped by the needto protect the integrity of the bankruptcy system. c. Set-off [23] The parties agree that equitable set-off is not in play in this case.

Accordingly, this overview of the law and analysis addressesonly legal set-off. [24] The party seeking to establish a right of set-off bears the onus of proof: Korex Don Valley ULC (Re), (ON SC) at para 70. [25] Blair J (as he then was) handily summarizes the law of legal set-off in Citibank Canada v Confederation Life Insurance Co(1996), (ON SC), 42 CBR (3d) 288 (Ont Gen Div), p 300 at paras 37, and 39; aff'd, (1998), (ONCA), 37 OR (3d) 226 (Ont CA). The conditions are: 1.

The obligations existing between the parties must be debts, and they must be debts which are for liquidated sums or moneydemands which can be ascertained with certainty; and, 2.

Both debts must be mutual cross-obligations, i.e. cross-claims between the same parties and in the same right. [26] Put another way, the commonly used term “mutual debts" means debts due from either party to the other for liquidated sums,or money demands which can be ascertained with certainty at the time of pleading: Citibank Canada at para 49. [27] The debts sought to be set-off must also be recoverable by action: Kelly R Palmer, The Law of Set-Off in Canada (Aurora:Canada Law Book Inc, 1993) at p 22 citing Diewold v Diewold, (SCC), [1941]1DLR 561 at 564, (SCC).

A debt isactionable if it is mature, which is just another way of saying that the debt is due. As explained in Palmer at p 32: “Whether or not a debthas “sufficient maturity” to be capable of being raised as a set-off defence will depend upon if the debt is due, that is, owing to thecreditor, and payable, or subject to any contingencies which must be satisfied prior to the debtor being required to pay the debt”.

[28] Unlike equitable set-off, for legal set-off there is no necessity for the debts to be connected in any way. [29] Moreover, it is irrelevant if one of the debts is not immediately payable, provided it is, in fact, a debt represented by anexisting obligation: Coopers & Lybrand Ltd v Lumberland Building Materials Ltd, [1983] BCJ No 1951 (BCSC), at para 16; Enterprise Capital Management Inc v Semi-Tech Corp (1999), (ON SC), 10 CBR (4th) 133 at para 16 citing Webbv. Stenton (1883) 11 Q.B.D. at p. 529; Proposal of Brunswick Chrysler Plymouth (RE), 2005 NBQB 83, at para 24.

Clear examples ofthese sorts of debts are things like debts due under term leases and mortgages with periodic payments. [30] As noted earlier, in a bankruptcy or BIA proposal scenario, the mutual obligations must exist at the date of the bankruptcy orthe NOI. [31] In this case, there is no concern about the requirement of the claims concerning the same parties and their being in the sameright. Rather, the concern is whether the Sparta debt was mature and actionable (the Primary Debt) at the NOI date.

If the answer is“yes”, the analysis turns to whether it is a liquidated debt – one that is ascertainable with certainty: Palmer at p 22. [32] The answer in this case turns on the parties’ implied contractual intent: Chitty on Contracts: General Principles, vol 1(London: Sweet & Maxwell, 1994) p 622; Aero Trades (Western) Ltd (Receiver of) v Canada, (FCA), [1989] 1 CTC142 (FCA). c.i The primary debt has not matured at the NOI date [33] The parties’ verbal contract was, as I have noted, skimpy on details.

That said, like the Master, I find the evidence sufficient toinfer the parties’ intention as to when the debt matured. And I use the term ‘matured’ as does Mr.

Palmer in his text; another way ofsaying ‘has come into existence’. [34] Contractual terms may be implied from the circumstances of the parties having consistently or on former and similaroccasions adopting a particular course of dealing: Chitty p 629. [35] While unspoken in the negotiation of this transaction, the parties’ agree that, as with past business dealings, FAST was notentitled to progress payments, and invoicing would occur only after the work was finished. In connection to the progress payments, Ishould be clear, that is the evidence of Mr.

Wetthuhn speaking of past conduct which was not contradicted in any way. There is noevidence to suggest that in their past dealings, payment was expected before invoicing. Reasonably and necessarily, one can infer that tohave been the intention, which interestingly accords with the longstanding principle that if no time is fixed for payment of an agreed costin a circumstance where a party contracts to “work on the defendant’s materials”, the defendant must pay as soon as the plaintiffcompletes the work and is given a reasonable opportunity to see the work is properly done: Chitty p 1052.

Mindful that accrued, but notyet payable debts, qualify for set-off; such is not the case here. [36] The Master concluded that the debt matured on either April 6, 2015, the day of invoicing, or April 1, 2015, the day the oilrigwas collected by Sparta.

I agree with his conclusions. [37] As to the latter date, I find it reasonable to infer the parties’ intention as being an agreement to amend their contract, such thatthe debt would be partly due that day (in exchange for release of the asset) with the balance due after invoicing. [38] The Master found that at the NOI date, FAST’s work was incomplete, and invoicing had not occurred until some 32 dayslater. Understandably, the Master accepted Wetthuhn’s uncontroverted evidence about the state of the work on the NOI date over thesuppositions and estimates proffered by Sparta’s vice-presidents, Messrs.

