Song v, 2023 ABKB 166

Court of King’s Bench of Alberta Citation: Song v 2083878 Alberta Ltd, 2023 ABKB 166 Date: 20230508 Docket: 1901 13254 Registry: Calgary Between: Yuhan Song, Jeremy Song, and Heilongjiang Xinguangyuan Realty Development Limited Applicants - and - 2083878 Alberta Ltd. and Wentao Liu Respondents Corrected judgment: An addendum was issued on May 8, 2023; the addendum has been appended to this judgment. _______________________________________________________ Reasons for Decision of the Honourable Justice Colin C.J. Feasby _______________________________________________________ Introduction

[ 1 ] The matters in dispute in this case arise out of the sale of SanLing Energy Ltd. (“SanLing”) by the Applicants (“Vendors”) to the 2083878 Alberta Ltd. (the “Purchaser”) (the “Transaction”). The Purchaser alleges that the Vendors breached the Share Purchase and Sale Agreement (“SPSA”) by warranting that there had been no material change in the financial condition of SanLing between June 30, 2017 and the effective date of the transaction, January 1, 2018 despite there being a significant transformation in the business of SanLing over that period.

Other causes of action including fraudulent misrepresentation are alleged. The Purchaser seeks damages of more than $12 million, representing the portion of the purchase price paid at closing, or rescission of the SPSA. The Vendors counterclaimed against the Purchaser and its principal, Wentao Liu, for the unpaid balance of the purchase price which, after set-offs, is estimated to be more than $6.8 million. [ 2 ] The Vendors seek

summary judgment in respect of their counterclaim on the basis that it is not disputed that the Purchaser failed to pay the balance of the purchase price after closing as required by the SPSA. The Vendors seek

summary dismissal of the claim by the Purchaser on the basis that there is no evidence to support the allegations that there was a breach of warranty. The Vendors submit that there was extensive due diligence prior to the Transaction and that the financial condition of SanLing was well known to the Purchaser. The Vendors further submit that there was no material adverse change in the financial condition of SanLing in the second half of 2017. [ 3 ] The Purchaser contends that its claim raises a genuine issue for trial.

The Purchaser led no evidence but says that it is obvious from the evidence of the Vendors that there was a material adverse change in the financial condition of SanLing in the second half of 2017. The Purchaser relies, in particular, on the SanLing financial statements dated June 30, 2017 and December 31, 2017. The Purchaser asserts that it is inappropriate to grant

summary judgment on the Vendors’ claim for the balance of the purchase price while the Purchaser’s claim for damages or rescission of the SPSA is outstanding. [ 4 ] In the alternative, the Vendors seek an order requiring the Purchaser and Mr. Liu to post security for costs. The Vendors contend that such an order is appropriate given that the Purchaser has no assets and Mr. Liu is resident in China and has no assets in Alberta.

The Purchaser argues that an order for security for costs is not appropriate because the Vendors are responsible for its lack of assets and because the Vendors owe the Purchaser more than $1 million quite apart from the amounts claimed in this proceeding. Background [ 5 ] Jeremy Song, Yuhan Song (together, the “Songs”), and Heilongjiang Xinguangyuan Development Limited (“HXDL”) incorporated SanLing on December 15, 2015 for the purpose of investing in the oil and gas industry.

The Songs were the directors of SanLing. [ 6 ] In mid-2016, SanLing completed the purchase of the assets of Spyglass Resources Corp. (“Spyglass”) which was then in receivership. SanLing retained the staff of Spyglass after the purchase. [ 7 ] Later in 2016, SanLing purchased assets in the Valhalla area from Paramount Resources Ltd. and Trilogy Energy Corporation for $201.5 million. [ 8 ] In June or July 2017, the Vendors incorporated Jinchang Energy Ltd. (“JEL”) for the purpose of acquiring Insignia Energy Ltd. (“Insignia”). Insignia had assets primarily in the Montney formation.

