Center Street Limited Partnership v Lloyd’s Underwriters, 2017 ABQB 295

Court of Queen’s Bench of Alberta Citation: Center Street Limited Partnership v Lloyd’s Underwriters, 2017 ABQB 295 Date: 20170428 Docket: 1601 07825, 1601 02191 Registry: Calgary Between: Action Number 1601 07825 Center Street Limited Partnership Plaintiff - and - Lloyd's Underwriters Defendant And Between: Action No. 1601 02191 Center Street Limited Partnership Plaintiffs - and - Nuera Platinum Construction Ltd., Over & Above Reno and Contracting Ltd., TLC Roofing Inc., Green Earth Roofing Ltd., Michael Companion, Edwin Dean McGuirk, Lee Down, Trevor Griffin, and Patrick Riddler Defendants _______________________________________________________ Memorandum of Decision

of A. R. Robertson , Q.C., Master in Chambers _______________________________________________________ Introduction [ 1 ] Lloyd’s Underwriters, the insurer of Center Street Limited Partnership, applies to have two claims tried together. Both arise from a fire on a construction site. [ 2 ] One of them, which I will call the “insurance claim” is court file number 1601–07825 in which Lloyd’s is the defendant. Center Street is the plaintiff and it sues as the owner of an insurance policy. [ 3 ] The other is court file number 1601–02191, in which Lloyd’s is not involved at all.

That claim, which I will call the “construction claim”, is also by Center Street Limited Partnership. It sues as the owner of the construction project against its construction manager (Nuera Platinum Construction Ltd.), its roofing and waterproofing contractor (Over & Above Reno and Contracting Ltd.), the roofing subcontractors (TLC Roofing Inc. and Green Earth Roofing Ltd.), and five individual roofers. I will refer to those defendants collectively as the “construction defendants”. [ 4 ] Both claims are in their early stages.

This application was filed in September 2016, originally returnable in October, but adjourned to April 20, 2017 to be heard as a special application. [ 5 ] In connection with that application, Lloyd’s wants the undertaking of confidentiality set out in rule 5.33 lifted or modified, to allow evidence in the insurance claim to be used in the construction claim, and vice versa. [ 6 ] Center Street Limited Partnership opposes the applications.

So do the construction defendants who attended court. [ 7 ] The only common party to the two actions is Center Street, and it is not asking that the claims be tried together. [ 8 ] I have concluded that the cases should not be tried together and the implied undertaking should not be lifted as among the parties. [ 9 ] Lloyd’s was unable to serve some of the roofers with their application. I dispense with service of the application on them.

Background [ 10 ] During the process of construction of a four-storey commercial project in Calgary for Center Street Limited Partnership, there was a fire. [ 11 ] Shortly before the fire, the individual defendants in the construction claim, who were roofers, were using a propane torch on the roof. Within minutes of leaving the roof to go for a lunch break, a fire broke out in the northwest portion of the roof, and within 30 minutes the project had been extensively damaged by fire.

The Factors Regarding Trial Together [ 12 ] The guiding principles in considering whether two or more cases should be consolidated or tried together were set out succinctly by the Court of Appeal in Alliance Pipeline Limited v C.E. Franklin Ltd , 2007 ABCA 285 at para. 6 : The purpose of consolidation is to enhance the administration of justice. A court should consider the possibility of inconsistent verdicts, the prospect of prejudice to the parties and the impact of consolidation and non-consolidation, both at the pre-trial and trial stages on scarce resources, including administrative, judicial and financial.

In other words, a court must be able to conclude that having regard to all the circumstances, on balance, it is in the interests of justice that the actions be consolidated. Some of the relevant factors that should be considered are discussed in Mikisew [cited below]. These, however, are not necessarily the only relevant factors, nor are they in themselves determinative. Each case must be assessed on its own merits and should include consideration, not just of the common claims, but the extent of the distinct claims between the parties.

