Trimove Inc v Servus Credit Union Ltd, 2017 ABQB 50

Court of Queen’s Bench of Alberta Citation: Trimove Inc v Servus Credit Union Ltd, 2017 ABQB 50 Date: 20170125 Docket: 1603 14590 Registry: Edmonton Between: Trimove Inc. Respondent (Plaintiff) - and - Servus Credit Union Applicant (Defendant) _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice K.G. Nielsen _______________________________________________________ I.

Introduction [ 1 ] Trimove Inc. (Trimove) filed a Statement of Claim alleging that Servus Credit Union Ltd. (Servus) breached its obligations pursuant to certain loan agreements (the Loans) between Trimove and Servus in appointing a receiver (the Receiver) and liquidating the assets of Trimove, or committed a conversion of and trespass to Trimove’s chattels. [ 2 ] Servus applies for an Order striking out the Statement of Claim on the grounds that it does not disclose a reasonable cause of action, it constitutes a collateral attack on the receivership proceedings, and it is an abuse of process.

Alternatively, Servus applies for an Order directing that Trimove provide security for costs in this action in the amount of $200,000. II. Background

[ 3 ] The procedural history of the related receivership proceedings is relevant to Servus’ argument based on abuse of process: Stoney Nakoda Nations v Canada (Attorney General) , 2015 ABQB 565 , [2015] AJ No 990 at para 23 .

It also informs, to a limited extent, the issue as to whether the Statement of Claim discloses no reasonable cause of action. [ 4 ] Servus provided a number of filed documents from Receivership Action No: 1503 06388. [ 5 ] Trimove provided Vishal Luthra’s affidavit sworn on November 9, 2016 which attaches as Exhibit “A” a copy of the transcript of the ex parte proceedings in the Receivership Action on May 1, 2015 before the Court of Queen’s Bench. [ 6 ] As well, Veit J. issued a written decision approving the Receiver’s and its lawyer’s fees in the Receivership Action.

Her decision outlines some of the relevant proceedings and findings of the Court: Servus Credit Union Ltd v Trimove Inc , 2015 ABQB 745 , [2015] AJ No 1275. [ 7 ] It is not disputed that in 2013 and 2014, Servus extended the Loans to Trimove in respect of which Trimove provided certain security to Servus, nor that the security provided that Servus could, inter alia , seek the appointment of a receiver in relation to the operations of Trimove. [ 8 ] On or about Friday, April 24, 2015, Servus demanded payment of the Loans and the guarantee provided in relation to the Loans, and served on Trimove a Notice of Intention to Enforce Security pursuant to s. 244 of the Bankruptcy and Insolvency Act , RSC 1985, c B-3 ( BIA ). [ 9 ] On Thursday, April 30, 2015, Servus filed a Statement of Claim against Trimove and the guarantor, Geeta Luthra, alleging that Servus had demanded payment of the Loans on April 24, 2015, but Trimove had failed or neglected to pay its indebtedness.

Servus alleged that as at April 30, 2015, Trimove owed it approximately $1.1 million. [ 10 ] On Friday, May 1, 2015, Servus applied, without notice to Trimove, for an Interim Receivership Order in the Receivership Action. The transcript reveals that the following submissions were made on behalf of Servus (6/11-26): ...on Wednesday Servus – the account manager at Servus contacted Trimove and advised them that the forbearance agreement as discussed was off the table and that the demands had been issued to shore up their position and that now they would pursue enforcement of their security.

In response to that, and this is why I am here before you today, the principal of Trimove said, we will make sure that you guys get nothing. The collateral is mobile, it is high value. Based on that representation by the principal of Trimove together with the operations throughout Alberta and the United States, based on the fact that there is a 244 notice still running right now, the clock expires on Monday. Servus’ security position could be jeopardized significantly based on those facts alone. And we feel there is sufficient cause for the order to be granted on an ex parte basis.

We feel there is – their security position might be in jeopardy. We are not seeking – it’s a – it’s a hybrid order. I did this recently on another matter where the interim receiver takes on a monitoring role, essentially, where they step in. They’re manage – they’re monitoring the books. They’re locating assets but this one goes one step further and it is close to the full blown receivership. They can actually take possession and secure the assets.

And we’d be seeking that to shore up our position conclusively until Monday. [ 11 ] In support of the ex parte application, Servus relied on an affidavit dated April 30, 2015 of Rod Randall, a Servus Senior Relationship Manager of Commercial Special Loans, stating that on April 29, 2015, due to Trimove’s significantly worsening margining position, he advised Karan Luthra, a principal and director of Trimove, that Servus was no longer agreeable to the forbearance arrangements previously discussed: 2015 ABQB 745 at para 15 . Mr.

Randall deposed that in response, Karan Luthra stated: “We’ll make sure you get nothing”. Trimove attached Mr.

Randall’s affidavit to its brief in response to this application to strike out pleadings. [ 12 ] Trimove submits that the only evidence submitted to the Court at that time regarding Trimove’s actual financial position is that it was significantly out of margin with respect to the credit facilities. [ 13 ] During the application for the Interim Order, the Court noted that the Order provided that the interim receiver would be entitled to take possession, not just to monitor, but also observed that any resulting prejudice would be for a minimal period of time.

The Court further noted that the purpose of the 10 day notice was to give Trimove 10 days to try and save its business, and the Order would potentially affect that, but only over a weekend. The Court asked whether the Receiver would interfere with performance of a number of Trimove’s current trucking contracts. Counsel for Servus pointed out that there was a two day comeback clause in the proposed Order, and Servus was concerned that the mobile assets would disappear, or parts might be removed. Counsel opined that Servus did not have grounds to request an Order on a

summary basis. He described the situation as a perfect storm, given the nature of the security, the timing and Karan Luthra’s statement.

The Court granted the Interim Receivership Order despite the concerns it had expressed, noting that Servus would be in a position to apply on Monday in any event and Trimove could be back as quickly as Tuesday to request changes if necessary. [ 14 ] Trimove submits that there is no reference in the First Interim Receiver Report to Trimove’s financial position and in particular whether it was able to pay its debts as they became due. [ 15 ] The matter came back before the Court on notice, on May 8, 2015, and a Receivership Order was granted.

However, in response to Trimove’s submissions, the Court required Servus to refrain from filing the Receivership Order until May 22, 2015 to give Trimove time to retain a lawyer, arrange alternate financing, and comply with the terms of the Interim Receivership Order: 2015 ABQB 745 at para 16 . [ 16 ] Trimove never did retain an insolvency lawyer, nor did it obtain alternative financing: 2015 ABQB 745 at para 18 . [ 17 ] On May 15, 2015, Trimove had insufficient funds to meet its payroll obligations, and had $146,480 in outstanding accounts payable and no funds to pay them: 2015 ABQB 745 at para 17 .

[ 18 ] On May 19, 2015, Servus went back to Court to obtain an Order authorizing immediate use of the Receivership Order to protect Trimove's estate and the interests of Servus and the other creditors. Servus asserted that representatives of Trimove had failed to provide financial information to the Interim Receiver and to identify and locate equipment.