The Vendors’ acquisition of Insignia was completed in August 2017. [ 9 ] In September 2017, SanLing, Insignia, and Longshore Resources Ltd (“Longshore”) engaged in a transaction.

Longshore acquired assets from SanLing and Insignia for $5 million. $1 million of the purchase price was allocated to SanLing and $4 million was allocated to Insignia. [ 10 ] In November 2017, SanLing transferred assets in the Montney area to Insignia in exchange for $376,000 (the “Montney Transaction”). [ 11 ] On November 9, 2017, Insignia purchased what are referred to as the Valhalla-Dixonville assets from SanLing (“Valhalla- Dixonville Transaction”). [ 12 ] The consideration passing from Insignia to SanLing in respect of the Valhalla-Dixonville Transaction was $226.5 million.

The purchase price was made up of: (

a) Cancellation of a loan from Insignia to SanLing in the amount of $28,946,846; (

b) Cancellation of shareholder loans owing to the Vendors in the amount of $102,172,529; and (

c) Issuance of promissory notes by SanLing to the Vendors in the amount of $95,380,625 which were then assumed by Insignia. [ 13 ] The Purchaser was incorporated on December 6, 2017 for the purpose of entering into the Transaction. [ 14 ] Mr. Liu is the sole shareholder of the Purchaser and one of only two directors. The evidence shows that Mr. Liu is the directing mind of the Purchaser. [ 15 ] The original plan was for the Purchaser and MIE Holdings Ltd (“MIE”) to jointly purchase SanLing.

The Purchaser was to own 30% of SanLing and MIE was to own 70% of SanLing. [ 16 ] Arthur DaZhi Wang conducted due diligence for the Purchaser and MIE on SanLing during the Fall of 2017. [ 17 ] The original plan for a joint acquisition of SanLing by the Purchaser and MIE fell through. MIE did not participate in the

Transaction as an equity buyer. Instead, MIE provided financial support for the Purchaser’s acquisition of SanLing. [ 18 ] The Purchaser acquired SanLing pursuant to the SPSA which was concluded on January 17, 2018 but made effective January 1, 2018. [ 19 ] The SPSA provided that the Purchaser was to pay the Vendors $12.25 million on closing and then a further payment of $7 million on February 28, 2018 and a final payment of $1.1 million on April 30, 2018. Only the initial payment of $12.25 million was made. [ 20 ] After the Transaction closed, Mr. Liu became the Chair of SanLing and one of its two directors. Mr.

Wang became the CEO of SanLing post-closing. [ 21 ] Following the Transaction, SanLing had significant environmental abandonment liabilities relative to the value of its assets and was required by the Alberta Energy Regulator (“AER”) and the BC Oil & Gas Commission (“BCOGC”) to post security for the future costs of abandonment.

As set out by Yamauchi J in SanLing Energy Ltd v Liu , 2022 ABQB 767 at para 7 SanLing owed security for abandonment liabilities to the “ BCOGC in the amount of $2,754,213 (the “BC Debt”) and to the AER in the amount of $67,600,996.47 for a LLR (Licensee Liability Rating) shortfall (the “AB Debt”).” [ 22 ] On April 23, 2021, the Orphan Well Association and the BCOGC obtained a court order appointing PricewaterhouseCoopers (the “Receiver”) as the receiver of SanLing. [ 23 ] After the Transaction, but prior to the appointment of the Receiver, SanLing commenced an action against Insignia and the Vendors asserting that value had been diverted from SanLing to the Vendors in non-arm’s length transactions, most notably in the Valhalla-Dixonville Transaction.

The Receiver elected to discontinue this litigation prior to any decision on the merits. [ 24 ] The Receiver commenced an action against Mr. Liu alleging that he authorized payments of money out of SanLing after it was insolvent and that these payments were fraudulent preferences. The Receiver obtained a judgment for $3.65 million against Mr. Liu on November 18, 2022. [ 25 ] Today, the Purchaser has no office or presence in Alberta. During questioning, Mr. Liu declined to answer questions about the Purchaser’s business.