The focus in each case must be on the impact of consolidation on the parties and on the administration of justice. [ 13 ] One of the factors to be considered is the impact of consolidation on the parties. As I will discuss, this is an important factor here. [ 14 ] Center Street makes it clear that if it is successful as against Lloyd’s, there will be no need to proceed in the construction claim.

If Lloyd’s is unsuccessful in the insurance claim it will not be in a position to take over the construction claim subrogated to the position of Center Street, because all of the sub-trades are specifically made co-insureds under the policy of insurance. Of course if it is successful in defending the insurance claim, Lloyd’s would also have no interest in the construction claim. That is, Lloyd’s has no interest at all in the outcome of the construction claim. [ 15 ] The construction defendants have no interest in taking

part in the insurance claim. They only have an indirect interest in the result. [ 16 ] Lloyd’s argues that there was only one fire, and both claims involve an analysis of how the fire started. It denied the claim

because it relies on the “Hot Works Operations Warranty” in the policy which required that “a thorough check must be made for smouldering fire in out-of-the-way places, and guard patrol protection must be maintained for a minimum of four hours” after any hot work operations are conducted. It argues that the use of the propane torch constituted a “Hot Works Operation”.

The policy provides that a failure to comply with the warranties, including the hot works operations warranty, “shall render all insurance under this policy null and void.” Judicial Economy [ 17 ] Lloyd’s argues that it will be more efficient to have both trials together, that it is a question of judicial economy, as well as economy for the parties. With one fire, and the cause or causes of that fire being relevant and material in both claims, one trial will avoid the potential for repetition, conflicting evidence, and conflicting findings of fact.

Lloyd’s argues that the foundational rules militate in favour of one trial. It is prepared to take on the extra burden of much more pre-trial questioning and production as well as trial time if the cases are joined. Common Evidence? [ 18 ] Lloyd’s defence will likely rely, at least to some extent, on evidence from the roofers, who are not employed by them nor are they employed by their insured Center Street.

They were, presumably, employed by a subcontractor at least one contractual step away from their insured. [ 19 ] It seems likely that specific evidence as to what was being done immediately prior to the fire will have to come from the roofers. However, no one has been able to find three of them. The fire took place over two years ago, and although Center Street has sued the roofers it has not been able to serve all of them personally.

It has obtained an order for substitutional service, but no defence has been filed. [ 20 ] Lloyd’s asserts that one or more of the roofers have already changed their statements about what happened. It would like pre- trial questioning, or access to pre-trial questioning by others, of these individuals who are not party to the insurance claim. [ 21 ] Lloyd’s did not sue the roofers and it has no basis for adding them as third parties. For this application, Lloyd’s served the two roofers whom it could find, one by email.

It asks for an order dispensing with service on the other three and deeming service good and sufficient on the one served by email. [ 22 ] Lloyd’s wants the Court to allow all parties who are adverse in interest to be able to use pre-trial questioning transcripts and documents produced. It would be able to use questioning transcripts of questioning done by Center Street’s counsel.

Information disclosed under the cloak of confidence in the construction claim would be available to Lloyd’s not only to read, but to read in to the record at trial in the insurance claim. [ 23 ] Lloyd’s has some evidence to substantiate its defence. There was a witness in a nearby building who, by chance, happened to be bird-watching with a camera and took photographs of the event and has given a witness statement. There are other photographs as well, and evidence was obtained within hours of the fire, including a witness statement from one of the roofers.

Discrete Legal Issues [ 24 ] Center Street has arguments against Lloyd’s that do not require a finding by the trial judge about whether the requirements of the warranty was followed. It argues that the warranty does not apply to the possible failure of the roofers to check the work environment before leaving for lunch. It also advances other arguments in law which do not involve anyone proving that the roofers were responsible for starting the fire.