The Interim Receiver reported that it had sent a letter to Trimove threatening a contempt application before cooperation improved, but submitted that there still appeared to be information which had not yet been provided: 2015 ABQB 745 at para 18 . [ 19 ] Veit J. at paras 19-22 of her decision noted examples before the Court of Trimove’s lack of cooperation. For example, at the hearing on May 19, 2015, Trimove was asked to explain how the payment of a Trimove account receivable had ended up in the hands of a stranger.

The debtors explained that they owned a separate entity with a name similar to Trimove, and perhaps there had been a typing error in the payee’s name on the cheque. Trimove failed to give a satisfactory explanation for the transfer of two pieces of equipment to a third party. As well, Trimove had failed to provide GPS locations for some of its equipment moving on highways. At para 34, Veit J. observed that Vishal Luthra’s affidavit of May 19, 2015 “illustrated the gulf which Trimove did not recognize between verifiable information and opinion”. At para 19, she quoted part of Mr.

Luthra’s affidavit filed by Trimove in an attempt to demonstrate that it had been cooperative with the Receiver: [the receiver] demanded that we release to him all the data and mentioned that his team is out and about looking for our equipment. I assured him at that point, that equipment is safe and there is no risk for the lender's security. . . . Eric Sirrs gave me 2 hours to compile information for him to satisfy his court order demands. . . .

I provided him the following items . . . list of equipment, I recalled from my memory and locations . . . [ 20 ] At the May 19, 2015 hearing, the Court granted the Order authorizing immediate use of the Receivership Order. [ 21 ] On May 29, 2015, a Sale Approval and Vesting Order was granted in the Receivership Action. Trimove attended and made submissions at that time.

The Sale Approval and Vesting Order accepted and approved the First Report of the Receiver and authorized the Receiver to sell Trimove’s assets at auction. [ 22 ] Trimove submits that the first materials detailing its accounts receivable were only put to the Court after the Sale Approval and Vesting Order. [ 23 ] On June 22, 2015, Trimove and Geeta Luthra filed a Statement of Defence in the Receivership Action alleging that the parties had negotiated a forbearance agreement, but Servus had “backed off their commitment to enter into the forbearance agreement during the demand period”, and therefore Servus had made a misrepresentation to the defendants which ultimately led to disposition of all assets below forced sale market values.

The defendants alleged that no default or late payments had occurred on loans 01, 02, 03 or 04 and that Trimove had notified Servus that receivables were rising, and business was growing much faster than originally anticipated in the new North American freight division. The defendants alleged that Servus had demanded repayment of all loans despite any breach while the business was fully operational, on a path to success, and Trimove had large accounts receivable to support its anticipated projections as negotiated with Servus.

They also alleged that Servus’ ex parte Interim Receivership Order obtained prior to expiry of the 10 day notice period compelled Trimove to stop operations immediately, thus rendering it incapable of fulfilling its negotiated undertakings with Servus. The defendants claimed that Servus initiated the process through its representative’s false affidavit. Further, Geeta Luthra was not provided with an independent appraisal of the equipment, nor was she consulted before disposition of any equipment.

The defendants also alleged that Geeta Luthra was never in the capacity of principal business manager, nor did she have any knowledge of complexities relating to specialized financing or crude oil logistics, and that Servus’ representative, Amanda Kostrub, advised that any guarantee had no merit as the loans were secured by Trimove’s assets.

Finally, the defendants alleged that the Receiver negligently sold all equipment below the forced value appraised by the independent appraiser, and Servus failed to protect the security and sold it for less than fair market value. [ 24 ] On November 25, 2015, Veit J. released her decision in the Receivership Action ( 2015 ABQB 745 ) regarding an application by Trimove to reduce the fees claimed in the Receivership Action, stating: 3 The court granted to Servus Credit Union Ltd. a without notice interim receivership, subsequently extended to a full receivership, of Trimove Inc.

By the time of the granting of the full receivership, it was apparent that the debtors were insolvent: not only could they not pay Servus' demand claims, they could not pay their employees' salaries, etc. ... [ 25 ] On December 21, 2015, Servus filed a claim in Action No. 1503 19338 against numerous defendants, including Geeta Luthra, described therein as a director and shareholder of Trimove, as well as being guarantor of the Loans. Servus alleged, inter alia , unlawful conveyance of property and conspiracy to defeat Servus’ claim against Trimove and on the guarantee.

On February 22, 2016, Geeta Luthra filed a defence to that claim. [ 26 ] On March 7, 2016, a Consent Order dated February 25, 2016 was filed in the Receivership Action, directing the clerk to file a replacement of Trimove’s June 22, 2015 Statement of Defence. The

preamble to the Consent Order states: “UPON THE APPLICATION of the Plaintiff, AND UPON hearing representations of counsel for the Plaintiff and the Defendants; AND UPON noting the consent of counsel...” The Order provides that all procedural timelines and limitations would continue to run from the filing of the original Statement of Defence on June 22, 2015. [ 27 ] Trimove’s March 2016 replacement Statement of Defence relates almost entirely to the guarantor’s liability and closely resembles the defence filed by Geeta Luthra in Action No. 1503 19338.

The defendants Trimove and Geeta Luthra allege therein that a Servus employee, Amanda Kostrub, required Geeta Luthra to sign a personal net worth statement on May 5, 2013, told her which assets to include in it, and directed the defendants to list all family assets. The defendants allege that Geeta Luthra relied on this direction and listed all assets on the net worth statements, but at no time did she represent that she personally owned the assets listed, which fact Servus should have known.

The defendants further allege that the sole purpose of the net worth statement was to facilitate a demand mortgage for an Elk Point commercial building project. As Servus never advanced this facility, it was estopped from relying on the net worth statement. The defendants admit that Geeta Luthra signed a guarantee on March 20, 2014, but allege that Ms. Kostrub advised her that her personal assets were not at risk; only Trimove’s assets were at risk. The defendants allege that the guarantee was executed after

the facilities referenced in the Statement of Claim were advanced by Servus and without consideration, and therefore Servus wasestopped from enforcing the guarantee. Finally, the defendants allege that Servus did not receive written consent of the Receiver or leaveof the Court under paragraph 8 of the Receivership Order to continue its action, and therefore it should be struck or, in the alternative,stayed pending the conclusion of the receivership matters. [28] On August 16, 2016, Trimove initiated this distinct action by filing a Statement of Claim against Servus.

It alleges thatTrimove understood that Servus had agreed to a forbearance agreement in principle, but Servus then precipitously obtained the InterimReceivership Order without notice to Trimove, using application materials lacking candour and creating a false sense of urgency, whichwas illogical as Trimove was a going concern. It also alleges that Servus falsely represented to the Court that the Order was required tomonitor and secure assets. It alleges that at no time was Trimove insolvent.

Trimove alleges that the appointment of the Receiver andliquidating Trimove's assets in short order breached Servus' obligations under the Loans. Alternatively, it constituted conversion of andtrespass to chattels. Further, Trimove alleges that no effort was made to keep Trimove in operation despite the fact that it was viable asevidenced in the Receiver's reports to the Court, and the Receiver made inadequate attempts to maximize recovery. [29] Trimove did not appeal any of the Orders granted in the Receivership Action.

