Haack v Secure Energy (Drilling Services) Inc, 2021 ABQB 342

Court of Queen’s Bench of Alberta Citation: Haack v Secure Energy (Drilling Services) Inc, 2021 ABQB 342 Date: 20210430 Docket: 1001 18586 Registry: Calgary Between: Robert Bradley Haack Plaintiff - and - Secure Energy (Drilling Services) Inc. (successor by amalgamation to Marquis Alliance Energy Group Inc.), James Anderson, Darryl Deibert, David Rawlyk and George Wadsworth Defendants _______________________________________________________ Reasons for Decision on Costs of Honourable Madam Justice A.

Woolley _______________________________________________________ Introduction [ 1 ] On February 2, 2021 I issued judgment in favour of the Plaintiff Mr. Haack: Haack v Secure Energy (Drilling Services) Inc , 2021 ABQB 82 . I found that the Defendant Secure Energy (Drilling Services) Inc. (Secure) had wrongfully dismissed Mr. Haack, breached its obligations under the Unanimous Shareholder Agreement, breached its duty of good faith and fair dealing, and acted oppressively towards him. I found the individual Defendants, Mr. Anderson, Mr. Deibert, Mr. Rawlyk and Mr.

Wadsworth, personally liable for oppression. [ 2 ] I awarded Mr. Haack compensatory damages of $115,846.21 for Secure’s wrongful termination of his employment and breach of the duty of good faith and honest performance. I awarded $957,994.60 for the breach of the Unanimous Shareholders Agreement by Secure and for the oppressive conduct of Secure, Mr. Anderson, Mr. Deibert, Mr. Rawlyk and Mr. Wadsworth. The total compensatory damages awarded were $1,073,840.82. [ 3 ] I did not award Mr. Haack punitive damages.

Such damages require “high-handed, malicious, arbitrary or highly reprehensible misconduct that departs to a marked degree from ordinary standards of decent behaviour”: Whiten v Pilot Insurance Co ,

2002 SCC 18 at para 36 . I concluded that the Defendants conduct was wrongful, but did not satisfy the requirements for punitive damages: Haack at para 662 . [ 4 ] The issues that I must now decide are, first, whether Mr. Haack was responsible for delays in the litigation that justify a reduction in the amount of pre-judgment interest to which he is entitled; and second, what costs award Mr. Haack is entitled to given his success in the litigation. Specifically, I must address whether Mr. Haack is entitled to an award of solicitor-client costs. [ 5 ] For the reasons that follow, I reduce Mr.

Haack’s entitlement to pre-judgment interest by excluding the period from January 14, 2013 to September 19, 2013. Further, I am satisfied that this case falls within the exceptional category of cases for which an award of solicitor-client costs is appropriate. Pre-Judgment Interest [ 6 ] The Defendants request that this Court use its authority under s. 2(3) of the Judgment Interest Act , RSA 2000 c J-1 , to deny pre-judgment interest to Mr. Haack for the period between February 6, 2012 and September 20, 2013.

They submit that doing so is warranted because during that time no significant steps were taken on the action. They also ask that pre-judgment interest not be charged for the period of the COVID-19 pandemic, because that period of delay was not within the Defendants’ control. [ 7 ] Section 2(3) of the Judgment Interest Act grants this Court authority to adjust the amount of pre-judgment interest payable where “it considers it just to do so having regard to…the circumstances of the case or the conduct of the action”.

This provision has been described as having the purpose of encouraging promptness and penalizing delay: Brennenstuhl (Estate) v Trynchy , 2008 ABQB 256 at para 33 . [ 8 ] In 3321665 Alberta v Exxon Mobil Canada Ltd , 2012 ABQB 76 at para 24 , Justice Belzil noted that this provision must be assessed in light of the successful plaintiff’s prima facie entitlement to pre-judgment interest, and the requirement that there be a “compelling reason” to alter that entitlement.

He acknowledged that delay can constitute a compelling reason, although he also noted that the successful plaintiff is not responsible for “institutional delays” in litigation, and that “not all delays in litigation are unjustified”. He suggested that the Court should also consider whether the plaintiff made a “conscious decision to delay the prosecution of the action for reasons unrelated to the carriage of the action” and whether the defendant suffered any specific prejudice as a result of the delay.

See also, Woodbridge Homes Inc v Andrews, 2019 ABQB 968 at para 44 . [ 9 ] In light of this case law, the delays arising from the COVID-19 pandemic do not justify denying Mr. Haack pre-judgment interest. He had no responsibility for that delay, and his counsel took steps to try and bring the matter forward during that period by being willing to participate in a binding JDR and by proposing a shorter trial.

As is the case with institutional delay, a delay caused by external circumstances, for which the Plaintiff has no responsibility, ought not to reduce the Plaintiff’s prima facie entitlement to pre- judgment interest. [ 10 ] With respect to the 2012-2013 period, a delay arose because of Mr. Haack’s decision to switch counsel following his prior counsel’s unsuccessful application before Justice Poelman in February 2012. Mr. Haack’s then counsel sought to obtain a preliminary determination of the proper

interpretation of the Unanimous Shareholders’ Agreement. Justice Poelman said that he was not persuaded by the Defendants’ position that the issues could only be determined at a trial; however, he denied the requested relief because Mr. Haack’s counsel had not followed the proper procedure to permit a preliminary determination to occur. [ 11 ] Mr. Haack says that it took some time to obtain a new lawyer because a number of the firms he approached had conflicts of interest.

