1361556 Alberta Ltd. Plaintiff - v. -, 2021 ABQB 157

Court of Queen’s Bench of Alberta Citation: 1361556 Alberta Ltd v Ristorante Cosa Nostra Inc, 2021 ABQB 157 Date: 20210226 Docket: 1603 01497 Registry: Edmonton Between: 1361556 Alberta Ltd. Plaintiff - and - Ristorante Cosa Nostra Inc., Haxton Holdings Ltd., Keith D. Haxton and Mark Hobson Defendants Docket: 1603 02749 Registry: Edmonton Designs by Marlynn Ltd. Plaintiff - and - Ristorante Cosa Nostra Inc., Haxton Holdings Ltd., 1361556 Alberta Ltd. Defendants

_______________________________________________________ Memorandum of Decision of A.R. Robertson , Q.C., Master in Chambers _______________________________________________________ Introduction [ 1 ] These hybrid applications firstly ask for dismissal of both of these lawsuits pursuant to rule 4.31, on the grounds of delay and prejudice, and secondly they ask for discharge of certificates of lis pendens and statements of builders’ liens pursuant to subsection 46(2) of the Builders’ Lien Act , R.S.A. 2000, c. B-7 . [ 2 ] On both counts, the complaint is that the lawsuits have suffered from delay.

Facts [ 3 ] The property in question is a restaurant in Fort McMurray. It is located in a building owned by Haxton Holdings Ltd. It had office premises on the second floor. They were demolished, and a restaurant facility built in their place, by the Plaintiff 1361556 Alberta Ltd. (the “ Contractor ”). The plaintiff Designs by Marlynn Ltd. (the “ Interior Designer ”) did the interior. [ 4 ] The restaurant opened, but neither plaintiff was paid in full. Both registered statements of lien, sued, and registered CLP’s. [ 5 ] However, the claims are not merely to enforce the builders’ liens.

They also assert that the landlord, Haxton Holdings Ltd., is directly liable on the basis that there were contractual representations and a resulting direct obligation owed. [ 6 ] The defendants Haxton Holdings Ltd. and its owner (and co-defendant in the Contractor’s claim) Keith D. Haxton brought this application. For simplicity, and since their interests are aligned and the same counsel represents both of them, I will refer to both Mr.

Haxton and his company collectively as “ Haxton .” [ 7 ] The lawsuits were started in very early 2016, shortly after the statements of builders’ liens were registered at the land titles office. However, there has been some delay in prosecution. [ 8 ] The Contractor filed its statement of claim on January 26, 2016. Its CLP was registered three days later, and the Interior Designer filed its claim February 16, 2016. Its CLP was registered 10 days later. [ 9 ] The lawsuits proceeded at a reasonable pace, if not quickly.

Affidavits of records were delivered, and questioning for discovery took place in August 2017. [ 10 ] Answers to undertakings were given very promptly by Haxton on September 29, 2017, reasonably quickly by the Contractor on December 7, 2017 and more slowly by the Interior Designer on May 30, 2018 with revised answers a month later on June 25, 2018. [ 11 ] When each of the Contractor and the Interior Designer answered undertakings, counsel for Haxton immediately responded expressing concerns of deficiencies in the answers. [ 12 ] On April 28, 2018 (that is, shortly before the Interior Designer’s undertaking responses were received) a man named George Byfield Collins III had died.

He is said to have been a potential witness for Haxton. [ 13 ] Up to this point, counsel for Haxton acknowledges that here was no basis for complaining of delay. [ 14 ] Then there was a relatively long delay. The next step, from the perspective of counsel for Haxton, was about two years later. On June 30, 2020, he received a supplementary affidavit of records of the Contractor that had been sworn July 24, 2019 (that is, it was sworn about a year before it was delivered). At that time, counsel for the Contractor requested an opportunity to question Mr.