It did not obtain the consent of the Receiver orleave of the Court to file the within Statement of Claim. Further, it has not suggested there was any agreement or understanding betweenthe parties whereby Trimove’s rights to raise the allegations contained in the Statement of Claim were preserved until the trial of asubsequent action. [30] Servus has raised no limitations issues. III.

Positions of the Parties [31] Servus argues that the Statement of Claim discloses no reasonable claim or cause of action and that it is a vexatious, collateralattack on the Court’s decisions in the Receivership Action, and an abuse of process.

Servus submits that Trimove would have todemonstrate that the Receivership Orders were obtained by fraud and it has made no such allegation, citing Cheema v 894287 AlbertaLtd, 2008 ABCA 139, [2008] AJ No 374. [32] Alternatively, Servus argues that the Statement of Claim should be struck due to Trimove’s failure to obtain leave of the Courtor written consent of the Receiver to commence the action: Strachan v MacCosham, [1986] AJ No 556, at para 22(CA), Del Zotto v International Chemallo (1977), (ON SC), 14 OR (2d) 72 at 4, 22 CBR(NS) 268 (HCJ), FBDB vShearwater Marine, (BC CA), [1979] BCJ No 2096, 102 DLR (3d) 257 at para 8 (CA). [33] Servus argues that in the event it does not succeed in obtaining an Order to strike the Statement of Claim, Trimove should beordered to post security for costs to continue the action as Servus would not be able to recover any costs awarded to it in the event it issuccessful in defending the action, given Trimove’s financial status. [34] Trimove argues that there is a legal basis for its claim and it is neither abusive nor vexatious, citing Royal Bank v W Got &Associates Electric Ltd, (AB KB), [1994] 5 WWR 337, [1994] AJ No 94 (QB), aff’d 1997 ABCA 136 ,[1997] 6 WWR 715, [1997] AJ No 373 (CA), aff’d (SCC), [1999] 3 SCR 408, [1999] SCJ No 59 (Got). [35] Trimove submits that leave is not required to commence the action and, in any event, the failure to obtain it is simply anirregularity: Caswan Environmental Services Inc, Re, 2001 ABQB 240 at para 13, 287 AR 11. [36] Finally, Trimove takes the position that it should not be obliged to post security for costs as its financial difficulties are due toServus’ improper actions.

Trimove argues that if it is obliged to post security for costs, the $200,000 sought by Servus is excessive, andTrimove should be permitted to post any security in installments. IV. Issues [37] The Court must determine the following issues: 1. Should any of the pleadings be struck out? 2. If the entire claim is not struck out, is Trimove’s failure to obtain leave fatal to its claim? 3. If not, should Trimove be ordered to furnish security for costs to Servus, and if so, in what amount? V. Analysis A. Should any of the pleadings be struck out? 1. Law a.

Alberta Rules of Court [38] Rule 3.68 of the Alberta Rules of Court, Alta Reg 124/2010 provides:

3.68(1) If the circumstances warrant and a condition under subrule (2) applies, the Court may order ...: (

a) that all or any part of a claim or defence be struck out…

(2) The conditions for the order are one or more of the following: ... (

b) a commencement document or pleading discloses no reasonable claim or defence to a claim; (

c) a commencement document or pleading is frivolous, irrelevant or improper; (

d) a commencement document or pleading constitutes an abuse of process...

(3) No evidence may be submitted on an application made on the basis of the condition set out in subrule (2)(b). b. Striking out for no reasonable cause of action [39] A claim will only be struck if it is plain and obvious that the pleading discloses no reasonable cause of action. Another way ofstating the test is whether the claim has no reasonable prospect of success: R v Imperial Tobacco Canada Limited, 2011 SCC 42 atparas 17, [2011] 3 SCR 45. [40] The Alberta Court of Appeal has framed the test under Rule 3.68(2)(

b) as being whether it is “beyond doubt” or “plain andobvious” that the claim will fail: Lameman v Alberta, 2013 ABCA 148, 553 AR 44. [41] The Court is to assume the facts pleaded to be true unless they are manifestly incapable of being proven: Imperial at para 22.Evidence is not admissible on a motion to strike pleadings on the ground they disclose no reasonable cause of action: Rule 3.68(3). [42] In FastTrack Technologies Inc v 104 Street Law Office Management Ltd, 2012 ABQB 639, 548 AR 391, Goss J.summarized the law in relation to striking out: 34 The overall principles which the court must operate under in considering such applications were summarized by Fradsham P.C.J. inAlberta Rules of Court Annotated 2009 (Scarborough, Ont.: Carswell, 2008) at 197-98:

(1) It is well settled that the impugned pleadings must be read generously;

(2) The pleading will not be struck out if the flaws in it are capable of amendment.

(3) A pleading will not be struck out for want of a cause of action unless the flaw is plain and obvious and beyond doubt.

(4) The claim advanced must be hopeless to be struck out.

(5) The Statement of Claim should be struck out on a question of law only if it is a pure question of law requiring no evidence or nofurther pleadings.

(6) Care must be exercised in striking out part of a Statement of Claim only.

(7) Facts pleaded must be taken to be true.

(8) The Court should consider allowing an amendment before an order for striking ... 35 In determining whether a claim is hopeless on the facts and therefore doomed to failure, the test is whether it is "plain and obviousthat the action cannot succeed" (SE v. Law Society of Alberta (1995), 1995 ABCA 429 , 174 AR 379, [1995] A.J. No. 1021(CA) at para 12; German v. Major (1985), 1985 ABCA 176 , 62 AR 2, [1985] A.J. No. 1055 at para 14) or "beyond doubt"(Dumont v. Canada (Attorney General), (SCC), [1990] 1 SCR 279, [1990] S.C.J. No. 17 at para 2). Kerans J.A. statedin German v.

Major: 61 I acknowledge that cases often should be permitted to go to trial where there are disputed questions of law. On the other hand,where, as here, the question of law can be determined without a factual setting, the question can and should be determined before trial. c. Improper pleadings and abuse of process [43] The Supreme Court of Canada considered the doctrine of abuse of process in its decision in Behn v Moulton Contracting Ltd,2013 SCC 26, [2013] 2 SCR 227: 40 The doctrine of abuse of process is characterized by its flexibility.

Unlike the concepts of res judicata and issue estoppel, abuse ofprocess is unencumbered by specific requirements. In Canam Enterprises Inc. v. Coles (2000), (ON CA), 51 O.R.(3d) 481 (C.A.), Goudge J.A., who was dissenting, but whose reasons this Court subsequently approved (2002 SCC 63, [2002] 3 S.C.R.307), stated at paras. 55-56 that the doctrine of abuse of process engages the inherent power of the court to prevent the misuse of its procedure, in a way that would be manifestly unfair to a party to thelitigation before it or would in some other way bring the administration of justice into disrepute.

It is a flexible doctrine unencumberedby the specific requirements of concepts such as issue estoppel. See House of Spring Gardens Ltd. v. Waite, [1990] 3 W.L.R. 347[(C.A.)], at p. 358 ...

One circumstance in which abuse of process has been applied is where the litigation before the court is found to be in essence anattempt to relitigate a claim which the court has already determined. See Solomon v. Smith, supra.