The only conclusion open to the Court is that the Purchaser has no assets or ongoing operations. Mr. Liu resides in China and has no assets in Alberta. Legal Framework for Analyzing

Summary Judgment/Dismissal [ 26 ] Rule 7.3 provides that a “party may apply to the Court for

summary judgment in respect of all or part of a claim on one or more of the following grounds: (

a) there is no defence to a claim or part of it; (

b) there is no merit to a claim or part of it....” [ 27 ] The test for

summary judgment or

summary dismissal is whether there is a genuine issue for trial: Hannam v Medicine Hat School District No. 76 , 2020 ABCA 343 at paras 158-161 . The Supreme Court of Canada in Hryniak v Mauldin , 2014 SCC 7 at para 49 explained: There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits.

This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result. [ 28 ] Slatter JA, writing for a five member panel of the Court of Appeal, in Weir-Jones Technical Services Incorporated v Purolator Courier Ltd , 2019 ABCA 49 at para 47 set out four key considerations for a Court in a

summary judgment application:

a) Having regard to the state of the record and the issues, is it possible to fairly resolve the dispute on a

summary basis, or do uncertainties in the facts, the record or the law reveal a genuine issue requiring a trial?

b) Has the moving party met the burden on it to show that there is either “no merit” or “no defence” and that there is no genuine issue requiring a trial? At a threshold level the facts of the case must be proven on a balance of probabilities or the application will fail, but mere establishment of the facts to that standard is not a proxy for

summary adjudication.

c) If the moving party has met its burden, the resisting party must put its best foot forward and demonstrate from the record that there is a genuine issue requiring a trial. This can occur by challenging the moving party’s case, by identifying a positive defence, by showing that a fair and just

summary disposition is not realistic, or by otherwise demonstrating that there is a genuine issue requiring a trial. If there is a genuine issue requiring a trial,

summary disposition is not available.

d) In any event, the presiding judge must be left with sufficient confidence in the state of the record such that he or she is prepared to exercise the judicial discretion to summarily resolve the dispute [emphasis in original].

Summary Dismissal of the Purchaser’s Claim The Vendors’ Position [ 29 ] The Vendors submit that the Purchaser’s claim that there was a material adverse change in the financial condition of SanLing between June 30, 2017 and January 1, 2018 has no merit. The Vendors further submit that the Purchasers conducted extensive due diligence and received regular communications from SanLing concerning its financial condition in the months leading up to the

Transaction. Since the SPSA excludes matters of which the Purchaser had written notice from the definition of material adverse change, there was no material adverse change. Lastly, the Vendors submit that even if there was a material adverse change, the Purchaser must demonstrate that each Vendor had actual knowledge of the material adverse change and no such evidence is before the Court. The Vendors accordingly assert that the Purchaser’s claim based on breach of the representation and warranty that there was no material adverse change should be summarily dismissed. Provisions of the SPSA Relevant to the Purchaser’s Claim [ 30 ]

Section 3.3 of the SPSA provides that: The Vendors hereby represent and warrant, severally and jointly with each other Vendor, to their knowledge, to and in favour of the Purchaser, and acknowledge that the Purchaser is relying upon such representations and warranties in connection with the matters contemplated by this Agreement, that as at the Effective Time: ... (

h) Since the date of the SanLing Financial Statements and except in respect of the Transaction or arising in the ordinary course of business there has not been any material adverse change in SanLing ... [emphasis added]. [ 31 ]

Section 1.1(hhh) provides that “SanLing Financial Statements”: means, together, the audited financial statements of SanLing for the year ended December 31, 2016, together with the notes thereto and the report of the auditors thereon and the interim financial statements of SanLing for the three month period ended June 30, 2017 together with the notes thereto [emphasis added]. [ 32 ]