However, in the insurance claim, it may fairly be said that it is in Lloyd’s interest to show that the roofers started the fire, or at least did not take the proper steps as required by the policy of insurance with Center Street to avoid the fire. It is only in the construction claim that it is in Center Street’s interest to prove that the roofers were negligent in starting the fire. [ 25 ] Accordingly, there are discrete issues in the insurance claim relating to contract

interpretation, insurance and relief from forfeiture to be applied to these facts, which may or may not require the evidence of the specific roofers. [ 26 ] The main legal claims of Center Street against the construction manager, the contractor, subcontractors, and roofers are in negligence and for breach of the terms of its contracts with the construction supervisor and the roofing and waterproofing contractor, not on the words of the insurance policy, including the hot works operations warranty. “Reverse Onus” [ 27 ] Center Street’s claim in the construction claim would require that it elicit evidence from the roofers.

Center Street argues that if the claims are tried together it would be in the untenable position of having to call evidence in the construction claim that would tend to support Lloyd’s defence in the insurance claim. Lloyd’s would, in essence, sit and wait while Center Street proves evidence to help Lloyd’s defence - that Lloyd’s might otherwise have no access to, and no pre-trial discovery or questioning access to. [ 28 ] If the insurance claim proceeds as a separate action, Lloyd’s would have to call the roofers as its own witnesses in defence of

its case, and examine them in chief unless they could be shown to be hostile, but in a trial together Lloyd’s would be able to cross- examine them without first having to have them declared hostile. [ 29 ] Center Street says that that would effectively create a kind of reverse onus. Center Street would be presenting evidence in the construction claim possibly at the expense of its insurance claim against Lloyd’s, and the evidence would be presented at its expense, when the legal and financial burden of presenting it should be on Lloyd’s.

No Judicial Economy for the Construction Claim [ 30 ] The construction supervisor (Nuera) and the roofing and waterproofing contractor (Over & Above) support Center Street’s opposition to a trial together. They are also insureds under the policy with Lloyd’s although they are not parties to the insurance contract. If Center Street’s claim against Lloyd’s is successful, the claim against them will not proceed. They may not have to produce documents, let alone attend for questioning, trial and other steps in the lawsuit.

If they have to go ahead with their defence, having it tied to the insurance claim would inevitably increase their time and expense both pre-trial and at trial. [ 31 ] Furthermore, they argue that a trial over insurance coverage is, by its nature, relatively tidy litigation. The facts must be adduced to present a backdrop for the legal arguments about the wording of the policy, insurance law generally, and in this case, relief from forfeiture.

The insurance claim does not require nearly the same level of detail of facts, and does not require the production of records by them or the questioning of witnesses. [ 32 ] In contrast, claims relating to a construction dispute are inherently difficult because of the number of records that must be reviewed and the separate witnesses who must be examined pre-trial and at trial and conflicting legal claims. [ 33 ] The construction manager and the roofing and waterproofing contractor are being sued under their contracts for claims relating to alleged lack of supervision.

The claims against each of them are different. One can anticipate that everyone will have a different perspective on who had what level of responsibility for monitoring the roofing installation. Nuera was the construction manager, with a contract directly with Center Street. Over & Above was a contractor, that also had a contract directly with Center Street. Center Street has no direct contractual claim against the roofing sub-contractors, and of course none as against the roofers.

There are many factual details and legal arguments as between them and Center Street that are irrelevant to the claim against Lloyd’s. The volume of records to be produced in a batch of claims of the nature of the construction claim is expected to be significant. [ 34 ] Nuera and Over & Above submit that it is not just a question of Lloyd’s acknowledging that it might have to participate in difficult and lengthy construction litigation – they argue that if the claim against Lloyd’s is successful, the construction defendants may not have to take

part in any trial at all. [ 35 ] This is because Center Street argues forcefully that although its pleading in the construction claim was filed before the insurance claim, it is Center Street’s second choice for an actual trial. It would only proceed if it is unsuccessful as against Lloyd’s. That is, it is not a certainty that there will be two trials if they are not tried together, even if neither are settled.

