PM&C Specialist Contractors Inc v Horton CBI Limited, 2017 ABQB 400

Court of Queen’s Bench of Alberta Citation: PM&C Specialist Contractors Inc v Horton CBI Limited, 2017 ABQB 400 Date: 20170623 Docket: 1203 15424 Registry: Edmonton Between: PM&C Specialist Contractors Inc Plaintiff/Respondent - and - Horton CBI Limited, Imperial Oil Resources Ventures Limited and Exxonmobil Canada Ltd. Defendant/Applicant _______________________________________________________ Memorandum of Decision of the Honourable Mr.

Justice Peter Michalyshyn _______________________________________________________ I Introduction [ 1 ] The defendant Horton CBI Limited (“HCBI”) applies for close to $8 million in security for costs against the plaintiff PM&C Specialist Contractors Inc. (“PM&C”). For reasons which follow, an order for security for costs is appropriate, but in a significantly reduced amount. II Background [ 2 ] The history of this litigation is set out to some extent in PM&C Specialist Contractors Inc v Horton CBI Limited , 2015 ABQB 209 ( PM&C #1 ).

For ease of reference, as noted at paras 2-4 of that decision: [2] The action arises from a February, 2011 agreement between the plaintiff PM & C Specialist Contractors Inc. (“PMC”) and the defendant Horton CBI Limited (“HCBI”) relating to construction and development at the Kearl Oil Sands at Kearl Lake, Alberta. In its pleadings filed in October, 2012 PMC alleges an agreement breached by HCBI by reason of its refusal to pay more than $28 million for work done up to July 24, 2012. PMC also pleads an improvement to certain lands and quantum meruit.

It pleads further that HCBI unlawfully terminated the agreement on July 24, 2012, or alternatively repudiated it, and in any event was negligent in the performance of its obligations under the agreement. Not fewer than 27 particulars of alleged negligence are pleaded. Altogether they lead to a further

claim for $15 million for PMC’s alleged increased costs, loss of opportunity and profit. A further $11 million is claimed on account offurther alleged damages. [3] In its defence filed in November, 2012 HCBI says PMC breached the agreement between the parties in not fewer than 12 ways.As such HCBI pleads it was entitled to terminate the agreement on July 24, 2012.

HCBI denies it breached or repudiated any agreement.It denies PMC did anything to improve the Kearl project lands and denies any losses to PMC, at least losses for which HCBI isresponsible. [4] HCBI counter-claims that PMC delayed and was negligent in the performance of its obligations. It pleads damages of $20million.

PMC has defended, denying any such liability and elaborating on its allegations that HCBI stood in the way of PMC’sperformance under the agreement. [3] As to the history of the security for costs application itself, HCBI first expressed interest in security for costs at a casemanagement conference on July 17, 2014 – some 20 months after the statement of defence was filed. [4] The security for costs application was filed on October 17, 2014. The application was first set down for a hearing December18, 2014 but was adjourned to May 4, 2015 to allow for the cross examination of PM&C’s officer.

It was adjourned again in the resultof the decision in PM&C Specialist Contractors Inc v Horton CBI Limited, 2015 ABQB 248 (PM&C #2). In due course the dates ofOctober 11-12, 2016 were set down for two days of argument based on four banker’s boxes of briefs, evidence and documents. [5] The uncontradicted facts relevant to the issue of providing security include that: a. PM&C is the wholly-owned subsidiary of the Irish-based company, Sepam Specialists Ltd. PM&C’s subcontract with HCBI wasits only work in Canada; b. At the time of this application PM&C had no work in Alberta.

Its officer was unware of any employees in Alberta, or whetherPM&C had a current office in this jurisdiction. Its only assets in Alberta were materials and equipment collection from the Project valuedat no more than $30,000-$35,000; c. PM&C faces lien judgments of just under $800,000; non-lien judgments, including CRA, of more than $9 million; and claimsagainst it of more than another $3.2 million; d. PM&C says that certain dues are owing to it; it points to a successful outcome of the litigation itself as a significant asset owing toit; e.

There is no evidence that PM&C has no way to raise any of kind of security, notwithstanding HCBI’s requests for PM&C’s bankstatements and financial statements, and for similar records of PM&C’s parent, Sepam Group. PM&C has refused to supply its owninformation, or that of Sepam Group.

III Analysis [6] The following provision of the Business Corporations Act, RSA 2000, c B-9 (“BCA”) is relevant to this application: 254 In any action or other legal proceeding in which the plaintiff is a body corporate, if it appears to the court on the application of adefendant that the body corporate will be unable to pay the costs of a successful defendant, the court may order the body corporate tofurnish security for costs on any terms it thinks fit. [7] The following provisions of the Alberta Rules of Court, Alta Reg 124/2010 are also relevant to this application: 4.22 The Court may order a party to provide security for payment of a costs award if the Court considers it just and reasonable to doso, taking into account all of the following: (

a) whether it is likely the applicant for the order will be able to enforce an order or judgment against assets in Alberta; (

b) the ability of the respondent to the application to pay the costs award; (

c) the merits of the action in which the application is filed; (

d) whether an order to give security for payment of a costs award would unduly prejudice the respondent’s ability to continue theaction; (

e) any other matter the Court considers appropriate. [8] As in Provalcid Inc v Graff, 2014 ABQB 453, 591 AR 117, it is clear in the case before me that s 254 of the BCA applies. Rule 4.22 still has a place in the analysis. As noted by Yamauchi J in Provalcid, at paras 88-89: [88] The onus of proof between the 2 provisions [s 254, r 4.22] does not change. The onus, in the first instance, is on the applicant, orthe party seeking security for costs.