Section 1.1(rr) provides that “material adverse change” or “material adverse effect” means: with respect to a Party, any matter or action that has an effect or change that is, or would reasonably be expected to be, material and adverse to the business, operations, assets, capitalization, financial condition or prospects of the Party and its subsidiaries taken as a whole, other than any matter, action, effect or change relating to or resulting from: (

i) general economic, financial, currency exchange, securities or commodity prices in Canada or elsewhere, (ii) conditions affecting the oil and natural gas exploration, exploitation, development, gathering, transportation and production industry as a whole, and not specifically relating to the Party and/or its subsidiaries, including changes in laws or regulatory policies (including tax laws) and royalties, (iii) any decline in crude oil or natural gas prices on a current or forward basis, (iv) any matter which has been communicated in writing to the Other Party as of the date hereof, or (

v) any changes or effects arising from matters permitted or contemplated by this Agreement or consented to or approved in writing by the Other Party [emphasis added]. The Purchaser’s Claim [ 33 ] The Vendors represented and warranted that there had been no material adverse change in the financial condition of SanLing between the June 30,2017 Financial Statements and the Effective Date of the Transaction, January 1, 2018.

There was no evidence of any activity occurring on January 1, 2018, so the financial condition of SanLing on that date is accurately represented by the 2017 year- end financial statements which show the financial condition of SanLing on December 31, 2017. [ 34 ] The table below shows the total assets and total liabilities of SanLing taken from the June 30, 2017 Financial Statements and the December 31, 2017 Financial Statements.

June 30, 2017 December 31, 2017 Assets 429,090,000 55,363,000 Liabilities 285,928,000 91,400,000 Net Assets/(Liabilities) 143,072,000 (36,037,000) [ 35 ] On June 30, 2017, SanLing had $107,833 in decommissioning liabilities and $429 million in assets. On December 31, 2017, SanLing had $62,194,000 in decommissioning liabilities and only $55 million in assets. What are described in the Financial Statements as decommissioning liabilities are the same as what are sometimes called environmental abandonment liabilities.

The changes in SanLing’s financial condition reduced SanLing’s ratio of assets to decommissioning liabilities in a way that was detrimental to SanLing and later of concern to the AER and BCOGC. [ 36 ] The share capital of SanLing also declined from $136,990,000 on June 30, 2017 to $41,509,000 on December 31, 2017. As will be explained below, this return of capital to shareholders was implemented by issuing promissory notes to the Vendors. [ 37 ] There was, without question, a material adverse change in the financial condition of SanLing between June 30, 2017 and December 31, 2017.

On January 1, 2018, SanLing was a different and much less viable entity than it had been six months earlier. [ 38 ] The Purchaser submits that the material adverse change in the financial condition of SanLing is primarily attributable to the Valhalla-Dixonville Transaction.

The Purchaser asserts that there were several other things that also contributed to this material adverse change in the financial condition of SanLing: (1) the Longshore Transaction and Montney Transaction involved the exchange of assets at values that were not determined at arm’s length to the prejudice of SanLing; (2) the bulk of $4 million in insurance money that was to be set aside to remediate an oil spill at Rainbow Lake was dissipated; and (3) the Vendors failed to disclose environmental liabilities associated with the West Drumheller Gas Plant.

The other matters that the Purchaser alleges contributed to the material adverse change are insignificant compared to the Valhalla-Dixonville Transaction. Accordingly, and given that this is only a

summary dismissal application, discussion of the Purchaser’s claim that there was a material adverse change will be limited to the Valhalla-Dixonville

Transaction. [39] The Valhalla-Dixonville Asset Conveyance Agreement (“VDACA”) states that the purchase price to be paid by Insignia toSanLing for the Valhalla-Dixonville assets was $226,500,000. The purchase price was to be paid in the manner specified in

Schedule Dto the VDACA.

