Zulu Publications Inc v WestJet Airlines Ltd, 2021 ABQB 629

Court of Queen’s Bench of Alberta Citation: Zulu Publications Inc v WestJet Airlines Ltd, 2021 ABQB 629 Date: 20210810 Docket: 0601 00284 Registry: Calgary Between: Zulu Publications Inc. Plaintiff/Applicant - and - WestJet Airlines Ltd. Defendant/Respondent _______________________________________________________ Reasons for Decision of the Honourable Madam Justice J.C. Price _______________________________________________________ I. Introduction [ 1 ] Zulu Publications Inc. (“Zulu”) appeals an order from Master Farrington, requiring it to pay security for costs to WestJet in the amount of $50,000.

Zulu says that: a. Master Farrington erroneously concluded that Rule 4.22 governed the application, rather than

section 254 of the Alberta Business Corporations Act (“ABCA”); and

b. Master Farrington erroneously concluded that there was a change in circumstances that warranted the security for costs under Rule 4.22, when a previous application was made and dismissed. [ 2 ] For the reasons that follow I dismiss Zulu’s appeal. II. Standard of Review [ 3 ] Rule 6.14 of the Alberta Rules of Court (the “ Rules ”) governs appeals from a Master’s decision.

R 6.14(3) states: An appeal from a master’s judgment or order is an appeal on the record of proceedings before the master and may also be based on additional evidence that is, in the opinion of the judge hearing the appeal, relevant and material. [ 4 ] There is no dispute that an appeal from a Master's decision is de novo and the standard of review is correctness: Bahcheli v Yorkton Securities Inc. , 2012 ABCA 166 at para 12 .

However, in circumstances such as this, where the appeal involves essentially the same record and submissions that were before the Master, I am entitled to frame my reasons with reference to the Master's decision where they are correct in law: HOOPP Realty Inc. v Emery Jamieson LLP , 2020 ABCA 159 at para 41 . III. Background Facts [ 5 ] This application is part of a dispute spanning more than 15 years.

The dispute between Zulu and WestJet and its procedural history is as follows: The Agreement Between WestJet and Zulu [ 6 ] In December 1998, Zulu and WestJet entered into a Magazine Publishing and Distribution License agreement (the “Agreement”) with respect to WestJet’s complimentary in-flight magazine available to passengers. [ 7 ] WestJet terminated the Agreement with Zulu in September 2004 upon notice as required by the Agreement. WestJet then appointed Redpoint Media Group Inc. (“Redpoint”) as its new magazine publisher.

The Litigation History Between WestJet and Zulu [ 8 ] In January 2006, Zulu filed its statement of claim against WestJet and Redpoint for breach of contract, breach of confidentiality and intentional interference with contractual relations. [ 9 ] WestJet and Redpoint applied for security for costs against Zulu in February 2006. Master Waller granted security for costs in the amount of $40,000 to each of WestJet and Redpoint.

This order was overturned in part by Justice McDonald in November 2006: Master Waller’s order for security for costs in favour of Redpoint was upheld, while his order for security for costs in favour of WestJet was not. Zulu subsequently discontinued its action against Redpoint in 2007. [ 10 ] In July 2009, Zulu filed an application for partial

summary judgment against WestJet. The application was dismissed in oral reasons by Master Prowse in 2010, who awarded WestJet $7,576.66 in costs. This cost award was paid by Zulu in 2019. [ 11 ] In July 2015, Zulu served a Notice of Change of Representation. On November 27, 2015, Zulu filed an application to set a trial date and the trial was scheduled to proceed in November 2017. However, before the commencement of trial, Zulu’s then counsel ceased to act and as a result the trial was adjourned. Zulu has since retained new counsel and the matter is now set for a three-week trial to commence in June 2022. IV.

Law and Analysis What is the Applicable Test for Security for Costs? [ 12 ] Zulu asserts that

section 254 of the ABCA should govern WestJet’s application. This provision states: Security for costs 254 In any action or other legal proceeding in which the plaintiff is a body corporate, if it appears to the court on the application of a defendant that the body corporate will be unable to pay the costs of a successful defendant, the court may order the body corporate to furnish security for costs on any terms it thinks fit. [ 13 ] Zulu argues that the more onerous test outlined in s. 254 must be met, and should not be subordinated by the more flexible test outlined in R 4.22.