If the applicant satisfies this onus, the evidentiary burden shifts to the respondent: TorontoDominion Bank v Suitel Canada Executive Suites Corp, 2011 ABQB 519 at paras 28-31, 527 AR 97. [89] Thus, in this case, Graff has the onus of establishing on a balance of probabilities that Provalcid will be unable to pay his costs if

his defence is successful. If Graff satisfies this onus, the evidentiary burden shifts to Provalcid to show why this Court should notexercise its discretion to make such an order against it. [9] Some courts on security for costs applications have adopted the many-factored approach set out in Amex Electrical Ltd. v.726934 Alberta Ltd., 2014 ABQB 66, 582 AR 304. Others align more with the five broad factors set out in r 4.22, as in Attila DoganConstruction v AMEC Americas Ltd, 2011 ABQB 175, 504 AR 295. [10] In its brief, HCBI appears to adopt the r 4.22 approach.

Although it could be clearer, that appears also to be the approachadopted by PM&C in its response. [11] I say ‘it could be clearer’ in part because nowhere in its written materials filed September 30, 2016 in response to HCBI’sbrief, does PM&C address squarely the first element of the test in r 4.22(a) – whether it is likely the applicant for the order will be ableto enforce an order or judgment against assets in Alberta. [12] It is hard not to conclude that PM&C thus concedes this point to the applicant. [13] Moving past r 4.22(a), PM&C does address the second element of r 4.22(b) – the ability of the respondent to the application topay the costs award.

But it addresses this element only briefly. And PM&C refers to no evidence, and it makes little argument, contraryto HCBI’s position. At paragraph 72 of its brief, PM&C does say that the applicant “must provide the court with a reliable estimate of itsprobable costs”. That’s fair enough, but as will become apparent later in these reasons, HCBI has provided a reliable estimate of aportion of its claimed costs – just over $1 million in costs – to which PM&C has offered no evidence of an ability to pay. [14] In conclusion on these factors, whether or not the r 4.22(

a) and (

b) considerations are conceded or merely unaddressed byPM&C, I find that in the circumstances of this case, these considerations weigh significantly in favour of HCBI’s application for securityfor costs. [15] The importance of these factors is noted in Autoweld Systems Limited v. CRC-Evans Pipeline International, Inc., 2011ABCA 243, 515 AR 6 (per O’Ferrall JA) at paras 12-16, a decision which deals with a number of the other leading authorities: [12] In my view, the foregoing considerations must be read in light of the legislated consideration in

section 254 of the BusinessCorporations Act, namely, an apparent inability on the part of a plaintiff to pay the costs of a successful defendant. That legislatedconsideration has been held to be founded in a concern that a limited company with few assets can enjoy the proceeds of its lawsuit if itwins, and walk away if it loses. Mr. Justice Côté in Sprung Environponics Ltd v Calgary (City) (1990), 1990 ABCA 23 , 72Alta LR (2d) 237 at 245, 103 AR 131 held: The owners of a limited liability company with few assets other than a cause of action are in a very fortunate position.

They can makethe company sue; if it wins, they take the proceeds as shareholders. If it loses, they can walk away from the company and the suit. Thatis why the legislatures passed these sections in Business Corporations Acts: see Smith Bus Lines Ltd. v. Bank of Montreal (1987), (ON SC), 61 O.R. (2d) 688 at 705, 25 C.P.C. (2d) 255 (H.C.); Holly Homes v. Euchner, (NWT SC),[1986] N.W.T.R 289, 13 C.P.C. (2d) 84 at 88 (S.C.). Analysis [13] The case management judge cited the relevant provision of the Business Corporations Act and expressly considered and discussedall five factors in Rule 4.22.

He considered those factors both from the perspective of whether an order for security for costs ought to bemade and from the perspective of how much security might be ordered. [14] The applicant says the chambers judge erred in finding that it did not meet its evidentiary burden to show that a security for costsorder would unduly prejudice its ability to continue the action. I reject that argument. The applicant filed no evidence whatsoever as tothe impact of a security for costs order on its ability to continue the suit.

The learned chambers judge commented on this absence: “Ihave no sworn evidence from Autoweld that it cannot raise any security in or near the amount demanded”: para 23 [15] To quote Chief Justice Wittmann, who considered the new rule (r. 4.22) respecting security for costs in Attila Dogan Construction vAMEC Americas Limited, 2011 ABQB 175 at para 13, [2011] AJ No 308: “... the plaintiff risks having this factor weigh against it if itdeclines to bring any evidence with regard to its ability to satisfy an award of costs.” And later in his reasons at paragraph 24: Particularly telling is [the plaintiff’s] choice to tender absolutely no evidence on its behalf in opposition to the application, but rather torely on the evidence put forward by [the defendant] ...

The lack of any evidence put forward on behalf of [the plaintiff] ... is, in my viewa significant factor in favour of granting [the defendant’s] application. [16] Justice Côté said much the same thing in Calmont Leasing Ltd v 32262 BC Ltd, 2002 ABCA 290, 317 AR 331 at paragraphs 5-6about the now-repealed equivalent rule: ...it does not follow that the lack of income or assets of [the defendant] means that if security is ordered that will prevent the appeal frombeing prosecuted ... The gap in the logic is this.