It is on that basis that Nordheimer J.found that this third party claim ought to be terminated as an abuse of process. [Emphasis added.] [44] A proceeding is vexatious if, inter alia, it essentially amounts to an action or actions to determine an issue which has alreadybeen determined by a Court of competent jurisdiction: Dykun v Odishaw, 2000 ABQB 548, 267 AR 318; Wong v Leung, 2011 ABQB688, 530 AR 82. d.

Viability of post-receivership claims [45] The essence of Trimove’s claim is that Servus initiated the Receivership precipitously, within the 10 day demand period, andin breach of a forbearance agreement and the terms of the Loans, which triggered a process that put Trimove out of business. Trimoveclaims that Servus was required to provide express notice of its intention to apply for an order appointing a receiver, and to refrain fromapplying to the Court to appoint a receiver until 10 days after the demand.

Trimove also claims that Servus made misrepresentations tothe Court. [46] In Got, the bank sued a debtor and its guarantor for repayment of outstanding indebtedness after the Court appointed areceiver. In applying for the receiver, the bank had sought both a preservation and a realization order on the same day that it issued itsdemand for repayment, with no explanation as to why little notice was given, nor any indication of a cause for urgency or inability of thedebtor to pay the debt.

In addition to providing insufficient notice, the bank was found to have misled the Court in: stating it had made ademand for the debt and that it had advised the debtor it would enforce its security when that was not the case; suggesting that the bankhad reason to believe that the debtor would move the inventory; and failing to disclose that the bank had already secured its financialposition.

The trial judge concluded that if the bank had given proper notice and not misled the Court, the receivership order would nothave been granted. [47] Attempts had been made by the debtor to appeal the receivership orders in Got within the proper time period, but the noticesof motion were discontinued because counsel had allegedly reached an understanding whereby the debtor’s rights to raise the allegationscontained in the statement of defence and counterclaim in the receivership action were preserved until the trial of the action by the bankfor the outstanding indebtedness. [48] The Court of Appeal in its decision noted that it had previously found that the appeals in the receivership were subsumed inthe agreement made by the parties.

At para 8, the Court cited Fraser C.J.A., speaking for the Court at the time: ...We leave for another day the proposition that the appointment of a receiver by a court of original jurisdiction is a final order to whichthe doctrine of res judicata applies so as to preclude a debtor from challenging the validity of appointment of a receiver in the firstinstance even where the debtor defends on this basis the main action initiated by the creditor... [49] The Court of Appeal upheld the trial judge’s decision, noting at para 23 that the trial judge did not find that the bank’sconduct was fraudulent. [50] In dismissing the subsequent appeal, the Supreme Court of Canada stated at para 20 that the length of notice time requiredmay vary widely depending on the facts of the case.

However, no reason was offered in Got to explain why the bank gave so little notice.There was no indication that there was a cause for urgency or that the debtor would be absolutely unable to pay the debt. The Court heldthat the bank was liable in contract and tort, and therefore it was unnecessary to consider whether the bank was liable for conversion.

Inupholding the exemplary damages award, the Court agreed with the trial judge that the conduct of the bank in that case had seriouslyaffronted the administration of justice, adding that the conduct did not have to rise to the level of fraud to justify an award of exemplarydamages. [51] The action in Got resulted in a judgment in favour of the bank against the debtor company in the amount of $2.8 million, andin favour of the debtor against the bank in the amount of $4.8 million. [52] In Nash v CIBC Trust (1996), 7 CPC (4th) 263 (Ont Gen Div), the lender defendant applied for

summary judgment in a classaction brought on behalf of investors in certain companies where a receiver/manager had been appointed by court order. Ground J.summarily dismissed the action, holding that the principle of collateral attack makes an order of a court having jurisdiction binding andconclusive, and not susceptible to attack in a proceeding where the object of that proceeding is other than the reversal, variation ornullification of the order or judgment.

Ground J. distinguished Got on the basis that the challenge to the propriety of the ex partereceivership order in Got was brought directly in the statement of defence and counterclaim in the receivership action. [53] In Bank of Montreal v Tassone, [1998] OJ No 4040, 76 OTC 385 (Gen Div), aff'd (ON CA), [1999] OJNo 1935, 123 OAC 118, the bank issued a demand for repayment on the debtor and its guarantors. On short notice, it brought a motionfor a court-appointed receiver. Counsel for the debtor attended, as did a representative of the guarantors.

The motions judge refused anadjournment request, and ordered that a receiver be appointed. Neither the debtor nor the guarantors took any steps to appeal or set asidethe receivership order. The bank applied against the guarantors for

summary judgment to recover the deficiency. A copy of a motion bythe receiver for approval of the sale of certain assets was served on counsel for the company expressly on behalf of the company and theguarantors, although there was no indication that the guarantors had retained counsel. The sale was approved but there was no evidencethat the order was passed on to any of the guarantors. The guarantors argued on the bank’s

summary judgment application that the ordergranting the receivership was improper as the bank had reneged on an agreement during negotiations, instead applying for a receiver, andthat the sale of assets by the receiver was improvident. The judge held that in participating in the receivership motion, one guarantoracted as the conduit for the other guarantors, and it would be inappropriate to allow the guarantors to now launch a defence based on thereceiver's appointment. The judge reasoned that the defence that the bank had reneged on a negotiated agreement was the company’s,not the guarantors’, claim.

The guarantors’ defence was really that a breach by the bank affecting the company’s rights also affectedthem as guarantors. The judge held that this was a defence open to the company to defend against the appointment of the receiver. Whenthe guarantors advance defences which are coincident with the defences of the company, they should be bound by the unappealed or

otherwise addressed decision which is final and binding as against the company. The guarantors were caught by res judicata or issue estoppel since they were privy in interest in those aspects to the company. However, as there was no clear evidence that the guarantors were aware of the motion to approve the sale of the assets, res judicata and issue estoppel by conduct did not apply absent special circumstances as to the sale of the assets.

The guarantors had not established that there was a genuine issue for trial as to the issue regarding an improvident sale. [ 54 ] In dismissing the appeal, Osborne J.A. observed that the trial judge had concluded that it was not open to the appellants to collaterally attack the Order appointing the receiver, but that it was open to them to defend on the basis that the sale of one of the guarantor’s assets was improvident, in spite of the fact that other asset sales were approved by the Court.

The Court agreed with the trial judge’s finding that the evidence did not disclose a genuine issue for trial on the improvident sale issue. [ 55 ] In Cheema v 894287 Alberta Ltd , 2008 ABCA 139 , [2008] AJ No 374, 894287 Alberta Ltd. had breached a construction loan agreement and a receiver was appointed. 894287 claimed that there was an unwritten agreement on a business plan, and the lender’s actions rendered the company unable to complete the construction. The chambers judge found there was no possibility that any agreement to advance could override the loan agreement, and appointed a receiver.

The Cheemas, who were shareholders, filed an appeal of that decision but did not pursue it. The chambers judge ultimately authorized the sale of the project to the lender. The Cheemas appealed that order, but the appeal was dismissed as abandoned. The Cheemas then applied for leave to bring a derivative action under s. 240 of the Business Corporations Act , RSA 2000, c B-9 ( BCA ) in the name of 894287, or an action based on residual powers as a director, claiming that the project was strangled by the lender’s failure to advance funds and that the receiver improperly disposed of the project.

