JNS Consulting Services Ltd v Kramer's Technical Services Inc, 2017 ABQB 690

Court of Queen’s Bench of Alberta Citation: JNS Consulting Services Ltd v Kramer's Technical Services Inc, 2017 ABQB 690 Date: 20171110 Docket: 1403 17970, 1503 16465 Registry: Edmonton Between: Docket: 1403 17970 JNS Consulting Services Ltd Plaintiff - and - Kramer's Technical Services Inc Defendant And Between: Docket: 1503 16465 Orion Metal and Trading Company Inc Plaintiff - and - Kramer’s Technical Services Inc, Kramer’s Technical Services Inc, Kramer Holding Inc, and Lazy P Bar Z Inc Defendants _______________________________________________________ Reasons for Decision of W.S. Schlosser , Master, Court of Queen's Bench of Alberta

_______________________________________________________ [1] This is a novel application by competing execution creditors to impugn a default judgment held by Orion Metal. Theapplication is brought pursuant to s 101 of the Civil Enforcement Act, RSA 2000, c C-15. List of Authorities By the Parties 1. Luebke v Manluk Industries Inc, 2017 ABQB 243: 2. I-D Foods Corp v Heilman Brewing Co, 1996 CarswellAlta 928; 3. E Dehr Delivery Ltd v Dehr, 2016 ABQB 714; 4. 600500 Alberta Ltd v Oil Sands One Limited, 2015 ABQB 772; 5. First Calgary Financial Credit Union Ltd v Inspired Luxury Homes Inc, 2014 ABQB 787; 6.

McCulloch v McCulloch, 2011 ABCA 193; 7. Murphy Oil Co v Sahh Resources Ltd, 997 CarswellAlta 731; 8. Trans Canada Credit Corp v Jarvis, 1997 CarswellAlta 100; 9. Timove Inc v Servus Credit Union, 2017 ABQB 50; 10. Hansraj v Ao, 2003 ABQB 299; 11. HSBC Bank Canada v Billett, 2012 ABQB 782; 12. Don Reid Upholstery Ltd v Patrie, (ABQB) 13. 3S Resources Inc v Improvisions Inc, 2017 ABQB 746; 14. Alberta Rules of Court, Rules 9.15, 9.12; 15. O'Hanlon Paving Ltd v Serengetti Developments Ltd, 2013 ABQB 428; 16. Interest Act RSC 1985 c I -15,

section 4. By the Court 1. Bowerman v Philips, [1888] OJ 49; (OntCA) 2. Civil Procedure Encyclopedia, Stevenson and Côté, Juriliber, 2003; 3. Delmco Industries Ltd v G.M.S. Holdings Ltd, (1980) 15 CPC 241, Sask District Court; 4. Poznekoff v. Binning, (1998) 19 CPC (4th) 347 (BCSC); 5. Palin v. Duxbury, 2010 ABQB 833; 6. Edwards v. Ferris, 2001 ABQB 1125 Facts [2] Orion Metal sued Kramer Technical (et al). The key portions of the Amended Statement of Claim are as follows: 9.

Kramer’s signed a promissory note in which Kramer’s agreed to repay a minimum of $1000,000 per month to Orion (the “MonthlyPayment”) until the debt was repaid, plus interest at a rate of 1% per month on all outstanding amounts (the “Promissory Note”). ... 11. In November 2013, Kramer’s failed to make the Monthly Payment, or any payment, to Orion. 12. As of December 1, 2013, Kramer’s was indebted to Orion for the following amounts: a) $1,421,979.55 that being the outstanding value of the Loan from Orion to Kramer Canada; and

b) The interest which accrued pursuant to the Promissory Note up to December 1, 2013 and which continues to accrue or, alternatively, the interest which accrued pursuant to the Judgment Interest Act, RSA 2000, c. J-1 up to December 1, 2013 and which continues to accrue. [ 3 ] The Defendants did not defend. Orion then took out a Default Judgment for $1,421,979.55 plus simple interest calculated at 1% per month from July, 2011.

The interest in the Default Judgment totals $968,575.31; for a Judgment of $2,390,554.86 (plus solicitor client costs, which were assessed separately). [ 4 ] $113,059.76 was collected and paid into court. The Clerk gave notice of the proposed distribution to the execution creditors. They objected pursuant to s 101(

b) of the Civil Enforcement Act and they now apply in this venue to impugn Orion’s default judgment. They have not applied directly to set it aside. [ 5 ] The matter arose in regular morning court and the parties later submitted written materials. I will say from the outset that I am not persuaded by the materials submitted by counsel. [ 6 ] Orion’s position is simple.