Haxton on his answers to undertakings. [ 15 ] In the meantime, in mid-March 2020, the Covid-19 pandemic had been recognized as a Canadian health crisis. [ 16 ] The parties reached a tolling agreement on March 17, 2020. It was to continue until 30 days after notice was given to terminate it. Counsel for Haxton gave notice on September 10, 2020, and accordingly the tolling agreement ended October 10, 2020. [ 17 ] From this chronology, some important observations can be made: (

a) the lawsuits were commenced promptly, they proceeded relatively expeditiously, and when questioning was done and answers to undertakings were provided, counsel for Haxton was on top of things, asking for further information based on deficiencies that he said

were apparent; (

b) Mr. Collins’ death occurred in April of 2018, before there was any delay; and (

c) the supplemental affidavit of records on behalf of 1361556 Alberta Ltd. was sworn in July of 2019, but not served until June of 2020, during the tolling period. [ 18 ] Here, there is no specific evidence given of the cause of the delay, but when the supplementary affidavit of records was sworn in July of 2019, it listed 736 separate records. Counsel for the Contractor had had to find one of the defendants, Mr. Mark Hobson, who was the operator of the new restaurant at the time the liens were registered. [ 19 ] Mr. Gushue, of the Contractor, deposes that when the project began he was approached by Mr.

Haxton (not by Mr. Hobson, the restaurateur) to build and operate the restaurant. Mr. Gushue deposes that the late witness Mr. Collins was never involved in relation to any communications, or other aspects of the construction of the restaurant. On the other hand, Mr. Collins’ wife, Karen Collins, signed cheques from the restaurant company to the Contractor for the construction. [ 20 ] Ownership of the restaurant had been suddenly transferred in February 2016 by Mr.

Hobson’s company (Ristorante Cosa Nostra Inc.) to the landlord Haxton Holdings Ltd., and then the next day it was transferred from Haxton Holdings Ltd. to a company controlled by Karen Collins, wife of the later-deceased Keith Collins. The price of both transactions was $360,000. In an affidavit sworn by Mr. Hobson he asserts that he transferred it under duress, and he left Fort McMurray heart-broken over the way he had been treated by Mr. Haxton. [ 21 ] The original restaurateur, Mr. Hobson, moved to Montreal, Québec.

Counsel for the Contractor had to locate him, and then to arrange for the records to be obtained from him, review them, prepare a supplementary affidavit of records for Mr. Gushue to sign on behalf of the Contractor, and have it sworn. The number of records listed in it lets us know that the steps leading up to having it sworn would have taken some time. [ 22 ] He did that.

The supplementary affidavit of records was not ultimately sworn until July of 2019, or roughly a year after the last step had been taken in the litigation. [ 23 ] The Interior Designer is caught up in the arguments about delay and prejudice in a circumstance where it finds itself informally tied to the prosecution of the Contractor’s claim. There has been no order for trial together of the two claims, but questioning was agreed to be done together and counsel agreed upon the mutual use of transcripts by opposing parties.

On a functional basis, the two lawsuits are being advanced in tandem. [ 24 ] Counsel for Haxton takes issue with the fact that the documents were obviously in the hands of counsel for the Contractor much earlier than the date when the lengthy supplementary affidavit of records was sworn, but he was not even told of their existence, let alone provided with copies of them. [ 25 ] Sub-rules 5.10 (

a) and (

b) require that the party who has received additional records must, “immediately give notice of it to each of the other parties”, and as well, when requested, provide copies. Subparagraphs (

a) and (

b) were not complied with. [ 26 ] A separate obligation, under sub-rule 5.10(c), is to provide a supplementary affidavit of records identifying these “new” records prior to scheduling a date for trial – not immediately. [ 27 ] The reason for the delay from July 2019 to June 2020 is not in the evidence, but counsel explains that he had made arrangements for work to be done by his paralegal, and then he simply lost track of the progress of the claim.

Then the pandemic hit in March. [ 28 ] When the pandemic was recognized as a health crisis, there was a level of chaos in the legal profession (and the business community generally). The Court of Queen’s Bench stopped hearing regular applications and trials for a lengthy period of time and the advice from the governments was to stay home if possible.

Law firms had to make arrangements for associate lawyers, partners, legal assistants, paralegals, articling students, accountants, and librarians as well as their IT and other support staff members to work in remote locations to the extent possible. [ 29 ] Counsel for the Contractor should have immediately let counsel for Haxton know of the new documents (Rule 5.10), but in reality the material delay was between July 2019 and June 2020.

Had Counsel for the Contractor advised Haxton’s counsel in July of 2019 of the new documents, or had he advised him as soon as he got them and then sent the supplementary affidavit of records in July, there would have been little complaint of delay. To a great extent, the complaint could have been fairly explained. [ 30 ] By the time the supplementary affidavit of records was sent, the tolling agreement was in place, so arguably the delay was between July 2019 and March 2020, when the tolling period began.