The chambers judge found that the essence of the proposed claims would directly conflict with aspects of her receivership and sale orders, and therefore the claimants were not acting in good faith as required by s. 240(2)(b); absent proven fraud, the proposed claims were a belated collateral attack. [ 56 ] The Court of Appeal agreed that there was no evidence of fraud touching the receiver, and held that it would be unreasonable for 894287 or Cheema to proceed with a suit in the hope of locating some evidence of fraud.

The Court further noted that the suit could not possibly benefit 894287 unless it yielded a cash recovery exceeding the company’s debt to the lender, as any recovery up to that sum would merely reduce the insolvent 894298’s debt. While the Court noted that the suit might help the Cheemas, who had given personal guarantees, it was fanciful that the suit could help 894287. The Court concluded that the chambers judge did not err in denying leave to commence a derivative action. [ 57 ] The Court also addressed Mr.

Cheema’s position that a director of 894287 still had power to cause it to sue the creditor without permission from the receiver. The Court rejected this argument for the same reasons that supported denial of leave under s. 240 . While the Court did not determine the criteria for giving leave to the directors outside of s. 240 , it did state that benefit to the company would be relevant. The Court reiterated that there was no prospective benefit for 894287, and the suit seemed doomed to fail both on the merits and based on res judicata or some variant of that doctrine.

The Court concluded that a court is not required to authorize a hopeless lawsuit. [ 58 ] The Court in Cheema did not refer to Got or any cases citing it. [ 59 ] In Bank of Montreal v Ross , 2011 NSSC 359 , 307 NSR (2d) 176, rev’d 2013 NSCA 70 , the bank loaned money to a company. Ross and his wife executed personal guarantees. The bank brought an ex parte motion for appointment of an interim receiver. The order was not appealed. The interim receiver was installed as a court-appointed receiver. Neither the company nor the guarantors opposed the motion or appealed the order. The bank applied for

summary judgment against the guarantors. The defendants relied on Got . Leblanc J. reviewed both Tassone and Got , concluding: 35 ... Tassone stands for the proposition that a guarantor who fails to challenge a receivership order against a debtor is estopped from later making arguments that could have been made by the debtor; the guarantor and the debtor are privies and res judicata applies.

Got stands for the proposition that where a creditor obtains a receivership by misleading the Court, the creditor will not be allowed to rely on the equitable remedy of res judicata to estop a defence or counterclaim that could have been raised by the debtor.

Got is an exception to the proposition in Tassone ; the two decisions are not inconsistent, and both remain good law. [ 60 ] Leblanc J. noted that the alleged misrepresentations to the Court on the application for an interim receiver order were to the effect that the bank: had lost confidence in management, had not received any funds on deposit since a certain date, had discovered that the company had other operating bank accounts with another bank, company assets were mainly accounts receivable and other movable inventory, and the company was not agreeable to the appointment of an informal monitor.

The defendants had not pled how those allegations were material misstatements. Leblanc J. stated that even if the Court accepted those statements to be misleading, they were insufficient to bring the case within the exception in Got . [ 61 ] Leblanc J. questioned whether res judicata applied, as the previous order was an ex parte interim receivership order, not a final one.

Further, estoppel by conduct did not apply as neither the company nor the guarantors were obligated to attend and make submissions at the various receivership stages and it could not be said that the bank relied on the guarantors’ silence. [ 62 ] However, Leblanc J. noted that the company and guarantors were aware of the proceedings in question, and if they were concerned with the representations made by the bank on that motion, they should have challenged the interim receiver order.

They had notice of all the subsequent steps up to and including the appointment of the permanent receiver, but did not challenge any subsequent steps. The company did oppose sale of its subsidiaries, but did not appeal the Court's approval of sale. Leblanc J. held that the company and guarantors could have appealed the interim receiver order if they thought that the bank had misrepresented the facts to the Court.

If they had challenged the interim receiver order, they could have argued that the bank misrepresented the facts, and that it acted unreasonably and in bad faith by calling in the loan and by not allowing sufficient time for repayment upon issuance of the formal demand. Leblanc J. struck as an abuse of process the defendants’ pleadings impugning the appointment and actions of an interim, private, or permanent receiver, and those impugning the reasonableness of the bank’s actions in calling in the debt. Leblanc J. also granted

summary judgment, reasoning that it would be an abuse of process to allow the guarantors to make arguments that they should have raised during earlier proceedings when the Court appointed an interim receiver.

[ 63 ] On appeal, the Court of Appeal set aside judgment against the company for lack of notice, as the company was not a party to the bank’s motion for

summary judgment against the guarantors. The Court agreed that the guarantors’ defence was not barred by issue estoppel or estoppel by conduct as the defence was based on the bank’s conduct prior to the proceedings to appoint a receiver. The guarantors were not obligated to attend and make submissions at the various receivership stages and it could not be said the bank relied on their silence.

The Court held that the judge erred in striking the guarantors’ defence as an abuse of process as the pleadings, evidence and parties' agreements in the record were unclear as to whether Ross had notice of the interim receivership order or of the subsequent receivership proceedings. Even if there was support for the judge's finding that Ross had notice of the receivership proceedings and their outcomes, the judge erred in concluding the guarantors’ claim amounted to abuse of process.

The Court noted that speedy sale of assets was in everyone’s interests to minimize the potential loss that Ross alleged was due to the interim receiver order.

The determination of the issues raised in the guarantors' defence would require a trial which would have significantly slowed down the fulfillment of the receiver's mandate set in motion by the appointment of the interim receiver. [ 64 ] In McDonald v Brookfield Asset Management Inc , 2015 ABQB 281 , [2015] AJ No 531, a shareholder and director of a debtor company was proposed as a representative plaintiff in a class action against lenders for oppression, breach of good faith and negligent misrepresentation on behalf of shareholders.

The lenders applied to strike or summarily dismiss the claim, arguing that it was a collateral attack on orders granted in the receivership proceedings which were not appealed, and that judicial acts were not actionable. They also argued that the action was res judicata and barred by cause of action estoppel, as the same objections could have been put forward in the course of the receivership proceeding. [ 65 ] Strekaf J. distinguished Got on the basis that the challenge to the propriety of the ex parte receivership order in Got was brought by way of a counterclaim in the receivership action.

Strekaf J. cited McDonald J. in Got at para 11 where he noted that if an order is obtained by fraud, non-disclosure or misleading disclosure, the order can be challenged directly by an application to set it aside or by appeal, but not collaterally. McDonald J. held that where the validity of the order is challenged directly in the statement of defence and counterclaim in the very action in which the order was made, it may be the equivalent of a direct attack by an application to set the order aside or an appeal, and therefore it is not barred. [ 66 ] In granting

summary dismissal of the action, Strekaf J. adopted the approach of Ground J. in Nash at para 37 in concluding that Got was distinguishable because the challenge in Got was made directly in the receivership action, rather than collaterally. [ 67 ] In David M Gottlieb Professional Corp v Nahal , 2016 ABQB 141 , [2016] AJ No 242, the plaintiffs sought foreclosure of mortgaged property and the land was the subject of a judicial sale.