Schedule D provided that the purchase price would be satisfied as follows: (

a) Cash in the amount of $95,380,625; (

b) Assignment by the Vendor and assumption by the Purchaser of the Yuhan Song Loan Agreement ($102,172,529 owing); and (

c) Set-off of all amounts owing by the Vendor to the Purchaser under the Insignia Loan Agreement (being $28,946,846). [40] The parties agree and the evidence is that the cash amount of $95,380,625 was not paid to SanLing. Instead, SanLing issuedpromissory notes to the Vendors in the amount of $95,380,625 ostensibly as a return of share capital and then the obligation to pay thepromissory notes was assumed by Insignia.

As counsel for the Purchasers put it, Insignia effectively paid for the Valhalla-DixonvilleAssets with SanLing’s own money. [41] There is nothing inherently wrong with the way that the Valhalla-Dixonville Transaction was effected. SanLing and Insigniawere, at the time, under common ownership and control.

Structuring the Valhalla-Dixonville Transaction to strengthen one company,Insignia, at the expense of another, SanLing, is something that the Vendors as owners of the two companies were entitled to do so longas it did not prejudice creditors: see Re Central Capital Corp., (1996) (ON CA), 27 OR (3d) 494 (CA) per Laskin JAconcurring at para 136 where he quotes a discussion regarding the analogous circumstances of a share buyback from Robinson vWangemann, 75 F.2d 756 (Tex. 1935) at 757.

Of course, in Alberta such a transaction involving an oil and gas exploration andproduction company may be of concern for the AER or for regulators in other jurisdictions in which the company does business if itresults in a company with inadequate capital to cover environmental abandonment liabilities. [42] For present purposes, the way that the Valhalla-Dixonville Transaction was implemented is of concern because SanLing wassubsequently sold to the Purchaser pursuant to a representation and warranty that there had been no material adverse change in thefinancial condition of SanLing between June 30, 2017 and December 31, 2017.

The Vendors’ Defence to the Purchaser’s Claim [43] The Vendors rely on the part of SPSA s 3.3 that qualifies all the representations and warranties given by the Vendors as being“to their knowledge”. The Vendors, citing SPSA s 1.10, say that this wording requires the Purchaser to prove that the Vendors had actualknowledge of the existence of a material adverse change. The Vendors further submit that the actual knowledge of each Vendor must beestablished. [44] The material adverse change in the financial condition of SanLing between June 30, 2017 and December 31, 2017 was clearlyknown to each of the Vendors.

The Vendors were active participants in the Valhalla-Dixonville Transaction, the primary driver of thechange in SanLing’s financial condition, authorizing and receiving promissory notes worth more than $90 million. The Vendors werealso the principals of Insignia, the other participant in the Valhalla-Dixonville Transaction. The Songs executed numerous documentsassociated with the Valhalla-Dixonville Transaction and the simultaneous reorganization of SanLing and Insignia.

The Songs and HXDLexecuted the Special Resolution of the Shareholders of San Ling Energy Ltd approving the reduction of SanLing’s share capitalassociated with the Valhalla-Dixonville Transaction. [45] Quite apart from their multiple roles in the Transaction, the Songs received detailed monthly updates on SanLing’s financialand operating results in the months leading up to the Transaction. There is no question that the Songs had actual knowledge of thematerial adverse change in the financial condition of SanLing.

Yuhan Song was a director of HXDL and acted as its agent in respect ofSanLing business matters, so HXDL had knowledge of the material adverse change in SanLing’s financial condition as well. [46] The Vendors rely on the definition of “material adverse change” in SPSA s 1.1(rr) which excludes “any matter which has beencommunicated in writing to the Other Party.” The Vendors submit that the Purchaser conducted extensive due diligence and was awareof the Valhalla-Dixonville Transaction.

The fact that the Purchaser conducted due diligence and had an opportunity to request recordsfrom SanLing is not enough to satisfy SPSA s 1.1(rr). The Vendors must show that the Purchaser had all the information about thesatisfaction of the purchase price for the Valhalla-Dixonville Transaction. The Vendors have not produced an inventory list for the dataroom, whether it was a physical data room or an electronic one, for the Transaction that was made available to the Purchaser. [47] The Vendors point to an email dated December 10, 2017 where SanLing provided the VDACA to Mr.