That is, perhaps the period of time from March to June should not be counted, since all parties had agreed to that delay. Upon receiving the supplementary affidavit of records, counsel for Haxton did not immediately advise of concerns about delay. He did not immediately call for the end of the tolling agreement. As noted, it was another three months before he gave notice to terminate the tolling agreement. The Rule and the Builders’ Lien Act Provision [ 31 ]

Section 4.31 of the Alberta Rules of Court provides as follows: 4.31(1) If delay occurs in an action, on application the Court may (

a) dismiss all or any part of a claim if the Court determines that the delay has resulted in significant prejudice to a party, or

(

b) make a procedural order or any other order provided for by these rules.

(2) Where, in determining an application under this rule, the Court finds that the delay in an action is inordinate and inexcusable, thatdelay is presumed to have resulted in significant prejudice to the party that brought the application. [32] This rule was discussed by the Court of Appeal of Alberta at length in Humphreys v Trebilcock, 2017 ABCA 116, which Iwill refer to below. [33]

Section 46 of the Builders’ Lien Act provides as follows: 46(1) A lien that has continued to exist by reason of registration of the certificate of lis pendens relating to that lien continues to existuntil (

a) the proceedings are concluded, or (

b) the certificate of lis pendens is discharged, whichever occurs later.

(2) Notwithstanding subsection (1), if no trial has been held within 2 years from the date of the registration of the certificate of lispendens, any interested party may apply to the court to have the certificate of lis pendens vacated and the lien to which it relatesdischarged. [34] It has now been about five years since the CLP’s were registered at the land titles office, and accordingly the defendants arein a position to bring the application under section 46(2) to have the builders’ lien aspect of the claims dismissed. [35] Subsection 46(2) is not mandatory.

That is, the provision merely states that the application may be brought after two years. Itsays nothing about what the Court should or should not do. [36] For direction on

section 46 we must look to case law. The case law is clear: the onus on such an application is on the lienclaimant to explain why there has been a delay. The case law generally does not require too much in the way of explanation, but theremust be some explanation. [37] The important cases on the topic include these: (

a) A.R. Baziuk Architect Ltd v Isaak Properties Ltd, : no explanation for the delay at all was given; (

b) West Fab Homes Ltd v Duncan, 1996 ABCA 382: The Court of Appeal accepted a non-litigation delay as a proper explanation: theplaintiff had held off while it waited for advice from the defendants’ bankruptcy trustee as to whether it was going to get paid from thatsource; and (

c) Heron Building Co v Sunset Diesel Service Ltd, 2006 ABQB 137: Master Breitkreuz accepted the explanation that the delay resultedfrom the plaintiff’s insolvency; he then imposed terms on the parties to move the case along. Rule 4.31(1): Delay and Significant Prejudice [38] The entitlement to seek dismissal pursuant to rule 4.31 requires both delay and significant prejudice. Even when that isshown, there is not a reflexive entitlement to have the claim dismissed. Under sub-rule 4.31(1) the Court has the discretion to dismiss, ornot.

The Court is expressly given the authority to make a procedural order as an alternative remedy, whether or not the Court has foundthere to be both delay and significant prejudice. [39] Here, the prejudice that is put forth is the loss of the ability to call the deceased Mr. Collins as a witness, as well as the factthat the liens have cluttered up Haxton’s title since December 2015. [40] No detail is provided as to what Mr. Collins would have said, other than he would have corroborated the evidence of Mr.Haxton to the effect that Mr.

Haxton “was not involved at all with respect to the Plaintiff furnishing work and/or materials at the subjectproperty”. That is, it is argued that Mr. Collins’ evidence would have been tendered to prove a negative. This is an unusual proposition:Mr. Collins’ evidence would be to the effect that Mr. Haxton was not doing something during construction. No detail is given how it isthat Mr. Collins would know what it was that Mr. Haxton was not doing. [41] As mentioned above, the affidavit of former restaurateur Mr.