Neufeld J. upheld a Master’s determination that Nahal was entitled to defend the claim by raising a limitation issue, notwithstanding that the judicial sale had proceeded to its completion, as the defence was not foreclosed by the in rem portion of the foreclosure action. The Court of Appeal had earlier made it clear that in the extraordinary circumstances of the case, the judicial sale of the lands in question was allowed to proceed without prejudice to Nahal’s ability to pursue his limitations defence.

Neufeld J. cited Got in which the Court of Appeal held that the receivership action was distinct from the conversion action. [ 68 ] I note that most of the above cases involved applications for

summary judgment.

Nevertheless, a number of the general principles flowing from them are relevant to this application to strike pleadings: 1. the principle of collateral attack generally makes an order of a court having jurisdiction binding and conclusive, and not susceptible to attack in a proceeding where the object of that proceeding is other than the reversal, variation or nullification of the order or judgment: Behn , Nash 2. if an order is obtained by fraud, non-disclosure or misleading disclosure, it can be challenged directly by an application to set it aside or by appeal, but not collaterally: Got , McDonald 3. a lender may be liable where it improperly obtained a receivership order, for example, where: (

a) the lender seeks both a preservation and realization order on the same day as it issues its demand for repayment, with no explanation as to why little notice was given, nor any indication of a cause for urgency or inability of the debtor to pay the debt: Got (

b) the lender misleads the Court in relation to its communications with the debtor in relation to enforcing its security, and the risk to recovery: Got 4. a borrower may raise an allegation that the lender reneged on a forbearance agreement in response to an application for the appointment of a receiver: Tassone 5. a challenge to the propriety of an ex parte receivership order may be brought by way of a counterclaim in the receivership action: Got , McDonald 6. a post-receivership action against a lender is a collateral attack on orders granted in the receivership proceedings if those orders were not appealed: Got , McDonald

7. a post-receivership defence to a claim for deficiency by the lender is not barred by issue estoppel or estoppel by conduct if the defence is based on the bank’s conduct prior to the proceedings to appoint a receiver: Ross 8. in considering the failure to challenge decisions in a receivership, a court may take into account that the speedy sale of assets may be in everyone’s interests in order to minimize the potential loss due to an allegedly improper interim receiver order, and that a trial would significantly slow down the fulfillment of the receiver's mandate set in motion by that interim order: Ross 9. where the debtor does not appeal the receivership order, subsequent claims that the lender’s actions led to the loan default and that the receiver improperly disposed of the project are belated collateral attacks (absent proven fraud) if the essence of the proposed claims would directly conflict with aspects of the receivership and sale orders: Cheema 10. failure to appeal or to apply to set aside or vary a receivership order will not bar a viable claim against the lender where attempts were made to appeal the receivership orders within the proper time period, and counsel agreed the debtor could raise the allegations contained in the statement of defence and counterclaim in the receivership action as a defence in the trial of a subsequent action by the lender for outstanding indebtedness: Got , Nahal 11. a post-receivership suit against a lender is hopeless and cannot possibly benefit an insolvent debtor unless it can yield a cash recovery exceeding the debtor’s debt to the lender, as any recovery up to that sum would merely reduce the insolvent debtor’s debts: Cheema 12. it is an error to strike post-receivership pleadings as an abuse of process if the pleadings, evidence and parties' agreements in the record are unclear as to relevant circumstances in the receivership proceedings: Ross . 2.

Facts assumed to be true [ 69 ] On an application to strike pleadings on the ground that they disclose no reasonable cause of action, the Court must presume the facts pleaded to be true unless they are manifestly incapable of being proven. [ 70 ] Trimove acknowledges in its Statement of Claim that Servus loaned it well in excess of the $1.1 million which Servus claimed, in the Receivership Action, was owing to it as at April 30, 2015. [ 71 ] It also acknowledges in the Statement of Claim that it saw revenues decrease in late 2014 and early 2015 due to a downturn in the oil industry, and that it fell out of margin with respect to the Loans as a result of its financial difficulties. [ 72 ] It is not disputed that the Interim Receivership Order was obtained less than 10 days following the demand, and without notice to Trimove. [ 73 ] Trimove alleges that at no relevant time was it insolvent.

I will presume this to be true in assessing whether there is no reasonable cause of action. However, I will have more to say about this allegation below in relation to the abuse of process argument. [ 74 ] I will also presume as true Trimove’s allegations that: 1.

Trimove and Servus had negotiated a forbearance agreement pursuant to which Servus was obliged to allow Trimove to get its financial affairs in order or seek alternate financing; 2. the appointment of the Receiver and liquidating Trimove’s assets in short order breached Servus’ obligations under the Loans, the terms of which are not before the Court on this application; 3.

Servus was obliged to, or Trimove was led to believe that Servus would, provide Trimove with express notice of its intention to apply for an order appointing a receiver; 4. the application materials for the Interim Receivership Order lacked candour and created a false sense of urgency predicated on the risk that Trimove would liquidate its assets to hide them from Servus; 5. the Receivership proceedings had a negative impact on Trimove’s ability to continue to carry on its business; and 6. no effort was made to keep Trimove in operation, and the Receiver was not diligent in carrying out the sale of Trimove’s assets so as to maximize the total recovery.

3. Analysis a. Conduct of Servus leading up to the Interim Receivership Order [ 75 ] Got established that a lender may be liable to the debtor where it improperly obtained a receivership order. [ 76 ] The first four allegations listed above relate to the conduct of Servus leading up to the Interim Receivership Order. In my view, these aspects of Trimove’s claim arguably do not directly conflict with the receivership and sale proceedings following the Interim Receivership Order.

Trimove does not allege that the Court had insufficient evidence before it on which to grant the Orders granted in the Receivership Action.

Rather, it alleges that Servus acted improperly prior to and in bringing and presenting the initial ex parte application. [ 77 ] In Ross , the Court recognized that in certain circumstances, once receivership proceedings have been initiated, delaying the process may not be in anyone’s interests. [ 78 ] Got and McDonald stand for the proposition that if an Order is obtained by fraud, non-disclosure or misleading disclosure, the Order can be challenged directly by an application to set it aside or by appeal, but not collaterally. [ 79 ] Trimove could have challenged the propriety of the ex parte Interim Receivership Order by way of a counterclaim in the Receivership Action: Got , McDonald .

It could have raised the allegations in response to the application to appoint the Receiver: Tassone . It could have appealed the Orders in the Receivership Action, or applied to set aside or vary them.

It could have sought the agreement of counsel to preserve its rights to challenge Servus’ conduct pending the outcome of the Receivership, but it did not do so. [ 80 ] Trimove does not suggest that it agreed with opposing counsel that Trimove could raise the allegations from the earlier defence in a separate subsequent claim by Trimove as was the case in Got and Nahal . [ 81 ] Trimove could defend a claim by Servus against it for a deficiency judgment based on Servus’ conduct prior to the proceedings to appoint a receiver: Ross .