A number of the reported cases say that it is not sufficient for the appellant (or in anothercase plaintiff) to say that it has no income or assets. It must also go on to depose that it has no way of raising any money or otherproperty which could be put up as security. [16] Moving past r 4.22(

a) and (

b) considerations, in its brief PM&C then acknowledges that if the applicant satisfies the court thatthe respondent is unable to pay a costs award, the court may still decline to exercise its discretion in the applicant’s favour. PM&C goeson to argue five discretionary factors: a. that security for costs was not applied for at the earliest opportunity;

b. that security is sought for steps already taken; c. that there is a high likelihood PM&C will obtain judgment against HCBI; d. that a security for costs order will prevent PM&C from prosecuting its action; and e. that HCBI has counterclaimed/cross claimed. [17] My consideration of these “discretionary factors” follows. a. that security for costs was not applied for at the earliest opportunity [18] I pause to note that on a r 4.22 approach, this factor may properly be considered under r 4.22(e). [19] On this factor PM&C relies solely on Amex Electrical, at para 75(a), and the many authorities reviewed in that case.

On therecord before me, Amex Electrical does not much help the respondent. [20] It does not because PM&C refers to no evidence that it was lulled into any false sense of security in the 20 months followingHCBI’s statement of defence and prior to notice of the security for costs application. Nor is it obvious what unfairness or prejudice thereis to the respondent in having to answer now to the merits of a security for costs application.

Nor finally was the action close to being setfor trial in July, 2014: by that time, the action had only recently gone into case management, and the parties were still exchangingdocuments and commencing or continuing examinations. b. that security is sought for steps already taken [21] This factor raises arguably raises more of a quantum issue than one going to the very merits of granting security. [22] In any event, later in these reasons I deal with this PM&C concern in part by declining to recognize most of HCBI’s claimspre-dating the July, 2014 notice of HCBI’s intention to pursue security for costs. c. that there is a high likelihood PM&C will obtain judgment against HCBI [23] This factor is essentially the r 4.22(

c) issue which is concerned with the “merits of the action”. It is clearly PM&C’s focus inresponse to the security for costs application. [24] As a starting point, I acknowledge that in PM&C #2 I commented at some length as follows: [11] HCBI also strongly relies on Attila Dogan Construction & Installation Co v AMEC Americas Ltd, 2011 ABQB 175 for the proper

interpretation of Rule 4.22, which provides: 4.22 The Court may order a party to provide security for payment of a costs award if the Court considers it just and reasonable to do so,taking into account all of the following: (

a) whether it is likely the applicant for the order will be able to enforce an order or judgment against assets in Alberta; (

b) the ability of the respondent to the application to pay the costs award; (

c) the merits of the action in which the application is filed; (

d) whether an order to give security for payment of a costs award would unduly prejudice the respondent's ability to continue the action; (

e) any other matter the Court considers appropriate. [12] HCBI relies on Attila Dogan as authority that to satisfy rule 4.22(

c) it need only establish an arguably meritorious defence.No particular inquiry is needed into the merits of the respondent PM&C’s case, and no undue advantage should be accorded PM&C forexample by compelling undertakings that might well chip away at HCBI’s arguably meritorious defences. [13] At para 17 in Attila Dogan, Wittmann CJ notes the party AD’s submission that “Rule 4.22 mandates a more detailed inquiryinto the relative strengths of each party’s position and a higher standard than a reasonably arguable defence.” He then says that: Even if this is so, it does not follow that the appropriate and determinative question is which party has a stronger case.

This is a highlycomplex claim. What rule 4.22 requires is an inquiry into the merits. In my view, this suggests that a reasonably meritorious defence,when considered together with the other factors set out in Rule 4.22, is sufficient to weigh in favour of granting security for costs. It isneither possible, nor desirable, for the Court at this stage to determine which party's case is stronger. [14] On a full reading of Attila Dogan together with other cases considering rule 4.22(

c) I am not persuaded that a court can neveror should never consider which party’s case is stronger, at least if that articulation then precludes a meaningful inquiry into thereasonable merits of both parties’ positions, and not just into whether a reasonably meritorious defence has been established. [15] Doubtless the test was correctly stated on the facts of the case before Wittmann CJ and it is probably the correct test in mostsecurity applications, as most are probably brought at a very early stage in proceedings, when for example the court is informed only bypleadings and one or more affidavits.

But security applications are sometimes brought later in the proceedings, or they are renewed, and

in any event they are sometimes accompanied by more evidence as is the case here – where there is

Part V questioning of severalwitnesses and undertakings, many provided and others ordered to be provided. Hall J’s decision in Xpress Lube & Car Wash Ltd v Gill,2011 ABQB 457 at para 11 is an example of the potential relevance of such further questioning on the weight to be given Rule4.22(

c) considerations. [16] In saying this I am mindful of a number of decisions post-dating Attila Dogan which appear to state somewhat more nuancedtests for the

interpretation of rule 4.22(c). [17] For example McMahon J in Autoweld Systems Limited v CRC-Evans Pipeline International, Inc, 2011 ABQB 265 putthe rule 4.22(

c) test somewhat differently. With Attila Dogan before him, McMahon J commented at para 22 in Autoweld that the newfactor set out in rule 4.22(c): ... broaden[s] the consideration from only the merits of the defence to the merits of the action.