Hobson provides a great deal of details to the effect that Mr.Haxton was intimately involved in the construction of the new restaurant facility. The affidavit of Mr. Gushue, for the Contractor, doesas well. [42] Therefore, Mr. Haxton’s knowledge and involvement in the renovations and restaurant construction is at the heart of thelawsuits - beyond the validity of the liens. [43] However, for the purposes of this application, I need not make any determination as to whether Mr. Haxton was involved inthe construction.

It is only important to understand the claim and the nature of the evidence that Haxton argues has been lost, tounderstand why the evidence of Mr. Collins is said to have been important. [44] For the purposes of rule 4.31(1) the analysis is straightforward: the “significant prejudice” that is said to have resulted fromthe loss of the opportunity to call Mr. Collins as a witness did not result from the delay. He died before there was any material delay atall.

[ 45 ] The basis for dismissal under rule 4.31 is not simply that there has been significant prejudice to a party. Sometimes an important witness dies, is ill and unable to give evidence, or simply disappears, before the lawsuit has been started or shortly after it has been started. The party who would have tendered his or her evidence is thereby prejudiced, if the evidence would have been admissible and probative. [ 46 ] However, the basis for the application to dismiss under rule 4.31 is one of cause and effect.

The rule addresses only the circumstance where “ the delay has resulted in significant prejudice to a party”. [ 47 ] Mr. Collins did not die during a period of delay. He was dead before the delay had occurred. If the matter had gone to trial very soon after undertaking responses were given he would already have been dead. The delay did not result in the prejudice (the death of a witness) that Haxton asserts. [ 48 ] Accordingly, sub-rule (1) is simply not in play in respect of Mr.

Collins’ unavailability. [ 49 ] Haxton also asserts that delay has been suffered by virtue of the fact that the statements of lien and CLP’s have remained on title, preventing any dealing with the property. [ 50 ] However, there is no evidence that Haxton tried to transfer or mortgage or otherwise encumber the property, or had any plans to do so, during the period of delay. We are left with the impression that Haxton Holdings Ltd. still owns the building and enjoys all the benefits of that, without any impairment. The restaurant was transferred to Ms.

Collins’ company subject to the liens, with full knowledge of them, long before there was any suggestion of delay. [ 51 ] Accordingly, there is no evidence of significant prejudice. Rule 4.31(2): “Inordinate and Inexcusable Delay” [ 52 ] In the alternative, Mr.

Haxton and his company rely on sub-rule 4.31(2), which provides: Where, in determining an application under this rule, the Court finds that the delay in an action is inordinate and inexcusable, that delay is presumed to have resulted in significant prejudice to the party that brought the application. [ 53 ] Accordingly, the question is whether they delay was “inordinate and inexcusable”. If it was, then significant prejudice is presumed.

If it was not both inordinate and inexcusable, then significant prejudice is not presumed. [ 54 ] A delay of approximately one year, or even two years as Haxton argues occurred here, is not normally considered, by itself, to be “inordinate”, although by saying that I do not mean to suggest that it is appropriate. Delay is often a pox on litigation, because witnesses become lost, they die, memories fail, counsel retire or become ill and new counsel must take over, and integrity of the entire process is adversely affected.

That is why we have rules 4.31 and 4.33, as well as subsection 46(2) of the Builders’ Lien Act . The superior and lower courts have complained about delay for decades. [ 55 ] However, here the lawsuit was commenced promptly, and initially prosecuted promptly, and those fact would have allowed the parties, particularly Haxton, to identify and preserve evidence. Some evidence given by Mr. Haxton in an earlier application (to move the lawsuit to Fort McMurray from Edmonton), was to the effect that at that time he had given no thought to who would be a witness.

That leaves the impression that Haxton might not have been preserved its evidence when it was fresh in everyone's mind, but Haxton was made aware of the claim quickly after it arose. [ 56 ] However, under sub-rule (2) the defendant need not prove significant prejudice: if the delay is inordinate and inexcusable then significant prejudice (not necessarily resulting from Mr. Collins’ unavailability or the liens remaining on title) is presumed unless the presumption is rebutted. There is no direct evidence tendered to rebut the presumption. [ 57 ] The determination of what is inordinate delay is very fact specific.

In Humphreys v Trebilcock , the Court of Appeal wrote of a hypothetical case where very rapid steps could reasonably be expected: where allegations are made in the statement of claim that a lawyer is incompetent and dishonest. There could easily be an immediate and significant negative impact on the lawyer’s practice. In that circumstance, it would be expected that the claim be prosecuted very promptly. [ 58 ] That example is not this case. Explanations for the Delay [ 59 ] The explanation for the delay has two components. [ 60 ] Firstly, a critical witness, and the holder of critical documents, Mr.