Trimove’s Statement of Claim is not a defence or counterclaim in such a proceeding. [ 82 ] In Got , the defendant debtor was successful in obtaining approximately twice the amount in damages on its counterclaim as the bank was awarded for its debt claim. Trimove has sued Servus for $5 million, well in excess of the amount stated as owing under the Loans. Requiring that a debtor await a deficiency action, which may never be instituted, in order to proceed on a claim against a lender does not seem logical in those circumstances. [ 83 ] Rule 3.72(1)(

d) provides that the Court may order that a claim be asserted as a counterclaim in another action where they arise out of the same occurrence or series of occurrences. [ 84 ] I am mindful that similar allegations were contained in Trimove's June 2015 defence. In my view, if the sole impediment to Trimove’s Statement of Claim is that it should have been brought as a counterclaim in the Receivership Action, then the Court could order that it be asserted in that action through amendment of the defence and filing of a counterclaim. [ 85 ] However, the Receivership Action is nearing completion.

A trial could significantly slow down the fulfillment of the Receiver's mandate. Rule 3.71 permits the Court to order that a claim be asserted in another action. Although the law suggests that Servus’ claim should have been brought as a counterclaim in the Receivership Action, in the particular circumstances of this case I find that it is appropriate for a reasonable cause of action of this nature to be tried separately. [ 86 ] I conclude that the pleadings relating to the allegations regarding Servus’ conduct disclose a reasonable cause of action and can be tried apart from the Receivership Action.

They do not constitute an abuse of process. [ 87 ] However, the matter of the pleadings in this regard does not end there. Trimove’s allegations regarding Servus’ misconduct in obtaining the Interim Receivership Order hinge in no small part on its assertion that Servus made misrepresentations to the Court on the ex parte application. [ 88 ] Rule 13.7(

c) requires that a pleading must give particulars of any alleged misrepresentation. Paragraph 22 of Trimove’s Statement of Claim lists reasons why the process of obtaining the Order was improper. However, I find that it is not sufficiently particularized in this regard, and I direct that Trimove further particularize, within 30 days following the date of these Reasons for Judgment, the allegations that Servus made misrepresentations in its ex parte application to the Court. b.

Receiver’s efforts [ 89 ] Trimove also alleges that no effort was made to keep Trimove in operation despite the fact that it was viable as evidenced in the Receiver’s reports to the Court, and that the Receiver made inadequate attempts to maximize recovery. [ 90 ] Trimove alleges that the amounts realized at auction were less than the estimated forced orderly liquidation value set out in an appraisal obtained by the Receiver and that the Receiver made no attempt to recover anything for the equity that had been built up in additional assets that were simply delivered to lienholders. [ 91 ] The Court in Cheema held that in the absence of fraud, the claim that a receiver improperly disposed of the project would directly conflict with aspects of the receivership and sale orders, and therefore was a collateral attack. [ 92 ] Trimove does not allege fraud in relation to the acts of the Receiver.

In my view, these allegations of Trimove relating to the Receivership itself constitute a collateral attack on the Court’s Orders in that action.

[ 93 ] The sale of assets was authorized under the Sale Approval and Vesting Order. Trimove made submissions at the application for that Order. Trimove did not appeal or apply to set aside or vary the Order. It did not include any related allegations in its June 2015 defence. [ 94 ] Trimove had an opportunity to challenge the Receiver’s steps in the context of the Receivership. In my view, its pleadings in this regard are clearly a collateral attack on the Receivership proceedings and should be struck on this basis.

Based on the law cited above, these pleadings disclose no reasonable cause of action. [ 95 ] I further find that they constitute an abuse of process. Although Trimove alleges that “at no relevant time was Trimove insolvent”, Veit J. observed in her decision that Trimove was insolvent by May 8, 2015. When Trimove challenged the Receiver’s fees in November 2015, Veit J. made express findings regarding Trimove’s lack of cooperation with the Receiver.

These facts undermine Trimove’s claim that it was viable as evidenced in the Receiver’s reports to the Court, and that the Receiver made inadequate attempts to maximize recovery. [ 96 ] I also find that these pleadings are frivolous. Trimove is the only plaintiff named in the Statement of Claim and Servus is the sole defendant. Any damages attributable to the Receiver’s actions would only amount to the difference between the alleged value and the realized value of Trimove’s assets. Trimove has acknowledged that it owed Servus over $1.37 million.

Veit J. stated at para 3 of her decision in November 2015 that the Receiver had recovered a total of approximately $1.1 million of which approximately $863,000 was available to distribute to Trimove’s secured creditors.

The Receiver had proposed that Servus receive approximately $298,000 of that fund. [ 97 ] As was observed in Cheema , a post-receivership suit against a lender is hopeless and cannot possibly benefit a debtor unless it can yield a cash recovery exceeding the insolvent debtor’s debt to the lender, as any recovery up to that sum would merely reduce the insolvent debtor’s debts. [ 98 ] As at November 2015, Servus, as a secured creditor, was to receive $298,000, only 30% of the $1.1 million recovered to that point by the Receiver.

Therefore, Servus would have benefitted from greater recovery by the Receiver up to the amount of $1.1 million. It follows that Servus and Trimove had a shared interest in maximizing the recovery to the extent of some amount sufficient to result in a further recovery by Servus of $1.1 million. Even assuming that the Receiver did not maximize recovery, Trimove’s suit in this respect as against Servus would have to rest on some failure on Servus’

part in taking steps to maximize the recovery. None of the pleadings suggest such a failure. Indifference or malice on the part of a lender would not be presumed. [ 99 ] As a result, the following are struck: paragraph 17, paragraph 18, the second sentence of paragraph 19, and paragraph 20 of the within Statement of Claim. B. Is Trimove’s failure to obtain leave fatal to its claim? 1. Receivership Order [ 100 ] Paragraph 8 of the Receivership Order reads: 7.

No proceeding or enforcement process in any court or tribunal...shall be commenced or continued against the Receiver except with the written consent of the Receiver or with leave of this Court. 8. No Proceeding against or in respect of the Debtor or the Property shall be commenced or continued except with the written consent of the Receiver or with leave of this Court and any and all Proceedings currently under way against or in respect of the Debtor or the Property are hereby stayed and suspended pending further Order of this Court, provided, however, that nothing in this Order shall: (

i) prevent any Person from commencing a proceeding regarding a claim that might otherwise become barred by statute or an existing agreement if such proceeding is not commenced before the expiration of the stay provided by this paragraph 8; and (ii) affect a Regulatory Body’s investigation in respect of the Debtor or an action, suit or proceeding that is taken in respect of the Debtor by or before the Regulatory Body, other than the enforcement of a payment order by the Regulatory Body or the Court. “Regulatory Body” means a person or body that has powers, duties or functions relating to the enforcement or administration of

an Act of Parliament or of the legislature of a province. 2. Law [ 101 ] Several cases have held that either the consent of the Receiver or leave of the Court is required to commence an action in relation to a company in receivership and that a failure to do so may result in the striking of the claim: Strachan , Del Zotto , Federal Business Development Bank . [ 102 ] Alternatively, there is authority suggesting that the failure to obtain the consent of the Receiver or leave of the Court renders the claim an irregularity rather than a nullity: Caswan . 3.

Analysis [ 103 ] In my view, paragraphs 7 and 8 of the Receivership Order do not logically apply to the very action which gave rise to the Receivership. Therefore, a defence and counterclaim by Trimove would not have required the consent of the Receiver or leave of the Court if it had been pled in the Receivership Action in response to Servus’ Statement of Claim. [ 104 ] I have found that Trimove could have asserted the claim regarding Servus’ conduct by way of a counterclaim in the Receivership Action. I have allowed it to proceed as a separate action as it would otherwise unduly delay the Receivership Action.