Zulu points out that there is conflicting case law regarding the applicable test for applications for security for costs against a corporation. It cites Justice Wakeling’s decision in Amex Electrical Ltd. V 726934 Alberta Ltd. , 2014 ABQB 66 [ Amex ], where he held that s. 254 and R 4.22 have different standards (paras 55-56). However, Justice Wakeling also pointed out that the application of these different “norms” may lead to identical results in many cases (para 57). [ 14 ] WestJet contests Zulu’s assertion that s. 254 alone should govern WestJet’s application. WestJet states that, contrary to Zulu’s

argument, the law in Alberta does not require that the ABCA be applied to the exclusion of the Rules . WestJet cites Justice Eamon’s comments in North American Polypropylene ULC v Williams Canada Propylene ULC , 2018 ABQB 281 , para 22 [ North American ] for the view that: Rule 4.22 is directed at all litigants, natural or artificial. It is part of the Court’s flexible powers to manage litigation to achieve the foundational purposes expressed in

Part 1 of the Rules, particularly R 1.2. Those are only achieved if the Rules “govern all persons who come to the Court for resolution of a claim” (R. 1.1(2)). [ 15 ] Justice Farrington referenced North American in his reasons for decision.

WestJet also cited a similar conclusion that was reached by Justice Veldhuis in PricewaterhouseCoopers Inc. v Perpetual Energy Inc. , 2020 ABCA 36 , where she stated at para 18: Under either test, the applicants bear the initial burden of establishing, on a balance of probabilities, that it is just and equitable to order security for costs or that the respondent will be unable to pay its costs.

If the applicants satisfy this onus, the evidentiary burden shifts to the respondent to satisfy the court that the court should not exercise its discretion to grant security for costs… [ 16 ] In light of both cases above, I am not persuaded that s. 254 can – or should – render R 4.22 inapplicable in this case. I agree with Justice Veldhuis’ conclusion that in either case, the burden is the same – particularly since Justice Wakeling’s comments in Amex predate Justice Veldhuis’ view.

While Justice Veldhuis did not conclude that either approach was incorrect, I take her comment to mean that it is not an error of law to consider either s. 254 or R 4.22. [ 17 ] Moreover, considering Zulu’s financial circumstances are poor such that they would be unable to pay the costs if WestJet were successful, the test in my opinion could be met under s. 254 in WestJet’s favour.

Ultimately, the decision of whether to require the respondent to pay security for costs is discretionary: Amex at para 71 . [ 18 ] This leads to the conclusion that Master Farrington did not erroneously evaluate WestJet’s application under R 4.22; he was entitled to inform himself of the factors pertaining to both provisions and make his decision accordingly, even if his decision was founded primarily in R 4.22.

Was WestJet Entitled to Apply for Security for Costs a Second Time? [ 19 ] Zulu asserts that Master Farrington should not have permitted WestJet’s application, since its first application was denied in 2006 by Master Waller. It notes the criteria listed Alberta v Pocklington Foods Inc. , 1995 ABCA 111 at para 8 , for when a second interlocutory application on the same issue may be heard: (

a) if the ruling on the first application was not based on the merits of the issue but on a technical objection; (

b) if upon the first application the applicant failed to prove essential facts from mistake or inadvertence; (

c) if there is new evidence that seriously justifies reconsideration of the issue; (

d) if there is a material change of circumstances of a non-evidentiary nature. [ 20 ] Master Farrington noted several factors that satisfied (d), including: (

i) The amended, more flexible rule governing security for costs in the Rules of Court ; (ii) The last-minute adjournment of the trial in 2017; and (iii) Zulu’s payment of other debts to its creditors. [ 21 ] First, I agree with Master Farrington that the amended Rule governing security for costs has changed significantly. When WestJet initially applied to the Court and appeared before Master Waller for security for costs in 2006, the Rules of Court contained the following provision: Security for Costs 593(1) Security for costs may be ordered: (

a) where the plaintiff resides out of Alberta; (

b) where the plaintiff is ordinarily resident out of Alberta though he may be temporarily resident within Alberta; (

c) where the plaintiff has brought another action or proceeding for the same cause, which is pending in Alberta or in any other jurisdiction; (

d) where the plaintiff or any person through or under whom he claims has had judgment or order given against him in another action or proceeding for the same cause in Alberta or in any other jurisdiction with costs, and those costs have not been paid; (

e) where the plaintiff sues as an informer or seeks to recover any penalty given to an informer or person who sues for the penalty under a statute or law by which a penalty is given to any person who sues for it, either for his sole benefit, for the benefit of the Crown or partly for his benefit and partly for the benefit of the Crown, and the defendant swears that in his belief the plaintiff or informer is not possessed of property within the jurisdiction sufficient to answer the costs of the action if a judgment is rendered in favour of the defendant, and that he, the applicant, has a good defence to the action upon the merits, as he is advised and believes;

(

f) where the action is brought by a nominal plaintiff; (

g) where upon the examination of the plaintiff it appears that there is good reason to believe that the action is frivolous and vexatious and that the plaintiff is not possessed of sufficient property to answer the costs of the actions; (

h) where an action is brought on behalf of a class and the plaintiff is not possessed of sufficient property within the jurisdiction to answer the costs of the action and it appears that the plaintiff is put forward or instigated to sue by others; (

i) where under any statute the defendant is entitled to security for costs.