He found a new lawyer in April 2012, but it then took time for the file to be transferred from his prior lawyer, and for him to obtain a second opinion from his new lawyer. He filed a notice of change of representation on January 14, 2013. [ 12 ] In my view, the decision to change counsel, and the period of time between that decision and January 2013, was not unreasonable, and ought not to affect Mr. Haack’s prima facie entitlement to pre-judgment interest. It was not made in an effort to delay the prosecution of the matter, and it did not prejudice the Defendants. [ 13 ] However, neither Mr.

Haack nor his current counsel provided any explanation as to why no steps were taken from January 14, 2013 to September 19, 2013, when Ms. McCready sent a letter to the Defendants to

schedule questioning, and to make offer of settlement in relation to the individual Defendants. In my view, this part of the delay was not justified and warrants a reduction in the pre-judgment interest payable to Mr. Haack. I have no evidence that it prejudiced the Defendants, and I do not have evidence to suggest that it was an attempt to delay the prosecution.

Nonetheless, it is an unexplained delay, it lasted several months, and it followed from an existing delay which, while understandable, ought to have been sufficient to get the litigation back on track, rather than simply being the precursor to a further eight-month delay. [ 14 ] I note that the Defendants were also responsible for delay in the progress of the litigation. The Defendants’ delay is, however, addressed in the assessment of costs.

Absent those delays being factored into the costs assessment I might conclude, as did Justice Mandziuk in Woodbridge Homes at para 44, that, “I am unable to find that either party was exclusively or predominantly responsible for the delay of this action to such a degree that it would affect the presumptive interest awards”. They are, however, taken into account in the costs analysis and I conclude it would be unfair to make the Defendants accountable for delay twice, once as an offset to the Plaintiff’s delay in the determination of pre-judgment interest, and again as a justification for solicitor-client costs.

As such, I direct that Mr. Haack’s entitlement to pre-judgment interest be reduced by eight months to exclude the period from January 2013 to August 2013 inclusive. Solicitor-Client Costs

Governing Law [15] Canadian law reserves solicitor-client costs for exceptional cases. The ordinary outcome when a party prevails in litigation isa partial indemnity of the costs incurred to bring the matter to trial.

Partial indemnity balances “the unfairness of requiring a successfulparty whose conduct is not blameworthy to bear any costs and the chilling effect on parties bringing or defending claims if theunsuccessful party is required to bear all the costs”: McAllister v Calgary (City), 2021 ABCA 25 at para 38, citing Weatherford CanadaPartnership v Artemis Kautschuk und Kunstoff-Technik GmbH, 2019 ABCA 92 at para 12. [16] In determining when a case is exceptional so as to warrant solicitor-client costs, judges often cite the principle set out by theSupreme Court in Young v Young (SCC), [1993] 4 SCR 3 at 134, that solicitor-client costs ought to be reserved forcases “where there has been reprehensible, scandalous or outrageous conduct on the part of one of the parties”. [17] As frequently cited as it is, the statement in Young provides limited guidance to a judge’s assessment of whether solicitor-client costs ought to be awarded.

On their face, the words “reprehensible, scandalous or outrageous” connote a reaction from the judge –being reproving, scandalized or outraged – as the basis for an award of solicitor-client costs. Yet, the decision does not explain what sortof things it is that a judge assessing costs ought to reprove, or be scandalized or outraged by, other than to say it should be more than thatthe unsuccessful party’s case had “little merit”: Young at p. 134.

While one subsequent Supreme Court decision provides an example ofwhat could be considered reprehensible, scandalous or outrageous conduct (Hamilton v Open Window Bakery Ltd, 2004 SCC 9 at para26) the Supreme Court has not identified the broader legal principles or policy that govern the assessment of when a party’s conductshould be viewed that way. [18] When unconnected from governing legal principles or policy, the term “reprehensible, scandalous or outrageous” is aproblematic measure of when costs ought to be awarded.

It creates the risk of legal error if a trial judge focuses on the subjective orgeneric ‘badness’ of the unsuccessful party, or if a trial judge assesses the parties’ conduct against the judge’s own experience and moralvalues, to decide whether a party’s conduct was reprehensible, scandalous or outrageous. Whether a successful party is entitled tosolicitor-client costs cannot properly be determined in that way.

An award of solicitor-client costs must be based on an objectiveassessment of the parties’ conduct in relation to principled criteria for assessing when an exceptional award of costs is justified, not onhow the judge feels about it. [19] Fortunately, case law from this Court and the Court of Appeal, along with Rule 10.33 of the Rules of Court, brings the focusback to objective and principled criteria which can be used to distinguish the ordinary case, where partial immunity is appropriate, fromthe extraordinary case, where solicitor-client costs ought to be awarded.

The case law provides guidance as to how to assess on aprincipled basis whether a litigant’s conduct is “reprehensible, scandalous or outrageous”. [20] I will identify the specific behaviours that the cases and Rules have taken into account when awarding solicitor-client costs;however, generalizing from those specific behaviours shows that two main criteria drive the assessment of whether solicitor-client costsare warranted. First, did the unsuccessful party misuse or abuse the litigation process?