An outcome favourable to Center Street in the insurance claim may end both matters. [ 36 ] Center Street, Nuera and Over & Above argue that this is a direct answer to the “judicial economy” argument that Lloyd’s advances. Neither Lloyd’s nor the construction claim defendants would enjoy the benefits of a trial together, especially if the claim against Lloyd’s is successful. The best outcome in the interests of judicial economy would be for a successful outcome for Center Street in the insurance claim. [ 37 ] The construction defendants would not save resources with a trial together, and neither would Lloyd’s.

It is only Center Street that would possibly enjoy the benefits of a trial together, and it is not asking for it. Inconsistent Findings of Fact [ 38 ] As to the possibility of inconsistent findings of fact in two trials, that is more a concern for the plaintiff, not Lloyd’s. Center Street recognizes that it runs the risk of a trial judge finding that the insurance warranty requirements were not met, that the policy is void, and then in a separate trial a judge finding that the roofers, the construction manager, and the roofing and waterproofing contractor were not negligent or in breach of their contracts.

But Center Street is not asking for a trial together. [ 39 ] Center Street argues that the joining of these two cases for trial, and for lifting the implied undertaking of confidentiality, are sought by Lloyd’s simply as a litigation strategy. Lloyd’s wants to better its position in the litigation, not to save either the parties’ or the Court’s expense, or to avoid the possible confusion of two conflicting claims. It is of no interest to Lloyd’s whether Center Street is successful against the construction defendants.

Case Law Consolidation, Trial Together or Severance of Claims [ 40 ] The parties have referred several cases to the Court. As set out above in Alliance Pipeline , “Each case must be assessed on its own merits”, but it is appropriate to consider other cases having similar features. [ 41 ] In Klychak v Samchuck , 2012 ABQB 85 at para. 38 , the Court distilled the directions in Alliance Pipeline to this simple direction: “although individual factors should be considered, the court’s overall objective is to ensure that its decision on how the actions should be tried will serve the ends of justice”.

[ 42 ] The Court concluded that three actions should be tried together, but it is important to note that the same parties were plaintiff and defendant in all three actions. Although in one of the cases there was a second defendant, the other defendant did not appear on the application - and from the brief description of the dispute in the reasons, it appears that this other defendant was a so-called “partnership” of the plaintiff and defendant, not a true third party unrelated to the others.

Essentially the application was to resolve all of the related disputes between the same parties in one trial. [ 43 ] Urban Landmarks Master Builder Inc v Lloyd’s Underwriters , 2012 ABQB 224 was a claim in connection with the construction of a building and a fire, so there is at least a gloss of similarity to the claims here. Urban Landmarks had first sued (

a) Lloyd’s, (

b) an insurance broker, and (

c) United Protection Services, a security provider who was said not to have patrolled the site properly. After the first action was well underway, Urban Landmarks filed a second statement of claim against United Protection Services alleging negligence in connection with the same incident, but did not serve it. United found out about it and applied to have the second action struck on the basis that it was an abuse of process. [ 44 ] The Court suggested that the delay in serving the second statement of claim was arguably an abuse of process, rather than the filing of the new one.

United (which was in a somewhat analogous position to the construction defendants here) opposed the granting of a stay of the second action. An important distinguishing factor from the cases now before the Court is that United had already been sued in the first action. It was also opposing having two separate claims, although its proposed resolution of this issue was to have the second action struck. [ 45 ] Furthermore, it was the plaintiff Urban Landmarks that sought the consolidation.

There appears to have been no position taken by Lloyd’s. [ 46 ] The Court concluded that there should be no consolidation (which would require pleadings amendments to properly consolidate the claims and other steps) but ordered that they be tried at the same time or one after the other, as may be directed by further order. [ 47 ] However, the legal environment before the Court in Urban Landmarks was noticeably different than the case here: it was the plaintiff asking for trial together and the issues of reversing the onus and the completely different claims were not argued.

