Castle Building Centres Group Ltd. v Alberta Drywall & Stucco Supply Inc., 2023 ABKB 32

Court of King’s Bench of Alberta Citation: Castle Building Centres Group Ltd. v Alberta Drywall & Stucco Supply Inc., 2023 ABKB 32 Date: 20230118 Docket: 1803 04770 Registry: Edmonton Between: Castle Building Centres Group Ltd. Plaintiff/Respondent - and - Alberta Drywall & Stucco Supply Inc. and Richard Blair Cunningham Defendants/Appellants _______________________________________________________ Decision of the Honourable Justice S.E. Richardson Appeal from the decision of Applications Judge L. M.

Birkett, K.C., dated January 19, 2021 _______________________________________________________ Introduction [ 1 ] The Respondent, Castle Building Centres Group Ltd. (Castle) was successful in obtaining

summary judgment against the Appellants, Alberta Drywall & Stucco Supply Inc. and Richard Blair Cunningham (together, Alberta Drywall). Alberta Drywall appeals that decision and requests new evidence be considered on this appeal. [ 2 ] Castle’s application before the Applications Judge included a request to dismiss Alberta Drywall’s Counterclaim. The Applications Judge declined to dismiss the Counterclaim, which remains active.

[ 3 ] Castle argues that regardless of the outcome of this appeal, the decision of the Applications Judge respecting costs on the

summary judgment application should not be disturbed. [ 4 ] For the reasons set out below, the application to allow new evidence on this appeal is granted. The appeal of the

summary judgment decision is also granted. The costs award of the Applications Judge is overturned. Background [ 5 ] Castle is a buying group whose members enjoy preferential pricing for building supplies as a result of the bulk purchases made by the group. In return for this benefit, members agree to pay a 2% surcharge to Castle on all invoices processed through the buying group. [ 6 ] Alberta Drywall joined Castle in 2000.

By late 2017, Alberta Drywall’s relationship with Castle had deteriorated to the point where Alberta Drywall stopped paying their invoices for materials purchased on their behalf by Castle and instead, started to request the source documents from Castle for these purchases to confirm the 2% surcharge was accurately calculated. [ 7 ] By February 2018, Castle demanded payment for the outstanding invoices. Alberta Drywall declined to pay, again requesting source documents from third party suppliers to confirm that the amount they were charged was in line with the Membership Agreement.

Castle responded by filing a Statement of Claim seeking payment for Alberta Drywall’s indebtedness in the amount of $407,856.74. This sum, plus interest at a rate of 19.5% (provided for in the Membership Agreement) yielded the

summary judgment award of $778,714.17. [ 8 ] Alberta Drywall responded by filing a Statement of Defence and a Counterclaim, both on March 29, 2018. The Statement of Defence requests an accounting and disclosure of the third party documentation for goods purchased on their behalf. The Counterclaim alleges breach of the Membership Agreement through various means including overcharging.

As well, the Counterclaim is pled directly as a defence to the Statement of Claim. [ 9 ] A Statement of Defence to the Counterclaim was filed on April 13, 2018. [ 10 ] On July 24, 2018, Castle formally took the step of terminating the Membership Agreement with Alberta Drywall. Also on that same day, Castle added a termination penalty of $143,857.13 (inclusive of GST) to Alberta Drywall’s account, and by doing so, increased its indebtedness to Castle by that amount, with interest accruing. [ 11 ] On October 8, 2020, Castle filed an application for

summary judgment for the full amount claimed in the Statement of Claim. On January 19, 2021, the half-day application, along with a request to dismiss the Counterclaim, was heard and

summary judgment was awarded for the full amount claimed by Castle. The application to strike the Counterclaim was denied. Standard of Review and New Evidence [ 12 ] The standard of review on an appeal of an Applications Judge’s decision is correctness and the appeal is considered a de novo hearing. The appellate judge may substitute their own discretion and views for those of the Applications Judge: Bahcheli v Yorkton Securities Inc , 2012 ABCA 166 at para 30 . [ 13 ] As a de novo hearing, the Appellants argue that this Court should consider evidence that was not before the Applications Judge.

They rely upon the decision of Van Camp v Chrome Horse Motorcycle Inc , 2012 ABQB 175 to support this proposition.

Specifically, they request that the following five documents be considered on this appeal: a transcript of Questioning of Shawn Winters dated November 28, 2018, along with the associated Responses to Undertakings, a transcript of Questioning of Ken Jenkins dated November 28, 2018, along with the associated Responses to Undertakings, and finally, the transcript of Questioning of Ken Jenkins dated October 14, 2021. [ 14 ] The Respondent acknowledges the appellate court’s discretion to consider new evidence and despite the fact that this evidence may be relevant and material, asserts that the admissibility of this evidence on appeal would be contrary to the direction in Weir-Jones Technical Services Incorporated v Purolator Courier Ltd , 2019 ABCA 49 , where the Court of Appeal held that the resisting party in a

summary judgment application must put its best foot forward and demonstrate from the record that there is a genuine issue requiring a trial (para 47). [ 15 ] But for the transcript of Questioning of Ken Jenkins dated October 4, 2021, all the other new evidence the Appellants seek to introduce was available in advance of the

summary judgment application on January 19, 2021. However, the Appellants chose not to offer it in resisting the application. The Appellants rely upon the fact that this evidence is relevant to the question of whether