Second, prior to litigation, did the unsuccessfulparty act towards the successful party in a way that reveals a “blatant disregard for the rights of an adversary”?: Pillar Resource ServicesInc v PrimeWest Energy Inc, 2017 ABCA 19 at para 122 (per Wakeling J.). [21] While the first of these criteria is sufficient in and of itself to justify solicitor-client costs, the second is not: Pillar Resource atpara 1 (per Bielby J.) and para 158 (per McDonald J.). [22] With respect to conduct that misuses or abuses the litigation process, the specific behaviours that support an award ofsolicitor-client costs include an unsuccessful party hindering, delaying or confusing the proceedings; advancing claims that had noreasonable basis; over-litigating minor or unmeritorious matters; attempting to deceive the court; concealing or failing to producematerial records; or alleging but not proving allegations of fraud or dishonesty: Hamilton at para 26; Jackson v Trimac Industries Ltd, (ABQB) at para 28 (aff’d on this point: Jackson v Trimac Limited, 1994 ABCA 199 at para 29); Sidorsky v CFCNCommunications Limited, 1997 ABCA 280 at para 289 citing Jackson); FIC Real Estate Fund Ltd v Phoenix Land Ventures Ltd,2016 ABCA 303 at para 4; Meads v Meads, 2012 ABQB 571 at para 597. [23] Similarly, Rule 10.33(2) lists the following criteria as relevant to the Court’s decision to “impose, vary or deny” a costs award,all of which go to the conduct of the proceedings:

(2) In deciding whether to impose, deny or vary an amount in a costs award, the Court may consider all or any of the following: (

a) the conduct of a party that was unnecessary or that unnecessarily lengthened or delayed the action or any stage or step of the action; (

b) a party’s denial of or refusal to admit anything that should have been admitted; (

c) whether a party started separate actions for claims that should have been filed in one action or whether a party unnecessarilyseparated that party’s defence from that of another party; (

d) whether any application, proceeding or step in an action was unnecessary, improper or a mistake; (

e) an irregularity in a commencement document, pleading, affidavit, notice, prescribed form or document; (

f) a contravention of or non-compliance with these rules or an order; (

g) whether a party has engaged in misconduct; (

h) any offer of settlement made, regardless of whether or not the offer of settlement complies with

Part 4, Division 5. [24] With respect to pre-litigation conduct that shows a blatant disregard for the rights of an adversary, specific behaviours that

justify an award of solicitor-client costs include fraud, oppression, a breach of trust or dishonesty: Jackson; Sidorsky; Meads; FIC;Brown v Silvera 2010 ABQB 224 at para 37-38; Chris Winther Holdings Ltd v EECL Resources Ltd, 2007 ABQB 64 at para 30;218125 Investments Ltd v Patel, (ABQB) at para 63. [25] The Rules do not directly reference pre-litigation conduct; however, Rule 10.33(1) identifies as relevant to an award of coststhe nature of the dispute between the parties, including the successful party’s “degree” of success, the importance and complexity of theissues, the apportionment of liability, and “any other matter related to the question of reasonable and proper costs that the Court considersappropriate”. [26] As referenced above, case law from the Alberta Court of Appeal holds that pre-litigation misconduct cannot “in and of itself”be sufficient to justify an award of solicitor-client costs: Pillar Resource at para 158 (per McDonald J.) and para 1 (per Bielby J.).

Thosecases require at least some impropriety in the conduct of the litigation before solicitor-client costs may be awarded: Luft v Taylor,Zinkhofer Conway, 2017 ABCA 228 at para 75-76; Polar Ice Express Inc v Artic Glacier Inc, 2009 ABCA 20 at para 21; Walsh vMobil Oil Canada, 2008 ABCA 268 at para 112. [27] In Pillar Resource, Justice Wakeling, writing on his own on this point, disagreed with this position.

He noted that otherprovincial appellate courts have permitted solicitor-client costs to be awarded for pre-litigation misconduct and that there are Albertadecisions – including Jackson and Sidorsky – that have suggested this possibility. He explained why this result is consistent with thedecision in Young. He also suggested that basing solicitor-client costs on pre-litigation misconduct was consistent with the Rules ofCourt and had no adverse practical implications.

In his view, solicitor-client costs based on pre-litigation conduct would not “cause areasonable person of average means with a defensible legal position not to submit a dispute for judicial resolution”: Pillar Resource atpara 113.

Further, he identified policy advantages to such awards: “They send an unequivocal message that there will be severe costsconsequences for those who blatantly disregard the legal interests of others whether they do so during the course of litigation or in theacts or omissions that are the subject of the action”: Pillar Resource at para 118. [28] This disagreement at the Court of Appeal does not affect the resolution of this case because, as I will explain, the Defendants’improper conduct during the litigation is a significant factor in my decision to award solicitor-client costs.

I do not rely on theDefendants’ pre-litigation conduct as the sole or even primary basis for an award of solicitor-client costs. Rule 10.33(1) and case lawsupport the position that pre-litigation misconduct is relevant to determining the appropriateness of solicitor-client costs, even if notsufficient on its own to justify them. [29] Further, taking into account pre-litigation misconduct aligns with the foundational principle that fairness requires that asuccessful party not bear its own costs of litigation.

That principle has special significance when the successful party comes to courtseeking a remedy for fraud, abuse of trust, dishonesty or oppression: McAllister at para 38. As I explained in my trial judgment, theDefendants were dishonest and unfair in their treatment of Mr. Haack; they disregarded his rights as an employee and as a shareholder.The just allocation of the financial burden associated with litigation depends in part on the conduct that made the litigation necessary.Policy reasons related to “chilling” a party’s willingness to defend itself are important.

But in the rare case where a plaintiff hasexperienced a blatant disregard of its legal interests, coupled with improper conduct in the litigation, the potential “chilling effect” of anaward of solicitor client costs diminishes relative to ensuring that the defendant’s wrongdoing is fully corrected. Application [30] In my view, the conduct of the Defendants in this litigation, and their prior treatment of Mr. Haack, justify an award ofsolicitor-client costs. I reach this conclusion not based on any one act or incident that I describe here, but rather on their cumulative effecton Mr.

Haack and on the fair administration of justice. [31] First, as noted, the Defendants acted badly towards Mr. Haack in the events that gave rise to this litigation. Marquis Alliancefired Mr. Haack without cause. It breached the Unanimous Shareholders Agreement, taking his shares for $1.00 when they were worth$957,994.60. Moreover, Marquis Alliance breached its duty of good faith and honest performance, and it and the individual Defendantsacted oppressively towards Mr. Haack. [32] With respect to the duty of good faith and honest performance, I found that Mr. Wadsworth made false and misleadingstatements about Mr.