It therefore requires a balanced view of theentire action as it then appears. [18] Earlier in the same paragraph McMahon J comments that: There is insufficient basis at this early stage to determine which party has the better prospect of success in this commercial dispute. [19] The implication is that such in inquiry may well be justified if the action has reached a stage at which such a determination canbe made, as to which party has the better ‘prospect of success’. [20] Leave to appeal McMahon J’s decision in Autoweld was denied in reasons reported at 2011 ABCA 243 , although theinterpretation of rule 4.22(

c) did not appear to be the issue. [21] McMahon J’s decision in Autoweld was expressly followed on the rule 4.22(

c) point, quoting the very same paragraph 22 asnoted above, in Arhum & Huzaifa Enterprises Ltd v 1231993 Alberta Ltd, 2013 ABQB 333. In that case Lee J reviewed all that wasbefore him, concluded that both of the parties had raised serious and arguable issues, and further concluded therefore that there weremerits to the action. [22 Graesser J in 1251165 Alberta Ltd v Wells Fargo Equipment Co, 2013 ABQB 533 likewise considered Attila Doganthough not, curiously, Autoweld. In any event at paras 43-44 he articulated the rule 4.22(

c) test as follows: 43 Some basic principles can be drawn from the cases, and I do not profess that the following is exhaustive. Rather, the following aresome principles applicable to the facts and circumstances of this case. [ … ] 2. The court must attempt to look at the merits of the action, as difficult as that may be on an interlocutory application; 3. The greater the likelihood of success for the plaintiff (if that can be reasonably assessed) the more the court should consider thepotential unjustness of preventing a meritorious claim from proceeding; 4.

The converse is true: the smaller the likelihood of success for the plaintiff (if that can be reasonably assessed) the slower the courtshould be in denying security when security would otherwise be appropriate… [ … ] 44 As with many applications, this analysis involves a balancing act: balancing the right of a plaintiff to pursue a claim and the right of adefendant to protection from false claims. [23] Wells Fargo was cited favourably in Parkland Industries Ltd v 897728 Alberta Ltd, 2015 ABQB 10 , 2015 ABQB 10(MC) wherein at paras 35-36 Master Hanebury said this about the rule 4.22(

c) test: 35 The rule requires the Court to examine the action as a whole, both claim and defence: Arhum& Huzaifa Enterprises Ltd. v. 1231993Alberta Ltd., 2013 ABQB 333, para. 25. This is, as is often the case, difficult to assess at an early stage in the action, and in this case,also on the evidence filed: 590863 Alberta Ltd. v.

Deloitte Touche Inc., 2012 ABQB 98 , 2012 ABQB 98 (Master), para. 21. 36 The greater the likelihood of success for the plaintiff, insofar as that can be reasonably assessed, the more the court should take intoaccount the unfairness of an order that would stop a meritorious claim from proceeding: 1251165 Alberta Ltd. v. Wells Fargo EquipmentFinance Co., 2013 ABQB 533 , para. 43. [24] I do not doubt that Attila Dogan can be read consistently with the cases mentioned above.

It can be in the sense that aconclusion as to a reasonably meritorious defence can rarely be made without some broader consideration of the merits of the claim – ifthe likelihood the plaintiff will receive judgment is high, it can hardly be said the defendant has a reasonably meritorious defence; if theplaintiff’s claim is weak, it may take relatively little to raise a reasonably meritorious defence. In any event it is hard to conceive ofhaving little or no regard for the strength, or the merits, of both parties’ positions.

And the extent of that regard may depend on the stageof the litigation and on the availability of relevant and material evidence. [25] Now on this application, I do not withdraw from these earlier comments regarding the need in some cases at least to dig deepinto the record – to go down the ‘rabbit hole’ – to use Mr. Nemetz’s expression – to attempt to determine the merits of the claim, keepingin mind too that “merits” includes some consideration of any reasonably meritorious defences available to defeat the claim.

This inquiryis open, if not required, given the stage of the litigation and the availability of a great deal of relevant and material evidence. [26] Before turning squarely to the question of merits, there is an evidentiary issue to decide arising from HCBI’s intended use of

the affidavit of Wayne Cannon sworn March 15, 2015 (the “employee affidavit”). The ‘employee affidavit’ [ 27 ] The defendant’s officer, Wayne Cannon, has sworn three affidavits: October 15, 2014, November 14, 2014, and March 15, 2016. PM&C does not particularly object to the admissibility of Cannon’s evidence except to the extent to which it relies on/purports to adopt the questioning evidence of PM&C’s former employees, exhibited to the March 15, 2016 affidavit. [ 28 ] No one disagrees that the questioning transcripts attached to Cannon’s March 15, 2016 affidavit are hearsay.

The employees have sworn no affidavits directly in support of the security for costs application. [ 29 ] For his part, Cannon states that he has reviewed the questioning transcripts compendiously exhibited to his March 15, 2016 affidavit. He states that he believes the employees’ evidence is true. He states further that the employees’ evidence is consistent with his own personal knowledge, and with other information of which he is aware from correspondence and/or emails brought to his attention. [ 30 ] PM&C objects to how most of the employees’ evidence was gathered.

As noted, the witnesses in question are all former PM&C employees. Five of the six were located overseas and examined there by HCBI’s counsel in January/February, 2015. The sixth was examined by HCBI’s counsel in Calgary in May, 2015. [ 31 ] Dates in April, 2015 had earlier been agreed on, then changed to January/February to convenience one or more of the former employees. PM&C’s counsel however was not available to attend the overseas questionings in January/February, 2015. HCBI’s counsel went ahead with the earlier questioning dates anyway.

Plaintiff’s counsel did not attend the overseas questioning by teleconference or other means of technology; through an articling student, the plaintiff did attend the Calgary questioning in May, 2015. [ 32 ] PM&C’s counsel learned afterwards that the five overseas witnesses had been briefed by HCBI’s counsel in December, 2014. [ 33 ] In the argument, PM&C expressed great concern for this briefing, and for its possible impact on the evidence of the former employees.

In PM&C’s brief filed September 30, 2016, counsel suggested the ‘briefing were effective’ in that “virtually all of these witnesses gave evidence when questioned…that PMC was not delayed whatsoever by CBI”.

