Alberta Drywall & Stucco Supply Inc v Alberta Drywall & Stucco Supply (Calgary) Inc, 2021 ABQB 992

Court of Queen’s Bench of Alberta Citation: Alberta Drywall & Stucco Supply Inc v Alberta Drywall & Stucco Supply (Calgary) Inc, 2021 ABQB 992 Date: 20211214 Docket: 1503 16770 Registry: Edmonton Between: Alberta Drywall & Stucco Supply Inc. Plaintiff/Respondent - and - Alberta Drywall & Stucco Supply (Calgary) Inc., Browne & Sons Plastering Ltd., 1175679 Alberta Ltd., Richard Browne, Sean Browne, Michael Brown Jr., and Tanya Engel Defendants/Applicants _______________________________________________________ Decision of the Honourable Mr. Justice G.S.

Dunlop _______________________________________________________ 1. Overview [ 1 ] The defendants apply for security for costs against the plaintiff in the amount of $208,575.75, which is the amount of costs the defendants estimate would be payable by the plaintiff with respect to steps in this litigation from May 2021 through trial, if the plaintiff’s action is dismissed. May 2021 is when the defendants provided their unfiled application and supporting affidavit to the plaintiff.

[ 2 ] This action is being case managed by me. The parties agreed that this application would be heard by way of desk application. I received written submissions and supporting material from the defendants on September 24, 2021, from the plaintiff on October 15, 2021, and from the defendants in reply on October 22, 2021. [ 3 ] There is uncertainty whether r. 4.22 or s. 254 of the Business Corporations Act applies to an application for security for costs against a corporation: PricewaterhouseCoopers Inc. v Perpetual Energy Inc. 2020 ABCA 36 at para 17 .

If the Business Corporations Act applies then I may order security for costs if it appears the corporation “will be unable to pay the costs”.

If r. 4.22 applies then I may order security for costs if I consider it is just and reasonable to do so taking into account certain factors, including “whether it is likely the applicant for the order will be able to enforce an order or judgment against assets in Alberta”. [ 4 ] The defendants concede that the plaintiff is based and conducts business in Alberta, but submit that the following facts favour an order for security for costs in this case: • the plaintiff is litigious; • in January 2021 a judgment was awarded against the plaintiff in the amount of $913,910.67 plus solicitor client costs, of which the costs portion remained unpaid as of June 2021; • two lenders have registered security interests against the plaintiffs’ assets including CIBC to which the plaintiff owes more than $2 million; • the plaintiff has failed to answer questions about its business; • the plaintiff has suffered losses in the past two fiscal years; and • if a loan to an affiliated company and inventory are not included in assets, then the plaintiff’s liabilities exceed its assets at book value. [ 5 ] On the evidence before me on this application, I find that the plaintiff would be able to pay costs of $208,575.75 or more if awarded against it following trial in this action.

Consequently, an order under the Business Corporations Act is not warranted because it does not appear that the plaintiff will be unable to pay the costs, and an order under r. 4.22 is not warranted because it would not be just and reasonable to tie up the plaintiff’s assets when the outcome of the trial is uncertain. The defendants’ application for security for costs is dismissed. 2. Litigiousness [ 6 ] The defendants argue that the plaintiff is very litigious and that this is evidence that the plaintiff will not be able to satisfy any costs award against it in this action.

I disagree for two reasons. [ 7 ] First, the evidence relied upon by the defendants for the proposition that the plaintiff is very litigious is a printout of a search of actions in this court in which “Alberta Drywall & Stucco Supply Inc.” is a party. One of the defendants has a very similar name, “Alberta Drywall & Stucco Supply (Calgary) Inc.”, making it impossible to tell whether the actions listed involve the plaintiff. Mr.

Richard Browne, who swore an affidavit in support of the defendants’ application, admits that the defendant company is a party to several of the actions listed on that printout. [ 8 ] Second, there is no reason to infer that a person who is involved in a lot of litigation will not be able to pay costs in the future. On the contrary, involvement in a large volume of litigation is some evidence that the litigious person has been able to pay its own costs of litigation in the past. That may be a basis to infer that it will be able to do so in the future as well.

Consequently, if it were proven that the plaintiff is litigious, that would be either a neutral factor, or a factor weighing against an order for security for costs. 3. Unpaid Costs [ 9 ] In January 2021, in a separate action, judgment was awarded against the plaintiff in the amount of $913,920.67 plus costs on a solicitor and client basis. The plaintiff paid the judgment but not the costs in June 2021. At that time the quantum of costs had not been resolved.

In that context the plaintiff’s failure to pay costs in that other litigation as of June 2021, is not an indication that it would be unable to pay costs in this litigation. [ 10 ] Both parties made submissions regarding payment of the costs in that other action after June 2021. Some of those submissions are based on facts not in evidence. Others are based on facts set out in an affidavit filed late. While the parties are not in agreement on all of the facts, they appear to agree that the costs in the other action were paid in October 2021.

Consequently, I consider this a neutral factor on the defendants’ application for security for costs. 4. Secured Debt [ 11 ] Two creditors, the Canadian Imperial Bank of Commerce and Castle Building Centres Group Ltd., have registered security interests against the plaintiff at the Personal Property Registry.

According to the July 6, 2021 letter from the CIBC, a group of bank customers which includes the plaintiff “has dealt with CIBC for over 40 years with all dealings to date handled to our satisfaction.” The letter also states that the group which includes the plaintiff has “an un-utilized $950,000 Line of Credit”.

[ 12 ] There is no evidence of the amount of any secured debt owing to Castle Building Centres, and no evidence regarding that lender’s satisfaction with the plaintiff as a borrower. [ 13 ] The evidence before me regarding the plaintiff’s secured debt weighs against an order for security for costs, because the plaintiff and related businesses have a 40-year history of satisfactory dealings with the CIBC, and because the plaintiff has an unused $950,000 line of credit available to it. 5.