Haack when firing him and taking his shares. He said things about Mr. Haack that were untrue. Further, hemisleadingly claimed to have precise and certain knowledge about deficiencies in Mr. Haack’s performance, when he made no effort todetermine whether those deficiencies actually existed and did not have the precise and certain knowledge he claimed to have. While Iconcluded that I did not have sufficient evidence to find that Mr. Wadsworth made those false and misleading statements deliberately orintentionally, I found that he was careless and indifferent as to the truth of what he was saying.

Further, I found that the other directors ofMarquis Alliance (the other individual Defendants) were also careless and indifferent to the truth of the allegations made against Mr.Haack: Haack at paras 450-462. [33] With respect to oppression, I found that the Defendants breached Mr. Haack’s reasonable expectations and acted oppressivelytowards him: [532] The Defendants breached those expectations [arising from the Unanimous Shareholders’ Agreement]. They treated Mr. Haack asa Withdrawing Shareholder when they did not have a basis for doing so given the absence of cause.

They made that decision withoutensuring that it was made by directors who were independent, despite the requirements of Clause 9.1(a)(ix). They did not investigateallegations against Mr. Haack and made allegations against him that were untrue or unproven. They made those untrue or unprovenallegations carelessly and with indifference as to their accuracy. They repeated those allegations to the shareholders and recommendedthat the shareholders take Mr. Haack’s shares on a punitive basis, when the criteria to allow them to do so had not been satisfied, even ontheir own incorrect

interpretation of Clause 10.3(h)(ii). Its directors and officers put Marquis Alliance in breach of its legal obligations toMr. Haack under the USA and at risk of the very liability which Secure now faces. [533] Further, the manner in which the Defendants breached those expectations was oppressive and unfairly prejudicial to Mr. Haack,

and unfairly disregarded his interests. The false and misleading statements, the carelessness and indifference to the truth, and therecommendation to the shareholders that they direct Marquis Alliance to take Mr. Haack’s shares, was abusive and in bad faith. Theconsequences to Mr. Haack were unfair, breaching his legal interests as an employee and as a party to the USA. And, most of all,throughout the Defendants acted as if Mr.

Haack’s legal interests, as an employee and as a party to the USA, were of no importance.[emphasis added] [34] In terms of the individual Defendants, I found that their actions resulted in the oppressive conduct towards Mr. Haack. I alsofound that they received a personal benefit from the cancellation of Mr. Haack’s shares, even though I accepted that that did not motivatetheir conduct. I also found that they acted dishonestly and with “a careless disregard for the truth and accuracy of the allegations madeagainst [Mr. Haack]”: Haack at para 555.

I found that their actions were “an abuse of power, that resulted in a loss to Mr. Haack”:Haack at para 556. [35] I did not order punitive damages against the Defendants because of the onerous nature of the test for punitive damages (set outabove); however, I said the following with respect to the conduct of the Defendants: [661] As these reasons make clear, I think the Defendants in this case acted badly. They were – and have continued to be – carelesswith the truth and unfair in their treatment of Mr. Haack. They said things about him that were false and misleading.

They continued tosay some of those things at trial. They violated their legal and their moral duties: they denied Mr. Haack the respect and fairness we oweto one another. [662] Wrongful conduct is not, however, sufficient to justify an award of punitive damages. The faults of the Defendants in this casereflected a lack of regard for Mr. Haack, for their legal obligations and for the truth. But they did not rise to the level of vindictiveness ormaliciousness.

Theirs was an ordinary failing to do what is right, rather than an extraordinary one. [36] In my view, the totality of these findings and conclusions demonstrate that the Defendants’ pre-trial conduct was dishonest,abusive and oppressive, and revealed a blatant disregard for the legal interests of Mr. Haack. It weighs in favour of granting solicitor-client costs. [37] In their submissions on this application, both Mr. Haack and the Defendants argued for a more definitive conclusion on thispoint. [38] Mr.

Haack argued that because I determined that the Defendants acted oppressively, an award for solicitor-client costs mustfollow.

He relied on prior case law of this Court, and from the Ontario Court of Appeal, suggesting that “solicitor-client costs are to beawarded in oppression cases, absent compelling circumstances”: McAteer v Devoncroft Developments Ltd, 2001 ABQB 917 at para 750;218125 Investments Ltd v Patel, (ABQB) at para 63; Chris Winther Holdings Ltd v EECL Resources Ltd, 2007ABQB 64 at para 30. [39] Conversely, the Defendants argued that my conclusions at trial do not suggest a moral blameworthiness on the part ofDefendants sufficient to support an award of solicitor-client costs.

They emphasized my findings that they did not act vindictively ormaliciously, that their untruthful statements were as a result of carelessness and indifference rather than being intentional or deliberate,and that their taking of the shares was not motivated by personal financial interest. They relied on my conclusion that this was “anordinary failing to do what is right, rather than an extraordinary one”: Haack at para 662. [40] I do not accept either party’s submissions.

With respect to oppression, I do not believe that those cases can be reconciled withthe more recent decisions of the Court of Appeal rejecting the principle that pre-litigation conduct alone can justify an award of solicitor-client costs. Further, as noted by Justice Slatter in Envirodrive Inc v 836442 Alberta Ltd, 2005 ABQB 807 at para 17, a prima facieentitlement to solicitor-client costs in oppression cases is inconsistent with the principle that solicitor-client costs are rare andexceptional.