Counsel went so far in his brief to express suspicion “as to what these witnesses were offered and promised”. [ 34 ] On the record before me there is no merit to what I find is PM&C counsel’s speculation about what ‘offers and/or promises’ were made, if any, to the former employees. [ 35 ] This is not to endorse the arbitrary scheduling of the overseas questionings impervious to the in-person availability of PM&C’s counsel.

It is to say however that I am not persuaded simply to exclude the employee affidavit on this application, without more. [ 36 ] As to the weight to be given the employee affidavit: a. in his March 15, 2016 affidavit Cannon says that the former employees’ evidence is consistent with his own; HCBI argues that as such Cannon’s evidence should be weighed favourably; b. however, it appears that significant parts of the former employees’ evidence deal with matters about which Cannon says little or nothing in his affidavits before me; to the extent that the former employees’ hearsay evidence stands on its own, it is entitled to minimal if any weight on this application; c.

Examples of the employee hearsay evidence appearing to stand on its own are at the following paragraphs in the defendant’s main brief filed September 16, 2016: paragraphs 99, 100-101, 106-107, 110-111, 122-124; examples of the employee hearsay evidence purporting to be consistent with the affidavit evidence of another defendant affiant (McCormick, who does not ‘adopt’ the employee evidence) is at paragraphs 114 and 121 of the defendant’s brief; d.

Contrary to HCBI’s submission at paragraph 45 of its September 16, 2016 brief regarding the employee affidavit, I am not convinced it is appropriate to look for evidence “corroborating the Employee Evidence”, as distinct from looking to the employee evidence only to support Cannon’s direct evidence; e. Also going to weight, is PM&C’s objection that Cannon appears to have contradicted himself when he adopts the employees’ evidence that CBI did not delay PM&C in its work.

Whether the contradiction is as stark or clear-cut as suggested by counsel for PM&C remains to be seen – it is not something I am to reconcile on my review of the affidavit and employee transcripts. [ 37 ] On the whole, while again the employee affidavit is not inadmissible, for the reasons stated I find it difficult to assign significant weight to the evidence of former employees exhibited to it, except where that evidence clearly backs up direct evidence already given by Cannon. [ 38 ] Turning finally then to what is before me regarding the merits of the plaintiff’s claim, and dealing with it in the following

summary fashion: a. HCBI was a contractor on the Kearl Oil Sands project at Kearl Lake, Alberta (“the Project”), PM&C a subcontractor pursuant to a roughly $27 million agreement dated effective February 14, 2011 (“the Subcontract”); b. PM&C was contracted to do certain electrical and related work; c. There are facts in issue with regard to the timeliness of PM&C’s work: PM&C says that for the most part HCBI needed to complete certain pipe work before PM&C could proceed with electrical work; it says HCBI was behind in aspects of that work, hampering

PM&C’s progress; PM&C also says that HCBI was also responsible for deficiencies and late changes to engineering and cableschedules; d. HCBI says even if that is true – which is not admitted – there was always ample other work for PM&C to do; e. There are facts in issue also with regard to the impact on PM&C of admitted late delivery of the so-called “Korean Modules”; f.

HCBI says that prior to execution, the Subcontract was modified to take into account late delivery of certain Korean Modules;although it could be clearer, this appears to be denied by PM&C, e.g., at paragraphs 15-18, 41 of its lengthy response brief filedSeptember 30, 2016; g. In any event, once the modules did arrive, PM&C says it was obliged to accelerate its work, and began incurring $7 million/monthin what it says were largely unanticipated labour expenses; PM&C says further that these expense was not fully funded by HCBI; h.

HCBI alleges that PM&C was in breach of its contractual obligations pay trades and suppliers, and to make CRA and WCBpayments; i. HCBI alleges further that there were issues regarding the quality of PM&C’s work. [39] Relevant particularly to the issue of notice of termination: a. HCBI purported to terminate the sub-contract “fully” on July 24, 2012; for its part, PM&C disputes the July 24, 2012 letter had anylegal effect owing to the fact it was given without contractual notice; b.

Earlier, in a letter of July 13, 2012, HCBI says it “partially terminated” PM&C; for its part, PM&C disputes the July 13, 2012 letterhad any legal effect, as the alleged deficiencies that gave rise to the July 13, 2012 letter were rectified before the date of the letter;PM&C also argues, amongst other things, that termination could not be based on allegations it was behind schedule, if only because bythen there was no schedule; c.

HCBI says, and PM&C disputes, that if termination was not made in accordance with the contract, independent grounds existed fortermination based on fundamental breach; for its part, PM&C says HCBI itself was in breach of the contract and that, as such, it cannotterminate on the allegation that PM&C was in breach; d.

HCBI says that at the time of termination, it had paid PM&C more than $32 million; PM&C says that at the time of termination,HCBI owed it payments greatly exceeding the paid $32 million; it says that if its own subcontractors were not being paid, it was becausePM&C was not being paid by HCBI; it maintains that by HCBI’s own admission, which HCBI disputes, that PM&C is still owed morethan $21 million. [40] This

summary outline of the issues and evidence in the action highlights what I have concluded following a painstakingreview of the voluminous evidence placed before me, and after thorough argument: that there are complicated legal issues to be decided,very much based on evidence that is conflicting, and will have to be decided in part on a trial judge’s assessment of credibility. On thislegal and evidentiary landscape, I agree with the observations in 679927 Ontario Ltd. v.