Wang who was leadingthe Purchaser’s due diligence effort as evidence that the details of the Valhalla-Dixonville Transaction were communicated to thePurchaser in writing. The email dated December 10, 2017 lists a number of attachments including schedules A to C to the VADACA.

Schedule D which provided the breakdown of how the purchase price in the Valhalla-Dixonville Transaction was to be satisfied wasmissing from the email. In any event, as discussed above at paras 39-40, the

Schedule D method for satisfying the purchase price for theValhalla-Dixonville Transaction was not followed. Instead, the more than $95 million in cash that was to have been paid by Insignia toSanLing was replaced by SanLing issuing promissory notes to the Vendors which were then assumed by Insignia.

The Vendors did notprovide any evidence that this change in the composition of the consideration paid to Insignia in the Valhalla-Dixonville Transaction wascommunicated to the Purchaser. [48] If, as appears to be the case on the evidence before the Court on this application, the Purchaser was only operating with theVADACA main agreement and Schedules A to C, the Purchaser could not have known from those documents how the $226.5 millionpurchase price was satisfied.

The Vendors have not pointed to any other documents given to the Purchaser prior to the Transactionwhich disclosed the breakdown of the consideration paid in the Valhalla-Dixonville Transaction. [49] The Vendors say that the Purchaser has not put its best foot forward as required by Weir-Jones. Indeed, the Purchaser did not

file affidavit evidence in opposition to the Vendors’ applications. But that doesn’t matter because the Vendors have not met their burden to show that the Purchaser’s claim has no merit on a balance of probabilities as required by Weir-Jones . Based on the evidence before the Court, there is a genuine issue for trial as to whether there was a material adverse change in the financial condition of SanLing contrary to the representation and warranty of the Vendors in the SPSA.

Summary Judgment of the Vendors’ Counterclaim [ 50 ] The Vendor also seeks

summary judgment in respect of its counterclaim. The Vendor counterclaims for the balance of the Transaction purchase price that was not paid by the Purchaser. [ 51 ] The SPSA provided that the Purchaser was to pay $12.25 million at closing, $7 million on February 28, 2018, and $1.1 million on April 30, 2018. The parties agree and the evidence is that only the payment due at closing was made.

The parties further agree that $1.3 million is owing by the Vendors to the Purchaser for matters unrelated to this proceeding and that this amount is to be set- off against any amounts found to be owing by the Vendors to the Purchaser. Accordingly, the Vendors’ counterclaim against the Purchaser for $6.8 million. [ 52 ] Under normal circumstances, where an agreement specifies that an amount of money is due and the parties agree that the money has not been paid,

summary judgment naturally follows. However, in the present circumstances, the Purchaser’s claim is not just for damages, but also for rescission. Essentially, the Purchaser seeks to unwind the Transaction by reason of the breach of representation and warranty. If the Purchaser is successful in its claim for rescission, then the amounts that the Vendors seek by way of counterclaim will not be due and owing and the counterclaim will fail.

Given that I have found that the Purchaser’s claim raises a genuine issue for trial, I must also conclude that there is a genuine issue for trial with respect to the Vendors’ counterclaim. Security for Costs [ 53 ] Chief Justice Wittman explained in Attila Dogan Construction v AMEC Americas Limited , 2011 ABQB 175 at para 24-25 that determining whether to grant an order for security for costs is a two-step process. First, the criteria in Rule 4.22 must be considered.

Second, the Court must ask whether it is “just and reasonable to grant an application for security for payment of a costs award.” [ 54 ] Rule 4.22 provides: 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. [ 55 ] Justice Graesser reviewed the security for costs case law in Alberta in 1251165 Alberta Ltd v Wells Fargo Equipment Company Ltd , 2013 ABQB 533 and set out the general principles that emerge from the cases at para 43: 1. The existence of a counterclaim is a factor to be weighed based on the extent to which the counterclaim is tied to the claim, or whether it involves mainly different issues from the claim; 2. The court must attempt to look at the merits of the action, as difficult as that may be on an interlocutory application; 3.