In addition, while “oppressive” conduct is coercive and abusive, suggestive of bad faith, liability for oppression can arisefrom less morally culpable forms of wrongdoing; the prima facie requirement treats all oppression as equivalent. It does not permit thecase-specific analysis, the assessment of whether there has been serious wrongdoing, and the accounting for litigation misconduct, thatought to be part of the solicitor-cost determination. [41] In terms of the Defendants’ characterization of my decision, it is correct to say that there were limits to the Defendants’wrongdoing; however, their treatment of Mr.

Haack remains a factor in my assessment of solicitor-client costs. The specific conclusionsthat they treated his legal interests as being of no importance, and showed a lack of regard for him, for their legal obligations, and for thetruth, suggest that more than the usual partial indemnity for costs is warranted. [42] Solicitor-client costs are not the same as punitive damages. Their punitive component is directed at litigation conduct,sanctioning a party for its misuse or abuse of litigation procedures.

When considering pre-litigation conduct as a factor in awardingsolicitor-client costs, the focus is compensatory, the question being whether “justice can only be done by a complete indemnification forcosts”: Jackson at para 28; Pillar Resource at para 68 per Wakeling J. As a result, it is possible for pre-litigation conduct to support anaward of solicitor-client costs, even if it did not support punitive damages. This is the case here. The conduct of the Defendants towardsMr. Haack was abusive and wrong, and treated his legal interests as being of no importance.

It was not sufficiently wrongful to give riseto a punitive costs award, and it is not sufficient on its own to justify an award of solicitor-client costs. Nonetheless, it is sufficientlywrongful to support an award of solicitor-client costs when viewed in conjunction with the other actions of the Defendants, particularlyin the conduct of the litigation. [43] The Defendants took steps that were unnecessary, added to the complexity of the proceedings, created delay, and underminedthe ability to achieve a reasonable settlement of the dispute (Rule 10.33(2)(a)(

d) and (g)). [44] The Defendants did not provide timely disclosure to Mr. Haack. They provided disclosure on July 7, 2011 (24,213 pages),December 5, 2011 (887 pages), September 30, 2015 (13,079 pages), January 17, 2019 (1,712 pages) and November 3, 2020 (168 pages).Given that the Statement of Claim was filed less than four months after the events giving rise to this litigation, and that the Defendantsknew the issues in dispute, this delay is troubling. While counsel for the Defendants provided some explanation for the delay, the

Defendants provided no affidavit evidence to substantiate that explanation. A 2014 letter from counsel for the Defendants, and attached to the affidavit of Mr. Haack, noted these concerns, but that letter is hearsay. And, in any event, I am not satisfied that this explanation is sufficient to justify disclosure being provided on five occasions over 9 years. [ 45 ] Evidence of the insufficiency of the Defendants’ disclosure can be seen in a letter from Ms. Osaka to the Defendants dated November 6, 2018, in which she requested financial statements and other financial records.

Because of the grounds alleged for firing Mr. Haack, and because the value of his shares was an issue in the litigation, these were relevant and material documents. They ought to have been produced prior to Ms. Osaka’s request. Instead, they were only produced in January 2019 after Ms. Osaka delivered an application and affidavit seeking their production. [ 46 ] Mr. Haack submitted that the Defendants’ production was excessive because of the Defendants insistence on making a broad range of allegations with respect to the termination of Mr. Haack, even though many of those allegations had little or no substance.

This aspect of the production issue is discussed below, as the same concern of unmeritorious allegations arises with respect to the length and complexity of the trial. [ 47 ] The Defendants also did not act so as to allow the matter to proceed expeditiously. After retaining Peacock, Linder, Halt and Mack in 2014, Mr. Haack’s counsel took steps to move the matter towards trial, seeking to complete Mr. Wadsworth’s questioning. Mr.

Wadsworth was scheduled to be questioned on July 21, 2014; however, his questioning was cancelled on July 18, 2014, and his questioning did not resume until October 2014. [ 48 ] Counsel for Mr. Haack was required to write numerous letters to counsel for the Defendants seeking to set dates to complete Mr. Haack’s questioning, inquiring into the timing for the supplemental Affidavit of Records and with requests to complete Mr. Wadsworth’s undertakings and questioning on his undertakings. The answers to undertakings of individual Defendants given in 2014 were provided on February 24, 2017. At that time, however, Mr.

Wadsworth refused to provide the financial statements that were later produced in 2019. [ 49 ] The Defendants also opposed what was a relatively routine application by Mr. Haack to amend his Statement of Claim, primarily to include Secure as a defendant in the action. The Defendants ultimately agreed to the amendment, but not before the application was filed. Further, they commenced an application for security for costs against Mr. Haack in October 2019, but never set the application down for a hearing. [ 50 ] Finally, while Mr.

Haack made a reasonable effort to expedite and settle this matter, the Defendants did not respond in kind. In the fall of 2013, counsel for Mr. Haack noted his willingness to resolve the

interpretation of the Unanimous Shareholders Agreement as a preliminary matter but acknowledged the unwillingness of the Defendants to proceed on that basis. She nonetheless proposed ways to streamline the questioning of witnesses by not repeating questions that had already been asked in examination on affidavits. Further, she said that Mr.

Haack would be willing not to prosecute the individual Defendants if Secure Energy provided an indemnity “to the effect that it would answer for any liability found against Marquis Alliance”; at the time Secure was not itself a defendant in the action. [ 51 ] Counsel for the Defendants declined this suggestion, saying that there was no “foundation for requiring Secure Energy Services to indemnify Marquis Alliance nor do we believe that there is any valid claim against the individual directors with respect to any damages suffered by Mr. Haack”. [ 52 ] In 2017 Mr.