The plaintiff had already included the security company in the first action; it had no aversion to having the two distinct claims and parties dealt with in one action. [ 48 ] Egg Lake Tree Farms Ltd v Alberta (Environment) , 2014 ABQB 42 was an application to sever some claims that were related to expropriation from tort claims. At para. 37, the Court said that “Consolidation and misjoinder are really two sides of the same coin” and the factors to be considered could equally be applicable to either kind of application.

Citing Mikisew Cree First Nation v Canada , 1998 ABQB 675 , 224 AR 157 at para. 2 , the Court listed these considerations: (

a) whether there are common claims, disputes and relationships between the parties; (

b) whether consolidation will save time and resources in pre-trial procedures; (

c) whether time at trial will be reduced; (

d) whether one party will be seriously prejudiced by having two trials together; (

e) whether one action is at a more advanced stage than the other; and (

f) whether consolidation will delay the trial of one action which will cause serious prejudice to one party. [ 49 ] Although the nature of the two claims were significantly different, the claims all arose from an error in the construction of a weir and other alleged errors and from alleged misrepresentations about the effect of the construction of the weir. The Court declined to sever. In part this was because of the possibility of either double recovery or under-recovery if the claims were tried separately. That is not an issue here.

If the plaintiff recovers from Lloyd’s it would not seek double recovery from the construction defendants. [ 50 ] An important distinguishing factor in Egg Lake Tree Farms is that it was one group of plaintiffs suing one defendant. The same parties were involved in both of the types of claims. [ 51 ] In 1177620 Alberta Ltd v Axcess Mortgage Fund Ltd , 2016 ABCA 404 , there were three foreclosure actions, one of which had a counterclaim, and then a fourth action brought by another party, which largely reflected the counterclaim in the third foreclosure action.

The fourth action had been instituted separately, because a counterclaim cannot be advanced by a person who was not a defendant in the original action. The fourth action was brought by a representative of the mortgagor for breach of contract against the mortgagees and also against a representative of the mortgagees. Axcess Mortgage Fund was a common defendant throughout, because it managed three mortgages on lands, each one held by a different group of mortgagees. [ 52 ] The mortgagor brought an application to consolidate all four lawsuits.

The Court of Appeal allowed the consolidation of the three foreclosures but not the fourth claim. The inclusion of the fourth claim might have unduly delayed the resolution of foreclosures, and the fourth claim involved a different party (the representative of the mortgagor) and an issue that was distinct and would involve quantification of damages. [ 53 ] The consideration of delay in Axcess Mortgage must be noted. Foreclosures are not generally complex claims. The fourth action involved a different party and different issues that were expected to take longer to resolve.

These were seen as important factors militating against consolidation (or trial together). The Implied Undertaking of Confidentiality

[54] As mentioned, Lloyd’s asks to lift the implied undertaking so that the parties can share production and pre-trial questioningtranscripts as against parties who are opposite in interest. Lloyd’s argues that the construction defendants, at least the roofers, areopposite in interest to Lloyd’s although not directly by the pleadings. [55] Juman v Doucette, 2008 SCC 8 , [2008] 1 S.C.R. 157 involved a request to lift the implied undertaking where it wassought to use evidence in civil proceedings in criminal proceedings.