Plaintiff’s Business and Assets [ 14 ] The evidence before me establishes the following: • The plaintiff has been in business in Edmonton for over 20 years. • It currently has 17 employees and annual revenue in excess of $8,000,000. • Its bank balance as of June 30, 2021 was $808,373.54, which was after it had paid a judgment in another action of over $900,000. • It owns land in Edmonton containing one half of a duplex and a garage.

According to the land title certificate, that property was valued at $305,800 when it was transferred to the plaintiff in 2012, and according to Blair Cunningham, the sole director and shareholder of the plaintiff, that property is worth $400,000 today. Although Mr. Cunningham is not a professional appraiser, there is no evidence before me of a different value. The balance owing on the mortgage as of December 31, 2020 was $178,184.53.

Based on those figures there is equity in the property of $221,815.47. • A Personal Property Registry search done on April 27, 2021 shows no writs registered against the plaintiff. • The CIBC provided a letter dated July 6, 2021 which says the plaintiff is part of a group of companies holding approximately $14 million in real estate with liabilities against that real estate of $2,009,927. The defendants submit that the plaintiff alone owes the CIBC $2 million, based on an answer the plaintiff’s principal, Blair Cunningham, gave in questioning. However, that answer is ambiguous.

The question was whether the plaintiff owes CIBC just over $2 million and the answer was “In mortgages, yes.” On the evidence before me, the plaintiff has only one mortgage. The reference by Mr.

Cunningham to “mortgages” suggests that he is referring to debt owed by the entire group of companies, not just the plaintiff. • The plaintiff’s financial statements for the year ending May 31, 2020 show retained earnings of $2,739,111 with the largest asset being an amount due from an affiliated company of $1,873,905. [ 15 ] The defendants submit in their September 24, 2021 brief submit that because of the plaintiff’s failure to answer questions and provide responses to undertakings regarding its business, its inventory and net operating revenue should be disregarded in considering its ability to pay costs.

The plaintiff, in its October 15, 2021 brief, states that almost all undertakings have been answered. The defendants, in their October 22, 2021 brief do not take issue with that statement. Consequently, it is not clear what questions and undertakings have not been answered. However, even if I were to accept the defendants’ submissions on this point, and disregard the plaintiff’s inventory and net operating revenue, that still leaves a debt owing to the plaintiff by an affiliated company of $1,873,905. There is no evidence that the affiliated company would not be able to pay that debt.

It would also leave cash, which was $633,112 as of May 31, 2020 and $808,373.54 as of June 30, 2021. 6. Business Losses [ 16 ] In their reply submissions the defendants note that the plaintiff incurred losses of $52,303 and $23,730 for the years ending May 31, 2019 and May 31, 2020. These losses are insignificant in the context of retained earnings in excess of $2 million. 7. Book Value [ 17 ] The plaintiff’s financial statements for the year ending May 31, 2020 record positive shareholders’ equity of $2,739,211.

That figure includes $1,873,905 which is due to the plaintiff from an affiliated company and $920,000 in inventory. According to notes to the financial statements: • the loan from an affiliated company is “non-interest bearing and has no specified terms of repayment”; • the inventory is “stated at the lower of cost and net realizable value”. [ 18 ] The defendants in their reply submissions note that in response to an undertaking, the plaintiff’s principal, Mr.

Cunningham, provided a list of inventory as of October 2021 totaling $2 million which includes Canyon Rock valued at $475,000, and the defendants also note that Mr. Cunningham stated in questioning that the plaintiff is unable to sell Canyon Rock. The defendants submit that the Canyon Rock should be valued at nil since the Plaintiff is unable to sell it. [ 19 ] From these facts the defendants submit that a calculation should be done of the net book value of the plaintiff using the May 31, 2020 financial statements but excluding entirely the loan due from an affiliated corporation and the inventory.

That calculation would result in a negative shareholder’s equity of $54,694. The defendants submit that this is a reason why security for costs should be ordered. [ 20 ] I disagree because the fact that the loan has no specific payment terms does not mean that it cannot be collected and because the October 2021 inventory listing shows $1.5 million in inventory not including Canyon Rock. There is no evidence before me which

would justify reducing the value of those two assets to nil, and based on that concluding that the shareholders’ equity in the plaintiff is a negative value or that the plaintiff’s liabilities exceed its assets. 8.

Conclusion [ 21 ] On the evidence before me, the plaintiff has ample resources from which it could pay a costs award of $208,575, in particular: • cash in the bank of $808,373 as of June 30, 2021; • a $950,000 line of credit; • equity in its real estate holding of $221,815; and • a debt owing to it from an affiliated company of $1,873,905. [ 22 ] The defendants have failed to establish either that the plaintiff will be unable to pay costs or that it is just and equitable for the plaintiff to provide security for costs. On the contrary, the plaintiff has established that it is likely to be able to pay costs.

In these circumstances it would not be just an equitable for the plaintiff to be ordered to provide security for costs. On either the test under the Business Corporations Act or under the Rules, the defendants are not entitled to an order for security for costs. The defendants’ application is dismissed. [ 23 ] If the parties are not able to agree on costs of this desk application, a process for determining costs may be addressed with me at the next case management meeting in this matter. Heard by desk application on the 22 nd day of October , 2021.

Dated at the City of Edmonton, Alberta this 14 th day of December, 2021. G.S. Dunlop J.C.Q.B.A. Appearances: Eliza A. Maynes Maynes & Radovici lawyers for the Plaintiff Richard Cotter, Q. C. Dentons LLP for the Defendants