Wall, (NSCA), mentioned inProvalcid, at para 97, that: …while the merits of the plaintiff’s case are relevant and may be considered, they should only be considered on the basis of undisputedfacts, the pleadings, etc. and not on the basis of seriously disputed facts or assessments of credibility. [41] While I am in no doubt that there are clearly triable issues in the action, PM&C has not persuaded me of more than that. Iconclude also that HCBI has reasonably meritorious defences. PM&C has not persuaded me otherwise.

As in Ritter v Hoag, 2003ABQB 229, 2003 CarswellAlta 393, at para 13, both the claim and the defence “sound well founded”. [42] At the end of the day, I find no greater likelihood of success for the plaintiff than I do for the defendant. d. that a security for costs order will prevent PM&C from prosecuting its action [43] This factor clearly raises r 4.22(

d) considerations. [44] PM&C addresses this discretionary factor at paragraphs 89-96 of its brief filed September 30, 2016. [45] At paragraph 90, PM&C correctly states that: When determining whether a security for costs award will prevent a respondent from prosecuting its action, the Court will assesswhether the respondent is unable to furnish the funds necessary to continue the action. [46] At paragraph 91, PM&C then states that: There is little doubt that CBI’s failure to pay monies it acknowledges are owing have left PMC without the wherewithal to pay costs. [47] No evidence is specifically referred to in support of this contention.

What’s more, HCBI denies in its reply brief filed that itowes money to PM&C; whether HCBI has made admissions to the contrary is a fact in issue to be determined at trial. And even ifmonies are owing, there is no evidence that PM&C has no other ‘wherewithal’ to pay costs.

[ 48 ] (For what it’s worth, PM&C’s officer, Barry O’Brien, comments in his November 21, 2014 affidavit, at paragraph 47, that HCBI has estimated expert costs of $5 million “…because [HCBI] knows PMC will not have the ability to post that amount of a bond”. In its brief, PM&C does not rely on O’Brien’s comment as evidence relevant to this r 4.22(

d) factor. HCBI, at paragraphs 155-156 of its brief filed September 16, 2016, puts O’Brien’s affidavit evidence into proper context.) [ 49 ] In its same brief, HCBI goes on to address the r 4.22(

d) factor in some detail at paragraphs 50-54 (referring to amongst other cases, Sprung Environponics , at para 30) and paragraphs 145-158.

HCBI argues for a “negative inference” against PM&C owing to its refusal to produce financial records relevant to its “wherewithal”, or to that of its parent company, Sepam. [ 50 ] In its response brief filed September 30, 2016, PM&C addresses none of these points. [ 51 ] I note that in the leave decision of Stacey v Foy , 2014 ABCA 420 , Berger JA draws an adverse inference against a security for costs respondent for “the failure…to adduce meaningful evidence of his financial status and of the corporate entities”. [ 52 ] In all of these circumstances, it is hard to disagree with HCBI’s position that PM&C has failed to show that it does not have access to funds anywhere.

I agree that an adverse inference should be drawn, and the PM&C cannot rely on its own alleged impecuniosity to suggest that it will be unduly prejudiced, or that it would be unfair, if security for costs is ordered. e. that HCBI has counterclaimed/cross claimed [ 53 ] This factor may also be considered under r 4.22(e). On its face the counterclaim appears to raise issues similar to those raised in the plaintiff’s claim. Based on the parties’ briefs and argument, I know little else about the counterclaim.

But the authorities are clear that the existence of the counterclaim may be a factor weighing against security, or affecting quantum of security. [ 54 ] Relevant too, however, is that HCBI has invited me to dismiss its counterclaim should PM&C fail to put up any necessary security: 1251165 Alberta Ltd v Wells Fargo Equipment Finance Co, 2013 ABQB 533 , at para 77 .

Conclusion: liability for security for costs [ 55 ] To return to the test under s. 254 of the BCA : it is clear that the plaintiff PM&C will be unable to pay costs if it is unsuccessful at trial; as such, “the court may order [PM&C] to furnish security for costs on any terms it thinks fit”. This discretionary decision under s. 254 is informed by the r 4.22 factors discussed at length above. [ 56 ] PM&C emphasizes the merits of the claim.

It argues the merits are so compelling that they should outweigh other factors and defeat HCBI’s application for security. [ 57 ] I have concluded however that while the claim appears to have merit, HCBI’s defences do likewise. I am unable to find a greater likelihood of success for the plaintiff than for the defendant. [ 58 ] This conclusion, while neutral in the abstract, does not particularly help PM&C on this application.

It does not because as noted in Provalcid Inc v Graff , as the party unable to pay the costs of an unsuccessful claim, PM&C has an evidentiary onus to persuade the court not to order security for costs against it. Here that onus is not met where the plaintiff can show only an arguable case, and in light of my consideration of other relevant factors. And to summarize: factor (

a) regarding the timing of the application is of little if any assistance to PM&C; likewise factor (

b) regarding steps already taken, as costs for such steps are already being heavily discounted; factor (

d) regarding PM&C’s ability to carry on with the action is of no assistance to it; and finally, factor (

d) regarding the counterclaim, is of quite limited assistance to PM&C given the defendant’s position that it will invite the counterclaim to be dismissed, alongside the plaintiff’s claim, should any security ordered not be posted. Quantum of security [ 59 ] No one disagrees that the fixing of quantum of security for costs is an exercise of discretion.

Some of the factors relevant to the threshold question of granting security, are also relevant to the quantum of security. [ 60 ] The manner in which I exercise my discretion on quantum will be apparent from my review of HCBI’s draft bill of costs (exhibited to Cannon’s affidavit filed October 17, 2014), which follows. When to start counting? [ 61 ] On this threshold point, I agree with HCBI that there is ample authority that a court may order security based on costs already incurred.