(1.1) Notwithstanding subsection (1), the Court may order security for costs against any party where the Court, on its own motion or on the motion of any other party, finds that it is just and reasonable to do so in the circumstances.

(1.2) Where costs are ordered under subrule (1.1), Rules 594 and 595 apply with the necessary modifications. [ 22 ] In contrast, the new Rules , which came into effect on November 1, 2010, state: Security Payment of Costs Award Considerations for security for costs order 4.22 The Court may order a party to provide security for payment of a costs award if the Court considers it just and reasonable to do so, taking into account all of the following: (

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

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

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

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

e) any other matter the Court considers appropriate. [ 23 ] The two rules are clearly distinct and involve an entirely different analysis. It follows that the previous decisions on WestJet’s initial security for costs application were subject to considerations that are inapplicable here. I agree with Master Farrington that the second application was warranted in light of this modified analysis. [ 24 ] I turn now to Master Farrington’s view that passage of time in the trial’s adjournment amounted to a change in circumstances.

I agree with this conclusion – Zulu’s delay in proceeding with the prosecution of the Action, the change in its counsel, and late adjournment in 2017 of the trial caused WestJet to wait on standby from 2009 onward. WestJet is justifiably concerned about both Zulu’s ability to pay costs as well as Zulu’s willingness to follow through with the 2022 Trial. [ 25 ] Lastly, I agree with counsel for Zulu that Zulu’s payment of other debts does not amount to a change in circumstances.

While I find that Zulu has presented its financial circumstances in an inconsistent manner, I agree with Zulu that payments to select creditors is not a new observation. Nonetheless, my view of this last consideration does not outweigh the prior two – Master Farrington was ultimately correct in finding a material change of circumstances. [ 26 ] I now review the factors in R 4.22. Application of Rule 4.22 [ 27 ] Factors (

a) and (

b) evaluate a plaintiff’s ability to have an award against it enforced and to pay security for costs in the first place, respectively. Zulu concedes that factors (

a) and (

b) in R 4.22 are met: Zulu is defunct and has no assets available to pay WestJet. This was properly noted by Master Farrington. [ 28 ] Zulu points out that factor (c), which considers the merits of the case, may be treated as “neutral”: Provalcid Inc. v Graff , 2014 ABQB 453 at para 102 . However, WestJet asserts that it has a strong defence against Zulu’s claims. Master Farrington concluded that there were merits to Zulu’s action, but “it’s not by any means a clear victory” since the dispute is founded on a single contract containing an entire agreement clause. [ 29 ] Factor (

d) is significant here. It evaluates whether an order to give security for costs would unduly prejudice Zulu’s ability to continue the action. Zulu contends that it will be unable to continue this litigation if Master Farrington’s order is upheld. WestJet points to the discrepancy between Zulu’s statements and actions: Zulu has consistently stated that it cannot afford to pay security for costs, while intermittently paying select creditors. Master Farrington made note of these arguments and expressed concern with a party being permitted to litigate without any exposure to costs.

He thus concluded that a $50,000 security for costs order was fair and reasonable. I take no issue with his reasoning or his conclusion given the circumstances, especially that being that Zulu has intermittently paid select creditors and that the estimated cost of Trial for the parties is in excess of $150,000 in legal fees for each party. [ 30 ] Master Farrington did not find it necessary to consider factor (e), which captures any additional factors that may be relevant to a decision to order security for costs. WestJet submits that its prior award against Zulu following the 2009

summary judgment application, which remained unpaid until 2019, should be considered under this factor (citing Bechir v Gowling Lafleur Henderson LLP , 2017 ABQB 667 , at para 69 ; Jabneel Development Inc v Lamont (Town) , 2017 ABQB 566 , at paras 32-33 ). Given my decision to dismiss the appeal, I do not find it necessary to do so.

V. Decision [ 31 ] In conclusion, Zulu’s appeal of Master Farrington’s order for security for costs is dismissed. Master Farrington did not err in law in choosing to apply Rule 4.22, nor did he err in his application of the factors outlined in Rule 4.22. [ 32 ] As the successful party, WestJet is entitled to costs. If counsel cannot resolve the issue of costs of this application, counsel for WestJet shall submit written costs submissions not to exceed five pages within 30 days of the issuance of these written reasons.

If desired, counsel for Zulu shall submit a written response not to exceed five pages within 30 days of receipt of WestJet’s costs submissions. All submissions are to be filed and copies provided to me through my judicial assistant. Heard on the 22 nd day of June, 2021. Dated at the City of Calgary, Alberta this 10 th day of August, 2021. J.C. Price J.C.Q.B.A. Appearances: Shaun Flannigan for the Plaintiff/Applicant Don Dear, Q.C. for the Defendant/Respondent