The greater the likelihood of success for the plaintiff (if that can be reasonably assessed) the more the court should consider the potential unjustness of preventing a meritorious claim from proceeding; 4. The converse is true: the smaller the likelihood of success for the plaintiff (if that can be reasonably assessed) the slower the court should be in denying security when security would otherwise be appropriate; and 5.

Any connection between the plaintiff’s financial situation and the defendant’s conduct is relevant, especially if the defendant’s wrongful conduct is alleged to be the cause of the plaintiff’s impecuniosity. [ 56 ] The Vendors submit that the Court should direct the Purchaser to pay security for costs. The Vendors assert that the Purchaser is a “sham corporation”, that it has no assets or active business, and that its principal Mr. Liu resides in China and has no assets in Alberta.

The Vendors submit that they have met the requirements of Rule 4.22 and that it would be just and reasonable to require the Purchaser to pay security for costs. [ 57 ] The Purchaser responds saying that its dire financial circumstances are attributable to the Vendors’ breaches of the representations and warranties that are in issue in this proceeding. Accordingly, it would be unjust to put a roadblock in the way of the Purchaser in pursuing its claim. Further, the Purchaser submits, the counterclaim advanced by the Vendors is inextricably linked with the claim.

The Vendors’ counterclaim arises out of the same factual matrix as the claim; both are rooted in the circumstances

surrounding the Transaction and the terms of the SPSA. The Purchaser relies on many of the same facts and arguments that it makes in its claim to defend the Vendors’ counterclaim. [ 58 ] Both Rule 4.22 and Justice Graesser in 1251165 Alberta Ltd direct the Court to consider the merits of the claim and counterclaim in deciding whether an order for security for costs is warranted. The Purchaser, at this stage of the litigation, appears to have a reasonable claim against the Vendors and a reasonable position in resisting the counterclaim.

Of course, at trial there may be more evidence, including expert accounting evidence, that may shed a different light on the claim and counterclaim. At present, however, the apparent strength of the Purchaser’s position weighs against granting security for costs. [ 59 ] The Rule 4.22 factors and the requirement to consider whether an order for security for costs is just and reasonable in the circumstances both lead me to the conclusion that no security for costs should be ordered. Conclusion [ 60 ] The applications for

summary dismissal of the Purchaser’s claim and

summary judgment in respect of the Vendors’ counterclaim are dismissed with costs to the Purchaser. The Vendors’ application in the alternative for security for costs is also dismissed with costs to the Purchaser. If the parties are unable to agree on the quantum of costs, they may make submissions of 5 pages or less supported by a draft bill of costs. Heard on the 9 th day of March, 2023. Dated at the City of Calgary, Alberta this 21 st day of March, 2023. Colin C.J. Feasby J.C.K.B.A. Appearances: Lillian Y. Pan, KC and Kate P.R.

Millar, Dentons Canada LLP for the Applicants Luke Rasmussen, De Waal Law for the Respondents _______________________________________________________ Addendum of the Reasons for Decision of The Honourable Justice Colin C.J. Feasby _______________________________________________________ Following the publication of these Reasons, counsel for the parties jointly wrote to advise the Court that after reviewing records not available to the Court at the hearing, it was determined that Respondents’ counsel’s submission that

Schedule D was missing from Ms. Chan’s email of December 10, 2017 referenced in paragraphs 47 and 48 of these Reasons was incorrect. The parties did not ask that the

Reasons be corrected. After requesting and receiving written submissions from the parties concerning the appropriateness of correcting the Reasons pursuant to Rule 9.13(a), the Court has determined that this factual error is best addressed by way of this Addendum to the Reasons rather than by correction of the Reasons.