There is at least equal authority for the opposite proposition. [ 62 ] I decline in the circumstances of this case to consider security based on all of the claimed costs incurred before July, 2014. I do make an exception however for the necessity of pleadings, and, according to the tariff, for document production and review. Those steps are included in my consideration because they are likely relevant to those recoverable costs incurred both before after July, 2014. Other steps HCBI engaged in before July, 2014 – which appear to be numerous days of

Part 5 questioning – do not form part of my consideration for security, owing to the fact that the very prospect of security for costs was not raised until some 20 months after the statement of defence was filed. What to count?

[ 63 ] As noted above, I have expressed some disquiet for the manner in which the overseas questioning of former PMC employees took place. While the costs of these steps may be recoverable at trial, for security for costs purposes I exercise my discretion not to take them into consideration. [ 64 ] As to other specific costs claimed, in its lengthy brief PM&C chose to address but few specific costs issues in response to HCBI’s brief and draft bill of costs.

It objects to the over $2 million claimed in relation to documents; and it objects to the $5 million claim for experts. [ 65 ] I agree with PM&C on both counts, for reasons more fully explained below under the heading of ‘claimed disbursements’. [ 66 ] That said, I allow other significant amounts claimed in the draft bill of costs for items not specifically objected to by the plaintiff in its response to the defendant’s application.

Claimed “Schedule C” fees [ 67 ] My comments regarding the defendant’s claimed fees are as follows: • Item 1(1) – commencement documents = $3,500 • Item 3(1) – disclosure of records = $1,500 • Item 3(2) – review of opposite party documents = $1,500 HCBI claims nothing in its draft bill of costs for items 3(1) and 3(2). Instead, a large disbursement is sought for third-party records management. I will deal with that claim below, but for current purposes I include the tariff amounts. • Item 5(1) – Preparation for questioning under

Part 5 = $1,500 • Item 5(2) – questioning = $1,500 per half day Before July, 2014, there were eight days of questioning which I am not prepared to count in the circumstances of this case. Since July, 2014, there have been three days questioning PM&C corporate officer Mr. O’Brien, so $1,500 x 6 half days = $9,000. Since July, 2014 as well, there have been six full days questioning PMC former employees; given the controversies around how these examinations unfolded, I am not prepared to exercise my discretion in favour of including any amounts in a security for costs decision.

Since July, 2014 there have been 2½ days questioning of Wayne Cannon = $7,500. Finally, since July, 2014 there have been 4 days cross examinations of O’Brien, McCormick & Cannon = $12,000. In total to date, HCBI’s claims 23½ days of questioning or cross examination on affidavits. Net of days counted above, the balance should be subtracted from HCBI’s draft bill of costs which claims a total of 50 days of questioning or cross examination on affidavit.

As to further questioning, PM&C failed to express any particular objection to the claim for further questioning of some 26½ days = $79,500. • Items 7(1) and 8(1) – contested applications There have indeed been several contested applications; no amount is awarded as security for costs, owing to a lack of detail provided by the defendant, including whether HCBI is or will be entitled to costs based on success or lack thereof in one or more of the motions in question. • Item 9(1) – case management attendances – 15 x $1,000 claimed There have been 10 case management attendances since November 6, 2013, and 8 since July, 2014.

Some of those have been contested applications the outcome of which has not yet been translated into costs, and as such I am not including all of them in the current assessment. Going forward, it is a conservative estimate that there will be at least another five case management attendances leading up to trial. As such, the overall claim is properly $8,000. • Item 10(1) – preparation for trial = $10,000 • Item 11 – trial – based on 40-day trial including 2 nd counsel = $180,750 The full amount claimed in on the table for the purposes of this application.

I appreciate that in argument counsel for PM&C suggested the plaintiff’s case could be called in 5 days, and that the plaintiff intended to call no expert evidence. To put that into perspective, just argument on the within security for costs application took two full court days, and involved thousands of pages of documents and authorities filling 4 banker’s boxes. Again, the plaintiff’s brief alone encompassed 94

pages. It is hard to accept at face value then an estimate of 5 days for the plaintiff’s case. • Item 12 – submission of written argument = $5,000 [ 68 ] I have counted to the end of trial, rather than to some other point in the litigation. I have done so taking into account that questioning is well underway and document production even more advanced.

Subject to some further examinations, and potentially the exchange of experts’ reports, it appears the matter may be ready to set for trial. [ 69 ] The total of the above amounts, based on a single column approach, is $321,750. [ 70 ] Based just on the pleadings, the plaintiff claims more than $50 million. There is also a counterclaim alleging damages of more than $20 million.

Whether or not the counterclaim proceeds – mindful of HCBI’s commitment to abandon it should security be ordered and not placed – I agree with the defendant’s submission that triple column 5 costs are likely to be awarded, and should be the basis upon which security for costs are assessed. In so concluding, I am mindful of PM&C’s position that single-column 5 costs are appropriate.

In my view to proceed in that fashion fails to recognize the risk of “tokenism” in setting costs in cases such as this, as mentioned by the learned authors of the Alberta Civil Procedure Handbook (2017) at p 4-25. [ 71 ] The result of triple column 5 costs, on the

Schedule C fees set out above, is a total of $963,750. C laimed disbursements [ 72 ] HCBI’s evidence in support of claimed disbursements is Wayne Cannon’s affidavit filed October 17, 2014. Cannon was not examined on this affidavit. [ 73 ] The disbursements total claimed for security for costs purposes is $6,270,000. [ 74 ] Of that total, $4,000,000 is claimed for expert fees. The claim is based on Cannon’s evidence that he was advised by legal counsel that experts, including as to delay and deficiencies, could cost between $3 to $5 million. Presumably counsel split the difference in the bill of costs.