The Supreme Court of Canada acknowledged, at paragraph 35, thatwhere there are “the same or similar parties and the same or similar issues” in two civil actions the prejudice to the examinee inquestioning is “virtually non-existent” and “leave will generally be granted” to lift the undertaking. [56] However, at para. 36 the Court cited cases supporting the proposition that “a non-party to the implied undertaking could inunusual circumstances apply to have the undertaking varied, but that relief in such cases would virtually never be given.” [Emphasisadded.] Here, the party seeking to have the implied undertaking lifted, Lloyd’s, is not a party to the other action. [57] Under the sub-heading “The Balancing of Interests” at paragraph 38, the Court noted that the onus, which rests here onLloyd’s, is to show “exceptional circumstances”: As stated, the onus in each case will be on the applicant to demonstrate a superior public interest in disclosure, and the court will bemindful that an undertaking should only be set aside in exceptional circumstances. … However, to repeat, an undertaking designed inpart to encourage open and generous discovery by assuring parties being discovered of confidentiality will not achieve its objective if theconfidentiality is seen by reluctant litigants to be too readily set aside. [58] Lloyd’s relies on Andy & Jean Grebeley Holdings Ltd v Commercial Union Assurance Company of Canada, 2000 ABQB604 to argue that in a broadly similar fact situation the Court ordered the cases tried together.

However, Center Street points out that theapplication in Grebeley was brought by two of the defendants (in the separate actions), and the only party opposing was the plaintiff. The parties that most stood to benefit from the implied undertaking were the defendants – the plaintiff would have access to informationand discovery from all of them – and they were happy to share.

It was not a general waiver of confidentiality amongst all parties thatwas sought – it was a request not to have to examine, and get production from, the plaintiff repeatedly on the same facts. [59] Here, the information is, at the first instance, required to be kept confidential from non-parties who might be interested in itbut are not entitled to it, such as Lloyd’s.

It is not a matter of the convenience of sharing the information for judicial economy and thegeneral economy and efficiency of the administration of justice, but rather Lloyd’s is asking that the Court force some fundamentalchanges in the parties’ legal positions. None of the parties to the construction claim (at least those who responded to the application)want this result. [60] Nuera and Over & Above have no interest in taking

part in the claim against Lloyd’s. Their interest is only in the result - ifthat claim is successful, the claim against Nuera and Over & Above will be stopped. [61] None of the roofers attended court. Presumably if they had done so they would have advanced the same argument. It seemsunlikely that they would want to increase the time and expense required to defend the case against them. They may be witnesses in theinsurance claim, but they are not parties. Conclusion [62] In my view there will be no likely judicial economy if the cases are tried together.

If the claim against Lloyd’s is successful,there will certainly be no economy. If it is not successful, Center Street may know what evidence there will be from the roofers, and ifthere is a trial a transcript will be available for all. That will likely result in significant efficiencies in the claim against the constructiondefendants. [63] As mentioned, the Court of Appeal has stated that one of the factors to consider is the effect of trial together on the parties.

Often in applications for consolidation or trial together the same, or almost the same, parties are involved in both actions and theconcerns of confidentiality are marginal. As Lloyd’s is a stranger to the construction claim, in my view it must show exceptionalcircumstances to justify both (

a) the resulting effective reverse onus that would be placed on Center Street and (

b) the effective right topre-trial questioning of the roofers and representatives of the corporate construction defendants in a claim to which they are not parties. Ido not see those exceptional circumstances. [64] The application for trial together is dismissed. Service on the construction defendants who have received some notice isdeemed good and sufficient, and I dispense with service on the three who did not receive notice. [65] Costs may be spoken to.

I note that although counsel for both Nuera and Over & Above made oral submissions, neither filedbriefs and chose to rely on Center Street’s written submissions. Heard on the 20th day of April, 2017. Dated at the City of Calgary, Alberta this 28th day of April, 2017.

A. R. Robert son, Q.C. M.C.C.Q.B.A. Appearances: Eric A. Dolden and J. Kim Dolden Wallace Folick LLP for the Applicant (Defendant) Lloyd’s Underwriters Aidan Cameron and Andrea Gray McCarthy Tetrault LLP for the Respondent (Plaintiff) Center Street Limited Partnership James D. Murphy and David D. De Groot Burnet, Duckworth & Palmer LLP for the Respondent (Defendant) Over & Above Reno and Contracting Ltd. David C. Bishop Gowling WLG for the Respondent (Defendant) Nuera Platinum Construction Ltd.