It says that neither the Court nor the other Creditors can touch this Judgment and the distribution must remain as originally calculated, and much in their favour. [ 7 ] Not to put too fine a point on it, saying that the Court lacks jurisdiction to do something and must stand idle while there is an injustice, is not usually a profitable investment. Analysis [ 8 ] The Judgment is irregular (eg CPE Ch 17, G, 4 starting at p 17-20, and the cases cited there).

The most obvious problem is that the amended pleading states that the default occurred in November 2013, but interest is included and calculated from July 2011. Second, interest is stated to be ‘1% per month’. Without a rate stated in per annum terms, interest is capped at 5% per annum. The Canada Interest Act provides: 4.

Except as to mortgages on real property or hypothecs on immovables, whenever any interest is, by the terms of any written or printed contract, whether under seal or not, made payable at a rate or percentage per day, week, month, or at any rate or percentage for any period less than a year, no interest exceeding the rate or percentage of five per cent per annum shall be chargeable, payable or recoverable on any part of the principal money unless the contract contains an express statement of the yearly rate or percentage of interest to which the other rate or percentage is equivalent. [ 9 ] Twelve percent per annum is claimed in the judgment. [ 10 ] When a Defendant does not defend, they are deemed to have admitted the facts pleaded in the Statement of Claim.

The admitted facts and the applicable law only permits interest at 5% per annum, and for that matter, only from November 2013. The Court cannot look behind the pleading in a default judgment. This principle is reflected in another way in one of the cases cited below. [ 11 ] There appears to be another problem. Three of the four Defendants are US corporations out of Iowa. Kramer Technical Services Inc is an Alberta subsidiary. The Amended Statement of Claim was filed January 12, 2017.

The Default Judgment was dated February 23, 2017, and filed February 27, 2017. [ 12 ] Service outside Canada requires an Order permitting it (Rule 11.25(2)(b)).

The time for a Defence is two months (Rule 3.31(3)(c)), not the 20 days stated in the Amended Pleading. [ 13 ] It is puzzling how default judgment against the US Defendants ‘jointly and severally’ (or otherwise) could have been taken in this time-frame. [ 14 ] The Default Judgment rule, Rule 3.39 provides: 3.39(1) If a statement of claim includes a claim for a debt or a liquidated demand, with or without interest, whether as debt or damages, and one or more defendants do not file a statement of defence or demand for notice in response to that claim or any part of it, the plaintiff (

a) may enter judgment for a sum not exceeding the amount in respect of which no defence is filed and the interest payable, if the interest calculation is based on a set rate, either under an agreement or an enactment, and (

b) is entitled to a costs award.

(2) In this rule, “liquidated demand” means (

a) a claim for a specific sum payable under an express or implied contract for the payment of money, including interest, not being in the nature of a penalty or unliquidated damages, where the amount of money claimed can be determined by (

i) the terms of the contract, (ii) calculation only, or (iii) taking an account between the plaintiff and the defendant, [ 15 ] The Default Judgment exceeds the amount that could be claimed on default. It may be entirely irregular with respect to judgment against the US Defendants as a result of the timing. However, I am not saying that a portion of the present judgment could not

be claimed and proved as damages on application to the Court. [ 16 ] Nevertheless, the Plaintiff wishes to hold onto this Judgment and says that the Court is barred from revisiting, it even at the instance of the competing Execution Creditors. Opening up the Default [ 17 ]

Section 101 of the Civil Enforcement Act is not a satisfactory basis for upsetting a default judgment. One option would be a motion to open up the Judgment so the issue can be approached head-on. [ 18 ] The application can be made by an interested party so long as they have sufficient standing (examples of this can be found at CPE 17 D 3 at pg 17-9 to11 and see E Dehr Delivery Ltd at paras19 – 27, and the cases there, per Breitkreuz, M). [ 19 ] An old Ontario Court of Appeal case seems to stand in the way of this approach.

In Bowerman v Philips , [1888] OJ 49 , a competing creditor sought to attack another creditor’s judgment under the Ontario Creditor Relief Act , RSO c 65 s 10. The competing creditor’s objection was that the Note that formed the basis of the claim was misdescribed, and the Writ of Summons misstated the maturity date. Patterson JA. said: 18 Whatever power the statute gives to a creditor to contest a claim advanced by another, it does not extend the power to the impeaching of a judgment by a

summary proceeding. A charge of fraud must be prosecuted in a different way.

The only indirect conduct here charged is the misdescribing the promissory note, and though that might not unfairly be stigmatised as asserting a claim which at the time was to some extent a fictitious one, yet it was for the purpose only of accelerating the remedy for a real debt, and in order to accomplish what by an understanding with Phillips could have been done without either in appearance or in reality violating any law or infringing the rights of other creditors. [15 OAR Page683] Osler JA said: 27 In such circumstances it appears to me that if the judgment debtor does not complain no one else is in a position to do so.