There is no other evidence in support of expert expense. [ 75 ] Based on that sparse evidence, and on the authorities referred to by PM&C, I am not persuaded that I should award any amount as security for costs in relation to experts. HCBI may reapply when it is ready to do so, or when directed to do so by the court. If only given the current uncertainty regarding experts, I hesitate to comment further with regard to the ‘ground rules’ of any such application. [ 76 ] The next largest claimed disbursements relate to documents.

Cannon states in his October 17, 2014 affidavit that third-party litigation support is necessary owing to the volume of both parties’ documents, and to review HCBI’s own documents for relevance and privilege. [ 77 ] Exhibits 23-30 to Cannon’s October 17, 2014 affidavit are various quotations from a third party litigation support provider. The range of estimates to process and host both parties’ documents, with or without “predictive coding”, is $250,869 to $502,489.

The range of estimates, again with or without predictive coding”, for review of HCBI’s own documents for relevance and privilege, is $1,250,896 to $3,105,809 (involving Canadian “experienced attorneys (including training”), or $670,791 to $1,665,839 (using Texas “experienced attorneys (including training”). [ 78 ] Taken together with Cannon’s affidavit evidence, I find that none of the exhibited quotations are self-explanatory.

I find that the whole of the evidence on this disbursement claim fails to persuade me that security for costs should be awarded in respect of it. [ 79 ] Turning then to the draft bill of costs, the sum of $395,000 is claimed for “coding and hosting for 36 months, with predictive coding”. The draft bill of costs further seeks $1,800,000 for “review of records (Canadian lawyers)”. How these figures relate to anything else in evidence before me is not apparent. [ 80 ] Although not in evidence, I was advised by counsel that HCBI’s has spent some $200,000 on database support to date.

Again, how that figure relates to anything else in evidence before me, is not apparent. [ 81 ] Nor was it made clear to me in argument how these estimates relate, if at all, to the case management production orders made subsequent to Cannon’s October 17, 2014 affidavit. [ 82 ] I appreciate that there is some authority for the award of disbursements for database management of documents.

But based on the evidence before me, I am reluctant to guess at what sum is appropriate in the circumstances. [ 83 ] As with the disbursements claimed for experts, HCBI may reapply when it is ready to do so, or when directed to do so by the court, on the question of disbursements for database management. Again, if only given the current uncertainty around these claims, I make no further comment with regard to the ‘ground rules’ for any such application. [ 84 ] I am aware of no authority that the expense of lawyers’ review documents for relevance and privilege is a recoverable disbursement on a bill of costs.

The cases referred to by PM&C suggest otherwise: Do v Sheffer, 2010 ABQB 422 ; Murphy Oil Canada Ltd v Predator Corporation Ltd, 2005 ABQB 134 ; Sidorsky v CFCN Communications, 1998 ABCA 127 . [ 85 ] The balance of the disbursements claimed on the HCBI bill of costs relate to court reporters, conduct money and other charges. These come to $75,000. They are properly included in the bill of costs for security for costs purposes.

Conclusion: quantum of security for costs [ 86 ] To sum up, on a 100% basis,

Schedule C fees at triple column 5 are $963,750. Allowable disbursements are $75,000.

The total is $1,038,750. [ 87 ] The next question is whether that entire amount, or some part of it only, should be awarded as security for costs. [ 88 ] In its brief, PM&C raises four factors which in its submission should result in a reduced amount: a. the likelihood that it will obtain judgment; b. whether PM&C can continue the action in the face of an award; c. did HCBI contribute to PM&C’s “impecuniosity”; and d. that HCBI has counterclaimed, raising the same issues as in the main claim. [ 89 ] I can deal with these points as follows: a.

I have already concluded that there is no clear answer whether the plaintiff will succeed, or the defendant will fail; there are clearly triable issues, and reasonably meritorious defences; this ‘neutral’ outcome does not help PM&C resist a full measure of security for costs; b. On the evidence, PM&C will clearly be unable to pay costs if unsuccessful at trial; and PM&C has brought forward no evidence, and indeed faces an adverse inference, as to whether it cannot post security to carry on with the litigation; c. It is disputed that PM&C’s “impecuniosity” was caused by HCBI; d.

Whatever the impact of the counterclaim on the threshold question of granting security, it does loom somewhat larger on the question of quantum. It is logical to conclude that some of the work envisaged in HCBI’s bill of costs has been (since July, 2014), and will be, going forward, taken up litigating the counterclaim. I am not confident however, based on what little is before me regarding the counterclaim, that more than a 25% reduction is in order. [ 90 ] Having regard for all of the circumstances of the case, I set security for costs at 75% of the costs/disbursements arrived at above.

The outcome, rounded off, comes to $780,000, plus GST. [ 91 ] In its application filed October 17, 2014, HCBI sought security to be paid within two months. That is consistent with r 4.23(1)(b), and I so direct. The parties may agree on a different deadline for payment. Or they may be unable to agree on other aspects of the form of order, arising from r 4.23(1) or otherwise. In any event, they are at liberty to apply for further advice and direction. Heard on the 11 th and 12 th days of October, 2016. Dated at the City of Edmonton, Alberta this 23 rd day of June, 2017. Peter Michalyshyn J.C.Q.B.A.

Appearances: Stephen L. Livingstone McLennan Ross LLP for the Plaintiff Bradley G Nemetz QC Vasilis F.L. Pappas Jodi T. Proctor

Bennett Jones LLP for the Defendant HCBI