Haack offered to settle the matter for approximately $1,200,000 inclusive of costs and interest. This was in the range of his ultimate judgment of $1,073,840.82 exclusive of interest or costs. [ 53 ] Mr. Haack made a further formal offer to settle on March 12, 2020 to discontinue the action against Mr. Anderson, Mr. Deibert and Mr. Rawlyk on a without costs basis. [ 54 ] On September 17, 2020 Mr. Haack made a final effort to resolve this matter without going to trial, offering to settle for a lump sum payment of $1,050,000, which was less than the judgment he received at trial.

I note in this respect that over 65% of the legal fees billed by his current lawyers (and over 55% of all of the legal fees) were invoiced after September 2020. [ 55 ] After the adjournment of the June 2020 trial due to the pandemic, I proposed that the parties participate in a binding judicial dispute resolution. Mr. Haack was willing to do so, but the Defendants were not. [ 56 ] I was not provided with the terms of any offers of settlement made by the Defendants, although it is clear that some offers were made, and that the Defendants were not entirely opposed to settlement.

The parties attended mediation, which was not successful, but which the mediator described as productive; the ability to achieve a resolution at that mediation may, however, have been made more difficult by the unwillingness of the Defendants’ representatives to be in the same room as Mr. Haack. [ 57 ] These issues of pre-trial conduct are not the most troubling aspect of the Defendants’ conduct towards Mr. Haack and the litigation process. The Defendants were willing to make some effort to settle, if not equivalent to Mr. Haack’s, and their conduct of the litigation prior to trial was problematic not egregious.

The Defendants’ pre-trial conduct was, however, part of a pattern of behaviour in which they were unable to make a realistic assessment of the merits of their position and acted so as to undermine the efficiency of the litigation process. As such, they tend to support an award of solicitor-client costs. [ 58 ] In 2017, and again following the pandemic adjournment, counsel for the parties disagreed about the appropriate length of the trial of this matter. Counsel for the Defendants insisted that a four-week trial was necessary. Counsel for Mr. Haack proposed a two- week trial.

Ultimately, a four-week trial was ordered by this Court. [ 59 ] While I do not know whether the trial could have been completed in two weeks, I am confident that the material issues between the parties did not require four weeks to resolve. Further, I am satisfied that the responsibility for the excessive time spent at trial lies wholly with the Defendants.

[ 60 ] When the Defendants terminated Mr. Haack’s employment in 2010, they made in substance eleven allegations with respect to his deficient performance. They used these claims to terminate his employment, and also as the justification for taking his shares without compensation. At trial, they insisted that all of these allegations were true and supported Mr. Haack’s termination and the taking of his shares. Further, they added five other allegations of deficient performance. [ 61 ] Only one of these allegations was fully substantiated at trial.

That in and of itself does not support an award of solicitor-client costs. As counsel for the Defendants emphasized, a mere lack of success does not demonstrate impropriety, and the merits of a case ought not to be based on hindsight. He cited the proper caution offered by then Chief Justice Wittmann in Attila Dogan Construction v AMEC Americas Limited , 2012 ABQB 438 at para 18 : “ But one counsel’s, or judge’s, no brainer, is another’s arguable case.

Perhaps this is why there is a high threshold for misconduct of the action before solicitor-client costs will be awarded.” [ 62 ] What does support an award of solicitor-client costs, however, is the advancement of claims for which the party cannot offer any meaningful evidence. A court rejecting a party’s evidence, or disagreeing with the party on the law, even where the party’s legal position is strained or implausible, is categorically different from a party coming to Court with a bare allegation for which they offer no evidence.

The law can and does distinguish between claims that may not succeed and those that are frivolous because, for example, there is “a complete absence of material facts” to support them: Rebillard v Manitoba (AG) et al , 2014 MBQB 181 at para 30 . There is a difference between an arguable case and a frivolous one: R v Legal Aid Society of Alberta , 2016 ABCA 158 at para 12 . [ 63 ] In my view a number of the allegations made by the Defendants against Mr. Haack were frivolous.

My reasons for judgment provide more detailed explanation of the issues with the deficiencies in the evidence provided by the Defendants, which I briefly summarize here: (

a) Secure alleged that Mr. Haack improperly shared confidential information with other employees. The only evidence they offered in support of this allegation was Ms. Mitchel’s assertion that she recalled Mr. Haack improperly sharing such information. However, Ms. Mitchel provided no evidence about what information Mr. Haack shared and to whom. Mr. Wadsworth provided hearsay evidence that he had been told that Mr. Haack improperly shared confidential information, but again with no specifics about the information or the alleged disclosure of it: Haack at paras 128-142 . (

b) Secure alleged that Mr. Haack delayed the RSP roll out by two months. The contemporaneous record and evidence at trial established that at most Mr. Haack was responsible for two weeks of the delay, and all of that delay was after the RSP roll out date has passed. Secure did not provide any evidence to support the statement that Mr. Haack caused two months delay or to show that Mr. Haack’s delay was due to a lack of effort or attention: Haack at paras 317-324 . (

c) Secure alleged that Mr. Haack had lied about the RSP roll out. The only evidence offered to establish this “lie” was Mr. Wadsworth’s testimony that he was given information from Mr. Haack that, to Mr. Wadsworth, seemed inconsistent with information provided by the RSP provider. The evidentiary record showed that the two accounts were not necessarily inconsistent but, even if they were, two inconsistent accounts cannot by itself establish that one was a deliberate falsehood: Haack at paras 325-326 . (