Thomas and Hansen. The date of the invoice is uncontroverted. [39] In short, the Master correctly determined that as at the NOI date, Sparta’s debt to FAST was not yet mature. The Master choseto describe it as nothing more than a quantum meruit claim, which did not qualify for legal set-off. I choose to describe it as anunenforceable debt by virtue of its not having ripened, matured or come into existence. The consequence is the same.

Because the debtarose after the NOI, there could be no actionable, mutual and cross-obligation at that point in time. [40] While it is unnecessary to address the question of whether Sparta’s claim is a liquidated claim, I will nevertheless do so forcompleteness. c.ii The primary debt is a liquidated debt [41] The test for establishing whether a debt is liquidated or ascertainable is described by in Citibank Canada v ConfederationLife Insurance Co (1996), (ON SC), 42 CBR (3d) 288 (Ont Gen Div), at 300; aff'd, (1998), (ONCA), 37 OR (3d) 226 (Ont CA).

There, Blair J (as he then was) quotes Odgers' Principles of Pleading and Practice, 22nd ed. (London:Stevens & Sons, 1981), at p. 46: ... When the amount to which the plaintiff is entitled can be ascertained by calculation, or fixed by any scale of charges or other positivedata, it is said to be "liquidated" or made clear. ...

But when the amount to be recovered depends upon the circumstances of the case andis fixed by opinion or by assessment or by what might be judged reasonable, the claim is generally unliquidated. [42] Germane also is Justice Blair’s observation that reasonableness is not a relevant factor in determining whether an amount isliquidated: para 49. [43] The policy behind the requirement of a liquidated debt is to give certainty - parties know the extent of the diminution of theprimary claim.

This avoids the need for adjudication and reduces the amount of court time needed to resolve a dispute: Palmer at p 22. [44] Coopers & Lybrand Limited v. Lumberland Building Materials Ltd concerns set-off of value rebates expressed to be earnedand therefore owed but not payable at the relevant time. The Court found that the value of the rebates was ascertainable since the

program called for rebates based upon “the plateau achieved by year end in accordance with a schedule”. The Court appeared to bemoved by the inequities that would result if the finding were otherwise, noting that the rebate program was an inducement to do businesswith the bankrupt, and the Court went on to find that, in any event, equitable set-off would be established. Interestingly, Coopers &Lybrand Limited v. Lumberland Building Materials Ltd. is cited) as authority for equitable set-off case by the Ontario Court of Appealin P.I.A. Investments Inc. v.

Deerhurst Limited Partnership, . [45] Aero Trades (Western) Ltd (Receiver of) v Canada (FCA), [1989] 1 WWR 723 (FCA) involved a set-offclaim for taxes and competing claims over Aero Trade’s receivables. The issue turned on whether the primary debt for chartered airservices existed before a receiver was appointed. Finding that the parties’ intent was to bring debt into existence on invoicing, theanalysis turned to whether the amounts were certain or ascertainable. The Court found that they were since the amounts could beascertained from invoicing.

Here, I note ‘invoicing’ was a contractual term, the hours a plane was flown and a fixed fee schedule. [46] Enterprise Capital Management Inc v Semi-Tech Corp concerned set-off of money against senior secured discount notesthat had not reached their maturity date but could be accelerated in the event of default.

The Court held that as there was no default thecontingency had not been met and accordingly, set-off was not available. [47] Worthy of repetition at this point is that the purpose of certainty is that the parties will know in advance how much will bededucted from an amount owing: Palmer, p 22. [48] Sparta relies heavily on the labour costs being readily discernable from FAST’s records and urges that, alone, these costsexceed the amount of the set-off claimed.

Noteworthy is that the invoice amount is in the range of ½ of 1% lower than the pre-GST totalamount of these work orders. [49] The challenge with relying on the work orders to find certainty is that there is no evidence that the parties’ discussed how thebill would be calculated or how it was calculated and/or agreed to in their past dealings. Unlike other aspects of their contract where wecan look to past dealings, we do not have for this feature.

That said, even absent such evidence, the remarkable coincidence between thework orders and invoice might found an inference that the parties’ agreed that this is how the billing would be made. The strength of thatinference would be another issue for another day. [50] Consequently, had I found that the primary debt matured sufficiently to qualify as a “mutual debt”, which I did not, I wouldagree that the amount owing at the NOI date could potentially be capable of being found certain. As such, it could give rise to a genuinematerial fact in dispute requiring viva voce evidence.

In that scenario, which is obviously not the scenario I have found, the result wouldbe that the Master was incorrect in his conclusion and the appeal would be allowed. VI. Conclusion and Disposition [51] The Master correctly concluded that the matter was subject to a fair and just decision on the record and in ordering

summaryjudgment. To use the language of Access Mortgage, FAST’s position is so compelling that the likelihood of its success is very high, orconversely, Sparta’s case is unmeritorious because there is no genuine issue of a potentially decisive material fact. [52] The appeal is denied. VII. Costs [53] If the parties cannot agree on costs, they may speak to me within 65 days. Heard on the 10th day of November, 2016. Dated at the City of Edmonton, Alberta this 4th day of April, 2017. J.E. Topolniski J.C.Q.B.A. Appearances: Tyler Frederick Derksen for the Appellant

Dean Ashley Hitesman for the Respondent