The judgment and execution have been obtained for a real debt and certain legal consequences follow as to sharing in the equal distribution of the money in the sheriff's hands. A creditor (it cannot now be said a rival creditor) can no more complain of such a proceeding than of a judgment obtained upon a demand note substituted by the debtor for the original security to enable the holder to obtain a speedy judgment, or even of one obtained upon an order for judgment made by consent of the debtor.

No unjust preference or priority is obtained by any creditor, and the policy of the law which encourages the equal distribution of the debtor's estate among his creditors is thereby promoted. ... 29 ... Where the debt is bonâ fide another creditor cannot object to the judgment merely because there was a defence which the debtor might have set up to the particular action in which the recovery is had. The cave of Molson's Bank v. McMeekin,* decided at our present sittings may be referred to. Haggarty CJO and Burton JA concurred. [ 20 ] This Ontario decision, of course, is not binding on me.

And even if it were, it stands for a different proposition. First, as already acknowledged, legislation such as s 101 of the Civil Enforcement Act , like Ontario’s (then) Creditor Relief Act , is not fit for this task. The case tells us that a competing creditor cannot step into the shoes of a judgment debtor and raise defences that that defendant might have raised where the competing creditor needs to look behind the pleading to the underlying facts. [ 21 ] That is not the case here. It is unnecessary to look behind the Amended Statement of Claim to see the issue.

The Judgment obtained by the Plaintiff is plainly irregular either in whole or in part, on its face . I acknowledge that Orion might have obtained the present Judgment by noting the Defendant in default and applying to the Court with evidence supporting its claim.

But a Default Judgment and an Assessment following a Noting in Default are not the same thing. [ 22 ] In some circumstances the Court can act on its own motion to open up a default (eg CPE 17 C 5: for example, where a Statement of Claim was gibberish ( Poznekoff v Binning , (1998) 19 CPC (4th) 347 (BCSC) )). [ 23 ] In Delmco Industries Ltd v GMS Holdings Ltd , (1980) 15 CPC 241 , Walker DCJ refused to interfere ex mero motu when no one complained about the judgment.

The learned judge noted that it was not a question of a lack of power or jurisdiction to do so, only that as a matter of practice the Court should be slow to intervene; the principle being that orders and judgments are presumed to be correct and effective until challenged by someone with the status and will to do so. (Judge Walker raised the Dickensian spectre of Masters or Judges having a duty to comb the Court files for irregularities). [ 24 ] I agree with the principle stated by Judge Walker (and also see Timove at para 68).

But here we have a Judgment that is irregular on its face, and an interested and affected party who raises a challenge. In my view, the Court is not to sit idly by and say nothing can be done. I acknowledge that the Court should be slow to act on its own motion and that ideally an application to open up should be made by the interested party on notice to the Defendant. Options [ 25 ] In the circumstances there appear to be two options. First, to send the Plaintiff back to the drawing board and open up the Judgment completely.

The effect of setting aside the judgment would be to cause the funds in court to be distributed to the other creditors without a share for Orion.

[ 26 ] The second option might be to apply Rule 9.12: 9.12 On application, the Court may correct a mistake or error in a judgment or order arising from an accident, slip or omission. [ 27 ] On this basis the interest could be corrected to 5% per annum from November 2013. However, this second option is less than satisfactory because it still leaves the unsolved problem of how there could be a Default Judgment in the first place, on the timing stated above.

I do not wish to foreclose Orion’s opportunity to support its judgment amount with an application and proper evidence. [ 28 ] I acknowledge that this is not a Rule 9.15 situation. Palin and, for a review of authorities Edward v Ferris per Slatter J (now JA). Disposition [ 29 ] In my view, the first option is the appropriate one. The Default Judgment should be set aside and the funds in court should be distributed to the other creditors.

However, I will leave it open to Orion, if they so choose, to appear and show that service was regular; in which case the Judgment will be corrected and the funds can be distributed in accordance with the corrected Judgment. [ 30 ] If necessary, the Parties may re-appear for directions. Heard on the 12 th day of September, 2017. Written Submissions received on September 22 and 29, 2017. Dated at the City of Edmonton, Alberta this 10 th day of November, 2017. W.S. Schlosser M.C.Q.B.A.

Appearances: David W Wolanski of Majeski & Company for the Plaintiff/Enforcement Creditor JNS Consulting Services Ltd Katherine J Fisher of Dentons Canada LLP for the Enforcement Creditor, Orion Metal and Trading Company Inc Tovah M Moffat of Hustwick Payne for the Enforcement Creditor, Eco-Industrial Park Inc Brian S Sussman of Biamonte Cairo

for Enforcement Creditor, Fast Labour Solutions Inc Brendan Carr (did not appear) of Carr Defir for Enforcement Credit, Donalco Western Inc