Hobson, had left the province and moved to Montreal, Québec. As a defendant in the proceedings, it is likely that he would not reflexively have been cooperative with counsel for the Corporation that was suing him personally. [ 61 ] No doubt it would have taken some time to locate him, contact him and obtain his cooperation, obtain the documents, review them, prepare the supplementary affidavit of records listing 736 records, and have it sworn by Mr. Gushue. As mentioned, we have no detail of that, and perhaps it could have been done in much less than 12 months.

However, I would assume that it might easily take perhaps six months assuming that the Contractor’s counsel did not make this matter one of top priority. [ 62 ] Regardless, the delay for obtaining and serving the supplementary affidavit of records would have been relatively modest. Until the supplementary affidavit was sworn, the lawsuit had been materially moving forward. The real error was in not letting counsel for Haxton know what was going on. [ 63 ] Secondly, counsel for the Contractor explains that he simply lost track of the progress of the matter for an extended period of

time. This is not in evidence. It should have been. [ 64 ] However, in my view the Court is entitled to take into account representations of counsel as to matters within their personal knowledge as to the progress of the file.

We allow such representations frequently in morning chambers when counsel advise us as to why a matter should be adjourned, or why there has been short-term delay, and the like. [ 65 ] In any event, the delay following the swearing of the supplemental affidavit of records was approximately one year - but the parties had agreed not to move the matter forward as of mid-March, 2020. [ 66 ] In all of the circumstances, my assessment is that the delay, although unnecessary to some extent and unsatisfactory, was not “inordinate”.

To use the words set out in paragraph 152 of Humphreys , the shortfall or differential from another lawsuit of this type was not of such a magnitude as to qualify as “inordinate”. [ 67 ] Accordingly, I need not consider whether it was “inexcusable”. Conclusion re Rule 4.31 [ 68 ] In the result, there is no presumed significant prejudice, and no demonstrated significant prejudice resulting from the delay, so the basis for an application under rule 4.31 has not been satisfied. That aspect of the application is dismissed.

Subsection 46(2) of the Builders’ Lien Act [ 69 ] Section 46(2) of the Builders’ Lien Act merely provides that any interested party may apply for the CLP and lien to be discharged. The case law, as mentioned, shows that the plaintiff has the onus of explaining the delay. [ 70 ] Claims under the Builders’ Lien Act are to be prosecuted promptly.

I note that the Alberta legislature is in the process of bringing in a new process for the prompt resolution of builders’ lien claims, further emphasizing the government's desire, at least, to have construction claims dealt with expeditiously. [ 71 ] The current version of the Builders’ Lien Act was introduced in 1985. (Although there have been some amendments since, the structure of the Act has not changed.) The concept of a pre-trial conference (s. 53) was introduced at least by 1985 to identify issues and streamline the claim, if that provision was not in the previous version of the Act . [ 72 ] There are many other provisions in the Act that were clearly designed to speed up the process, such as: (

a) an abridged limitation period of only 180 days from the filing of the lien for the commencement of the action (s. 43); (

b) the possibility of further truncating the limitation period by allowing a landowner, or another person affected by a lien, to serve notice to commence action within 30 days of the notice (s. 45(1)); (

c) the possibility of requiring an affidavit sitting out the particulars of the lien (commonly called an “affidavit proving lien”) before there have even been pleadings exchanged to enforce the lien (section 48(3), as long as an application to post security or otherwise remove the lien has just been filed); (

d) a notice to prove lien may be served even before a defence has been filed (s. 52(3); (

e) the pleading requirements are modified: all registered lienholders are parties to the proceedings commenced by one, although they are not named as such and no pleadings is required from them (ss. 50 and 49(2)); and (

f) there is an entitlement to demand production of some records even before a statement of lien has been registered or a lawsuit has been started (s. 33). [ 73 ] And if there were any doubt about whether a builder’s lien claim should be prosecuted promptly, section 49(6) expressly states that: The procedure in adjudicating on the claims shall be of a

summary character, so far as is possible, having regard to the amount and nature of the liens in question and the enforcement of them at the least expense. [ 74 ] It is in this context that subsection 46(2) was enacted. If the case has not been to trial in two years, the Court is entitled to ask why it has not. [ 75 ] Prejudice to the defendant is relevant to the consideration of subsection 46(2) . Has Haxton suffered prejudice? [ 76 ] The restaurant’s ownership was transferred to a company controlled by Mr.