Therefore, neither consent nor leave is required.

C. Should the Court order Trimove to pay Security for Costs? 1. Law [ 105 ] Rule 4.22 provides in part: 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. [ 106 ] The following

section of the BCA is relevant to the application for Security for Costs: 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 a defendant that the body corporate will be unable to pay the costs of a successful defendant, the court may order the body corporate to furnish security for costs on any terms it thinks fit. [ 107 ] I considered the matter of security for costs in my decision in Commercial Construction Supply Ltd v Ghost Riders Farm Inc , 2016 ABQB 166 , [2016] AJ No 268.

In that decision, I reviewed the decisions of Amex Electrical Ltd v 726934 Alberta Ltd , 2014 ABQB 66 , 582 AR 304 and Provalcid Inc v Graff , 2014 ABQB 453 , 591 AR 117 and summarized the law as set out in those cases with respect to the matter of security for costs. [ 108 ] Trimove is a body corporate and, as such, s. 254 of the BCA applies. In all other cases not subject to other statutory regulations, Rule 4.22 applies. Whether an application for security for costs is brought pursuant to s. 254 of the BCA or pursuant to Rule 4.22, the onus of proof does not change.

The applicant seeking security for costs bears the initial onus to establish, on a balance of probabilities, that the respondent will be unable to pay its costs if the defence is successful. If the applicant satisfies this onus, the evidentiary burden shifts to the respondent to show why the Court should not exercise its discretion to make such an Order against it. [ 109 ] There has been a trend in recent cases for the Court to permit payment of security for costs in installments: Chic-Hog-O's Social Roast House Ltd v Virvilis Properties Ltd , 2016 ABQB 37 , [2016] AJ No 42. 2.

Analysis [ 110 ] Servus relies upon the affidavit of Chet Williams, Senior Relationship Officer in the Special Loans Group for Servus in support of its position on security for costs. Mr. Williams deposed to facts relating to each of the factors in Rule 4.22. [ 111 ] Servus notes that Trimove has led no evidence to demonstrate that it can pay a costs award despite its insolvency.

The action poses a threat to its remaining assets, and thereby to Servus’ interests as a secured creditor of Trimove. [ 112 ] Trimove submits that the request for $200,000 posted security is at odds with the $91,000 proposed Bill of Costs attached to the Affidavit of Chet Williams. Trimove submits that if Servus establishes a basis for an Order for security for costs, then it should only be in the amount of $11,000 based on anticipated necessary steps in the litigation.

In any event, Servus caused Trimove’s financial woes, and now relies on Trimove’s reduced status as a ground for an Order for security for costs. [ 113 ] Given the circumstances of the Receivership, I infer that Trimove likely has little ability to pay any costs award. [ 114 ] I also infer that it is unlikely that Servus will be able to enforce an Order or Judgment against assets in Alberta.

This is supported by Veit J.’s findings in her written decision that Trimove was uncooperative with respect to the fate of certain assets and had failed to provide information to the Receiver. [ 115 ] I further note that Servus brought an application for an Order that Geeta and Sarjan Luthra were in contempt. I signed a Consent Order in this regard on November 15, 2016.

While that Order was expressly stated to be without prejudice to any rights and remedies in the within action, in my view the conduct giving rise to that Order is factually relevant to the request for security for costs, and further confirms my finding that Servus would have difficulty enforcing an Order or Judgment against assets in Alberta. [ 116 ] In the circumstances, I am prepared to presume that an Order to give security for payment of a costs award would prejudice Trimove’s ability to advance its claim as it is insolvent. [ 117 ] Trimove submits that it would be unfair to require it to post security for costs when it blames Servus for improperly putting it out of business.

This concern must be weighed against the merits of the action. [ 118 ] Trimove has not alleged that the Court does not have jurisdiction, in appropriate circumstances, to make an ex parte interim receivership order within the 10 day notice period.

[ 119 ] In order to succeed on its claim, Trimove will be required to establish that negotiations, and an alleged oral agreement regarding forbearance, overrode Servus’ ability to enforce its security under the Loans when Trimove was out of margin.

It will also be required to establish that Servus misled the Court with respect, inter alia , to terms which allegedly required Servus to give Trimove notice and time before applying for the Interim Receivership Order, and that this was relevant to the outcome of its ex parte application. [ 120 ] Trimove also alleges misrepresentation by Servus’ counsel on the ex parte application. The misconduct in Got was stated to be very unusual and egregious.

The Supreme Court noted at para 20 that in some cases, giving very little or almost no notice will be reasonable in the circumstances, for example if there is an appreciable risk that the debtor will abscond with negotiable assets, if the debtor's assets are depreciating quickly, or if a debtor is unable to meet its obligations regardless of the amount of notice. [ 121 ] Counsel for Servus presented an affidavit at the ex parte application in which Rod Randall deposed that Karan Luthra had stated to Servus: “We’ll make sure you get nothing”.

In the absence of a sufficiently particularized claim as to alleged misrepresentations by Servus to the Court, there is nothing before the Court to suggest that Trimove disavows that statement. [ 122 ] While by no means purporting to pre-judge Trimove’s claim, I would simply note that if that statement is accepted by the Court as having been relayed to Servus by a principal, Trimove may well have a difficult time drawing an analogy with the exceptional circumstances in Got , regardless of any prior commitment or obligation by Servus to forbear. [ 123 ] Having weighed all of the relevant factors, I conclude that this is an appropriate case in which to order security for costs in an amount approximating the proposed Bill of Costs. [ 124 ] I order that Trimove post $100,000 as security for costs in the following installments: − $25,000 within 30 days of the date of these Reasons for Judgment; − $25,000 at least 30 days prior to the date scheduled for the commencement of Questioning; and − $50,000 at least 90 days prior to the date scheduled for the commencement of the trial. [ 125 ] Upon evidence being presented to the Court of Trimove’s failure to post any of these installments within the times for payment as set out above, the action will be dismissed.

VI.

Conclusion [ 126 ] Paragraph 17, paragraph 18, the second sentence of paragraph 19, and paragraph 20 of the within Statement of Claim are struck. [ 127 ] Trimove is directed to particularize, within 30 days of the date of these Reasons for Judgment, the allegations in paragraph 22 of the within Statement of Claim to the effect that Servus made misrepresentations in its ex parte application to the Court. [ 128 ] Trimove shall post $100,000 as security for costs in the following installments, failing which this action will be dismissed: − $25,000 within 30 days of the date of these Reasons for Judgment; − $25,000 at least 30 days prior to the date scheduled for the commencement of Questioning; and − $50,000 at least 90 days prior to the date scheduled for the commencement of the trial.

VII. Costs [ 129 ] As the parties have had mixed success on this application, they shall bear their own costs of the application. Heard on the 17 th day of November, 2016. Dated at the City of Edmonton, Alberta this 25 th day of January, 2017. K.G. Nielsen J.C.Q.B.A.

Appearances: Damian Shepherd Chomicki Baril Mah LLP For the Respondent (Plaintiff) John R. Cusano and Marc T. Matras Gowling WLG (Canada) LLP For the Applicant (Defendant)