2011 NLCA 51, 2011 NLCA 51

Date: 20110704 Docket: 11/19 Citation: Donovan Homes Limited v. Modern Paving Limited , 2011 NLCA 51 IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR COURT OF APPEAL BETWEEN : DONOVAN HOMES LIMITED APPELLANT AND : MODERN PAVING LIMITED RESPONDENT Coram: Rowe, Barry and Hoegg, JJ.A. Court Appealed From: Supreme Court of Newfoundland and Labrador Trial Division (General) St. John’s 200401T2759 Appeal Heard: May 19, 2011 Judgment Rendered: May 19, 2011 (Orally) Reasons for Decision filed: July 4, 2011 Reasons for Judgment by Rowe, J.A. Concurred in by Barry and Hoegg, JJ.A. Counsel for the Appellant: David P. Goodland Counsel for the Respondent: David Buffett, Q.C. Rowe, J.A.:

INTRODUCTION [ 1 ] This appeal is from a decision of the Trial Division denying the Plaintiff/Appellant’s application for either a preservation order under rule 22.02 of the Rules of the Supreme Court, 1986 or a prejudgment attachment order pursuant to s. 27 of the Judgment Enforcement Act , SNL 1996 c. J-1.1. FACTS [ 2 ] In July 2004, the Appellant, Donovan Homes Limited, commenced an action against the Respondent, Modern Paving Limited, claiming breach of contract relating to development of residential building lots. Modern Paving denied that a contract existed.

The proceedings were bifurcated, with trial of liability proceeding, leaving damages to be dealt with later in the event liability was found. [ 3 ] On October 20, 2009, the trial judge [2009 NLTD 165] found that the parties had entered into an oral contract to develop land jointly and to share the profits 50/50. Modern Paving appealed this decision. (That appeal was dismissed on June 13, 2011; see 2011 NLCA 39 .) [ 4 ] On October 29, 2010, Donovan Homes caused a Notice of Lis Pendens to be filed against the subject property. In response, Modern Paving applied to have the Notice of Lis Pendens vacated.

On January 24, 2011, the trial judge vacated the Notice of Lis Pendens. [ 5 ] On January 7, 2011, Donovan Homes filed an application for a preservation order pursuant to rule 22.02 requiring Modern Paving to pay the proceeds of the sale of building lots from the subject property into court. On February 1, 2011, Donovan Homes filed an application for an order under s. 27 of the Judgment Enforcement Act requesting a Prejudgment Attachment Order attaching the proceeds of sale of the lots. [ 6 ] These two applications were heard by the trial judge on February 4, 2011. In an oral decision, he denied both applications.

Donovan Homes sought leave to appeal this. The motion for leave to appeal and the appeal were heard together by this Court on May 19, 2011. In an oral decision, this Court allowed the appeal and issued an order pursuant to s. 27 of the Judgment Enforcement Act against the exigible property of Modern Paving to the value of $2.6 million, with reasons to follow. These are the reasons.

ANALYSIS [ 7 ] In deciding whether to grant a prejudgment attachment order pursuant to s. 27 of the Judgment Enforcement Act , the trial judge ignored the requirements set out in s. 27 and, instead, applied the test for granting an interim injunction. This is a clear error of law. [1] Accordingly, his decision in this respect is set aside. [ 8 ] It thus falls to this Court to decide whether an order should issue under s. 27 , which reads in part: 27.

(1) A claimant may apply to the court for an attachment order where (

a) the claimant has commenced or is about to commence proceedings in the province to establish the claimant's claim; or . . .

(2) On hearing an application made under subsection (1) the court may make an attachment order if it is satisfied that (

a) there is a serious issue to be tried; and (

b) there are reasonable grounds for believing that the defendant is dealing with the defendant's exigible property, or is likely to deal with that property, (

i) otherwise than for the purpose of meeting the defendant's reasonable and ordinary business or living expenses, and (ii) in a manner that would be likely to seriously hinder the claimant in the enforcement of a judgment against the defendant. [ 9 ] Regarding s. 27(1), it is clear that Donovan Homes has commenced proceedings against Modern Paving. Regarding s. 27(2), it is clear “there is a serious issue to be tried”. [ 10 ] What was in issue between the parties was whether there were reasonable grounds for believing that Modern Paving is dealing with its exigible property: (

i) otherwise than for the purpose of meeting its reasonable and ordinary business expenses and (ii) in a manner that would be likely to seriously hinder Donovan Homes in enforcement of a judgment against Modern Paving. [ 11 ] Regarding s. 27(2)(b)(i), Donovan Homes led evidence by way of affidavit that Modern Paving was selling off lots below their market value in a series of non-arms length transactions.

The upshot was that the profits on the lots would be achieved not by Modern Paving, but rather by others (being in some cases companies owned by friends and relatives of the owners of Modern Paving). [ 12 ] Regarding s. 27(2)(b)(ii), Donovan Homes led evidence by way of affidavit that Modern Paving had a practice of flowing cash out to its shareholders. Thus, the proceeds of sale from the lots on the subject property would likely not be retained by Modern Paving. As well, Modern Paving is substantially without assets other than the subject property. [ 13 ] Modern Paving offered no evidence to the contrary.

Rather, it took the position that the affidavit evidence led on behalf of Donovan Homes did not meet the requirements of s. 27(2)(b). I would note that the affiant on behalf of Donovan Homes was not cross-

examined. [ 14 ] The uncontroverted affidavit evidence led on behalf of Donovan Homes points to Modern Paving being stripped of assets. Unless this is prevented, Donovan Homes could well find that Modern Paving is judgment proof when an award of damages is made. [ 15 ] The requirements of s. 27 have been met. An order for attachment will issue. In what amount? [ 16 ] The affidavit filed on behalf of Donovan Homes estimates that the average profit for each of the remaining 130 lots is $40,000 per lot. If Donovan Homes is entitled to 50% of that, the total would be $2.6 million ($20,000 x 130).

Thus, the order of attachment will be against Modern Paving’s exigible property to a value of $2.6 million. [ 17 ] In light of the foregoing, it is not necessary to consider a preservation order under rule 22.02. CONCLUSION [ 18 ] Having regard to rule 57.02(4)(b), leave to appeal is granted. The appeal is allowed as regards the Judgment Enforcement Act . An order under s. 27 of that Act will issue against the exigible property of Modern Paving in the amount of $2.6 million.

Donovan Homes will have its costs on a party and party basis of this appeal and of the applications before the Trial Division which were the subject of this appeal. ________________________________ M. H. Rowe, J.A. I Concur: ___________________________ L. D. Barry, J.A. I Concur: ____________________________ L. R. Hoegg, J.A.