Collins' wife, now his widow, Karen Collins, with full knowledge of the builders’ liens, which remained on title. [ 77 ] Mr. Haxton is still able to give his evidence as to his involvement or non-involvement in the construction of the restaurant. Ms. Collins signed the restaurant company’s cheques to pay the Contractor. One assumes she would have knowledge of Mr. Haxton’s involvement or lack thereof. [ 78 ] That is, Mr. Collins’ death does not prevent the evidence from being given at all; rather it might prevent some corroboration.

His death does not appear to have resulted in material prejudice, if his evidence would have been admissible at trial. [ 79 ] As I have discussed above, the continued presence of the statements of lien and CLP’s on the certificate of title does not appear to have resulted in any prejudice.

[ 80 ] However, builder’s lien claims often do not exist on their own. As we have here, a lien claim is often combined with a claim for other relief. That would have led to the parties here doing questioning for discovery, which is not done in a builders’ lien action without court order: s. 53(3)(f). [ 81 ] Accordingly, even if I were to direct that the lien portion of the claims be dismissed, and the CLP's and statements of lien be removed from the land title certificate, the action would continue, although the remedy under the Act against the land would not.

Nonetheless, in my view, that is a factor to take into account in determining whether that step should be taken, in the absence of evidence of any actual material prejudice. [ 82 ] As alluded to above, the explanation for the delay does not have to be momentous. The explanation of needing to acquire a significant number of records from a defendant in Québec accounts for much of the delay. The balance of the delay has not apparently been very prejudicial, if there has been any prejudice all.

Conclusion re Subsection 46(2) [ 83 ] In my view, the plaintiffs have demonstrated sufficient explanations for the delay, there is no evidence of material prejudice in any event, and the application to strike the CLP's and builders’ liens is therefore dismissed. Terms [ 84 ] However, I adopt the approach used by Master Breitkreutz in Heron Building , above, and also as mandated by sub-rule 4.31(1)(b), and I direct terms, by way of a procedural order. [ 85 ] The terms are as follows: (

a) any further questioning on undertakings, or the supplementary affidavit of records, or anything arising out of them, is to be completed by all parties no later than June 30, 2021; (

b) any further interlocutory applications, such as an application to have the two lawsuits tried together (as was indicated during argument might be brought) is to be filed no later than April 30, 2021, returnable no later than May 31, 2021; (

c) the parties are directed to agree upon a form of alternative dispute resolution (or two forms of alternative dispute resolution if the actions remain separate and the parties cannot agree on a joint ADR arrangement) and to make arrangements no later than August 31, 2021 for it (or them) to take place (for clarity, it is the scheduling of it to be completed by then, not the actual mediation or judicial dispute resolution); (

d) the parties are to complete a form 37 to request the matter to be set down for trial as soon as reasonably practicable; (

e) any party has leave to apply to vary these terms upon reasonable grounds, with five days’ proper notice to both of the other parties, regardless of in which action the application is brought (I am not seized of the matter to hear any such application); and (

f) alternatively, the terms may be modified without Court order by mutual agreement of all three parties, as recorded by correspondence amongst counsel. [ 86 ] If the parties are unable to agree upon costs of this application, they may make representations in writing, addressed to the Clerk of the Court, Master’s Chambers, in Edmonton, to be forwarded to me for consideration. Heard on the 11 th day of February, 2021. Dated at the City of Edmonton, Alberta this 26th th day of February, 2021. A.R. Robertson, Q.C. M.C.C.Q.B.A. Appearances: Brian S. Sussman, Q.C Biamonte LLP for the Applicants (Defendants) Haxton Holdings Ltd. and Keith D. Haxton

Daniel C.P. Stachnik, Q.C. Miller Thomson LLP for the Respondent (Plaintiff) 1361556 Alberta Ltd. Francis Price, Q.C. Reynolds, Mirth, Richards & Farmer LLP for the Respondent (Plaintiff) Designs by Marlynn Ltd.