d) Secure alleged that Mr. Haack spent 30 business days away from the office without permission. The only evidence offered in support of this allegation was Mr. Wadsworth’s and Mr. Anderson’s testimony that when they went to his desk, Mr. Haack often wasn’t there. Marquis Alliance’s own records showed that Mr. Haack had taken 14 vacation days during this period, and after his termination Marquis Alliance paid him vacation pay to reflect the gap between Mr. Haack’s 14 days taken and the 17 days to which he was entitled: Haack at paras 336-343 . (

e) Secure alleged that Mr. Haack did external consulting work without disclosing that work to the company. The only evidence it offered in support of this allegation was Mr. Wadsworth and Mr. Anderson’s statement that they believed that Mr. Haack was doing external consulting, and some alleged inconsistencies in Mr. Haack’s evidence: Haack at paras 353-362 . (

f) Secure alleged that Mr. Haack had improperly managed a corporate restructuring, choosing a structure that was less desirable than the structure Secure later used, and not completing the necessary paperwork prior to his departure. The contemporaneous record showed, however, that it was always contemplated that the paperwork would not be completed until the fall of 2010 at the earliest. No evidence to contradict that record was provided. The record also showed that Mr.

Haack chose the corporate structure based on the advice of counsel and that he consulted with company management; Secure did not offer any evidence to show that the structure chosen by Mr. Haack was objectively worse or less desirable than the one later used: Haack at paras 363-380 . (

g) Secure provided evidence from a number of witnesses in relation to amounts payable to 876434 Alberta Ltd. (High Mark Vacuum) being redirected to Marquis Environmental Ltd. They cross-examined Mr. Haack on this issue. The inference Secure apparently wanted me to draw from this evidence was that the redirection constituted an improper preference and gave rise to legal risks for Marquis Alliance. Secure did not make this allegation in its pleadings and did not address this issue in argument. In addition, it did not provide any evidence to demonstrate that the payment was an improper preference in fact or in law: Haack at paras 381-388 . (

h) Secure alleged that Mr. Haack’s conduct led to an increase in audit fees. The evidence of Secure’s own witnesses was, however, that the increased audit costs were almost entirely unrelated to the decisions of Mr. Haack. In addition, Secure provided no evidence to suggest that the increased audit costs were improperly incurred or wasted: Haack at paras 389-391 . (

i) Secure alleged that Mr. Haack improperly failed to manage tax issues arising with respect to Marquis Fluids for the year ended March 31, 2010. They did not provide any evidence to support this allegation; their own evidence showed that for all but one party the tax issues were managed by someone else, and that Mr. Haack was not contacted by the one party who needed a tax form until August 31, 2010, after his termination: Haack at paras 392-396 . (

j) Secure alleged that Mr. Haack provided inappropriate documentation for a loan. It provided no evidence to substantiate this claim: Haack at paras 397-399 . [ 64 ] Other arguments and claims made by Secure were not proven on the balance of probabilities. Most of them had little merit.

Some had very little merit. Those other arguments and claims were, however, within the ordinary range of unsuccessful litigation. They were advanced based on at least some evidence or legal argument, even if unpersuasive. They fall within the precept set out by Chief Justice Wittmann in Attila , that the Court ought not to apply hindsight in assessing the legitimacy of arguments advanced at trial. [ 65 ] By contrast, the ten claims summarized above were bare allegations, largely based on the subjective belief in their truth held by the Defendants or their witnesses.

A number were directly contradicted by the contemporaneous records of the Defendants. By continuing to maintain these allegations, the Defendants added to the length and complexity of the trial, by requiring witnesses to be examined and cross-examined on these issues, even when those witnesses ultimately had nothing that substantiated these claims. In addition, as noted by Mr.

Haack, it resulted in significant additional production of records, which increased the time and cost involved with preparing for the trial. [ 66 ] Part of my disquiet with the Defendants’ pursuit of these allegations without evidence, is that there was so many of them, and that they included every allegation that had been made against Mr. Haack in 2010. Consistent with their caution in settlement discussions, and their treatment of him in 2010, the Defendants seem consistently unwilling to examine the strength of their case about Mr.

Haack, to reflect on the validity of their own conduct, or to recognize that Mr. Haack had legitimate legal interests. [ 67 ] Ultimately, insisting on pursuing these bare allegations to trial, when the Defendants knew that they had no direct or meaningful circumstantial evidence to support them, was a waste of time and of judicial resources, and unfair and costly to Mr. Haack. It supports an award of solicitor-client costs. [ 68 ] Further to this point, and significant to Mr. Haack’s entitlement to solicitor-client costs, is the nature of allegations the Defendants made against Mr.

Haack which they were unable to prove. The Defendants claimed that Mr. Haack lied about the RSP program. They said that he did external work without disclosing that work to the company. They said that he took days off without permission or entitlement, and that he did not work a full 40-hour work week. These allegations went to Mr. Haack’s honesty; they directly or by inference suggested that he was lying to, misleading and cheating his employer. As just described, these allegations were unproven at trial and in significant part unsupported by any evidence.

The Defendants had information sufficient to know that they had no reasonable prospect of proving these allegations. As set out by the Supreme Court, this suggests that solicitor-client costs are appropriate: However, allegations of fraud and dishonesty are serious and potentially very damaging to those accused of deception. When, as here, a party makes such allegations unsuccessfully at trial and with access to information sufficient to conclude that the other party was merely negligent and neither dishonest nor fraudulent (as Wilkins J. found), costs on a solicitor-and-client scale are appropriate.

Hamilton at para 26 . [ 69 ] Finally, at trial I found that two of the Defendants’ key witnesses were dishonest in their testimony. I found the evidence of Mr. Lew to be untruthful and tainted by a degree of animus to Mr. Haack: Haack at paras 121-123 and 161 . I found the evidence of Mr. Wadsworth to be untruthful and self-serving: Haack at paras 124, 325-326 and 344-345 . [ 70 ] These credibility findings go beyond merely preferring the evidence of one witness over another. I made a specific finding that Mr. Lew’s and Mr. Wadsworth’s testimony was dishonest and the result of improper motivations. Given that Mr.

Lew is a current officer of Secure, and that Mr. Wadsworth is a Defendant in this action (and was until recently an officer of Secure), these credibility findings also support an order for solicitor-client costs: FIC Real Estate at para 7. [ 71 ] Based on the totality of these acts and incidents, I am satisfied that these are extraordinary circumstances warranting solicitor- client costs. This litigation arose from the Defendants’ blatant disregard for Mr. Haack’s legal interests as an employee and shareholder.

In the litigation they advanced claims for which they had no evidence, materially extending the length and complexity of the trial. They offered testimony from witnesses who I found to be dishonest. They made allegations impugning Mr. Haack’s honesty and morality, which they did not prove. They would not resolve this matter without a trial, even though Mr. Haack repeatedly showed that he was prepared to do so.

While I earlier questioned the usefulness of the Young test for solicitor-client costs, I am nonetheless satisfied that the conduct of the Defendants before and during this litigation was reprehensible, scandalous and outrageous. [ 72 ] The matters in this trial were important to Mr. Haack. They affected his reputation and raised fundamental questions of justice and fairness. He achieved nearly total success on the proceedings before me.

He did so despite the Defendants’ repeated suggestions that his case had no merit, their unwillingness to accept his offers of settlement, their actions extending the length and complexity of the proceedings, and the dishonesty of two of their key witnesses. In my view, justice and fairness requires that he be indemnified for the costs he incurred to achieve this result. Determination of the Solicitor-Client Costs Award [ 73 ] Determining that Mr. Haack is entitled to solicitor-client costs does not determine the specific amount to which he is entitled.

The Defendants are required only to pay the costs “reasonably and properly incurred” in Mr. Haack’s pursuit of his claim: Secure 2013 Group v Tiger Calcium Services Inc , 2018 ABCA 110 at para 12 and 17 ; Rule 10.41(2)(a). [ 74 ] The parties reached an agreement on what could be included in the disbursements and other charges. Specifically, they agreed that the other charges were $9,266.55, the taxable disbursements were $61,245.73 and the non-taxable disbursements were $6,286.89, for a total of $76,799.17. I permit Mr.

Haack to recover this amount as part of his solicitor-client costs award. [ 75 ] With respect to fees for legal services, in addition to his Bill of Costs, Mr. Haack provided the invoices he received for his legal services in this litigation, and I have reviewed each invoice to assess the fees incurred. Based on that review, I disallow the following fees for legal services:

1. $122.89 for legal fees related to an internal file transfer documented in a McLennan Ross invoice dated October 31, 2011. 2. $314.00 for legal fees related to the file transfer to Peacock, Linder, Halt and Mack recorded in their invoice dated December 8, 2014. The amount on the invoice was $392.50, but a 20% discount was applied. 3. $7,760 for legal fees related to an internal file transfer documented in a Peacock, Linder, Halt and Mack invoice dated October 31, 2016. 4. $159.50 for fees related to the file transfer to Dentons recorded in their invoice dated November 15, 2018.

There were other charges on this invoice that included an element of file review; however, in those instances the review was not primarily related to the transfer (e.g., determining the status of undertakings). [ 76 ] I have excluded amounts related only or primarily to the transfer of files, both internal and between firms, because those expenses were not incurred for the purpose of the litigation. [ 77 ] I have not excluded any other legal fees, or other disbursements or charges, such as those related to scanning and photocopying.

I rely in part on the agreement reached by the parties with respect to disbursements and other charges. In addition, however, in my view any further reduction would be unjustified given the large fee discounts provided to Mr. Haack by each of his law firms, from which the Defendants are now benefitting. Including an approximate dollar value for the hours of time written off by his current firm, Dentons, the discounts given to Mr. Haack by the lawyers who represented him exceed $60,000.

I note as well that throughout the litigation the hours recorded in the invoices seem reasonable or even modest relative to the tasks at hand. For example, in 2020, prior to the trial, Dentons charged Mr. Haack for 330 hours over 10 months – i.e., about 33 hours a month. This was the case even though during that time there was a last-minute adjournment of the June trial, an application to Court, a case conference, an offer of settlement and preparation for a four-week trial with numerous witnesses and an extensive documentary record.

Further, the firm endeavoured to have work done by lawyers who were less expensive (students and associates). The hourly rates they charged were also modest for lawyers of their experience working at a large international firm. In the circumstances, I do not view any further adjustment to the Bill of Costs to be appropriate or warranted. [ 78 ] Taking into account these adjustments, the legal fees in the Bill of Costs are reduced from $645,468.24 to $637,111.85. The other charges are set as agreed at $76,799.17. Together, this reduces the GST chargeable to $35,695.55.

The total amount recoverable is $749,606.57 as indicated in the chart below: Description Amount Fees $637,111.85 Disbursements $76,799.17 GST $35,695.55 TOTAL ALLOWED $749,606.57 Conclusion [ 79 ] Based on these reasons, I exclude eight months from the calculation of the pre-judgment interest owed to Mr. Haack (January to August 2013 inclusive) and further award him $749,606.57 in costs. Heard on the 19 th day of March, 2021 Dated at the City of Calgary, Alberta this 30 th day of April, 2021. A. Woolley J.C.Q.B.A. Appearances: Kelly Osaka David Konkin Dentons Canada LLP

for the Plaintiff Frank Tosto Lorelle Binnion Tommy Leung Emma Morgan Borden Ladner Gervais LLP for the Defendants