summary judgment is appropriate in the circumstances. [ 16 ] I agree that there is nothing procedurally unfair for a party who is represented by counsel, who makes a strategic choice not to provide evidence in resisting a

summary judgment claim, to be bound by that decision. The appeal is not a juridical mulligan, where a different strategic approach can be taken by a party to attempt to affect a different result. To suggest otherwise would render the hearing before the Applications Judge meaningless and be contrary to the stated policy behind

summary judgment, which includes the swift, efficient, and cost effective resolution of disputes. [ 17 ] However, on the facts of this case, the additional evidence is necessary and its consideration is in the interests of justice given the ambiguity in the Respondent’s evidence and submissions in support of

summary judgment. As will be set out below, the Respondent’s silence on the termination penalty, their unacknowledged error in including the amount of the termination penalty ($143,857.13 accruing interest) in their claim for

summary judgment, along with their overt refusal to provide third party source

documents to support the amount of their claim all combine to render the

summary judgment application unfair to the Appellants, as they were not put on notice of the case they had to resist and so had no ability to put their best case forward: Hryniak v Mauldin , 2014 SCC 7 at para 59 . [ 18 ] In addition, I find that the additional evidence is relevant and material to the issue of

summary judgment and, therefore, R 6.14(3) of the Alberta Rules of Court , Alta Reg 124/2010 permits its admission on appeal. [ 19 ] The five documents of new evidence will be admitted and considered on this appeal. Issues 1. On the amplified record, is there sufficient and reliable evidence to grant

summary judgment? 2. Did the Applications Judge err in granting

summary judgment while also declining to dismiss the Counterclaim? 3. Does the record provide a clear record of the reasons for the decision? 4. Should the costs award by the Applications Judge be disturbed? 1. Is there sufficient and reliable evidence to grant

summary judgment for the entire amount sought by the Plaintiffs? [ 20 ]

Summary judgment is designed as an efficient, swift, and cost effective way to dispose of claims whenever there is no genuine issue requiring a trial. The Supreme Court noted, in Hyrniak at para 49: There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for

summary judgment. 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. [ 21 ] In the present litigation, there is no real issue that Alberta Drywall is indebted to Castle for goods purchased by Castle and provided to Alberta Drywall.

While the Counterclaim advanced by Alberta Drywall alleges breach of contract, and any successful adjudication of those claims may impact the amount of Alberta Drywall’s indebtedness to Castle, it remains uncontroverted that Castle purchased goods on Alberta Drywall’s behalf. At issue in the

summary judgment application is the financial amount of that indebtedness. [ 22 ] The amount awarded in

summary judgment was the full amount claimed by Castle. This amount was framed as repayment for goods purchased on the Appellant’s behalf, along with interest pursuant to the Membership Agreement. The amount awarded also apparently included a termination penalty of $143,857.13. Neither the evidence before the Applications Judge nor the pleadings articulate or parse out exactly how Castle calculated the amount of indebtedness. [ 23 ] There is a litigable dispute on the

interpretation of the Membership Agreement about whether the termination penalty was permitted. The evidence demonstrates that on July 24, 2018, Castle cancelled Alberta Drywall’s membership and that same day, applied the $143,857.13 termination fee to Alberta Drywall’s account. The Membership Agreement does not specifically provide for the application of a termination penalty where Castle terminates the membership. The termination penalty was not plead in the Statement of Claim, nor was it articulated in the Winters Affidavit or any other evidence in support of

summary judgment. No notice was provided to the Appellant that the termination penalty was being applied for, or sought, in

summary judgment. [ 24 ] There is also a dispute on the evidence about whether the termination penalty was a valid part of the Membership Agreement as it was unilaterally imposed in 2011 – eleven years after Alberta Drywall signed the Membership Agreement, and there is no evidence that a new Membership Agreement was executed by Alberta Drywall. [ 25 ] As well, the termination penalty was applied on the Appellant’s account on July 24, 2018. This is after the Statement of Claim was issued.

The amount claimed in the Statement of Claim ($407,856.74) cannot include the termination penalty, as on the evidence from the Respondents, the termination penalty was not applied to Alberta Drywall’s account until months after the Statement of Claim was filed. The affidavit evidence in support of the

summary judgment application made no mention of the termination penalty, although a review of the spreadsheets attached to the Respondent’s affidavit evidence shows the penalty was applied to increase Alberta Drywall’s indebtedness in July 2018. [ 26 ] The Respondent’s materials in this appeal claim: “In relation to Alberta Drywall, the Termination Penalty was applied to the balance owing. It simply reduces the financial obligation of the member [the Appellant] to Castle” and frames the termination penalty as a form of rebate or patronage dividend earned by the Appellant.

Throughout his oral submissions on appeal, Respondent’s Counsel persisted in this mischaracterization and the claim that the termination penalty was not an added debt, but rather reduced the balance outstanding by the Appellant. [ 27 ] In fact, the termination penalty was included in the Defendant’s indebtedness. This error also informs the adverse inference conclusion set out below. If counsel advancing the

summary judgment application cannot present on his own evidence accurately, how can the Court have confidence in the evidence provided? This is especially so in the present situation where Castle continues to refuse to provide the third party source documents to establish the full amount of indebtedness by the Appellants. [ 28 ] It was only at the end of the appeal, after the Appellants completed their reply, that counsel for the Respondent sought to make a clarification to his argument and acknowledged that the termination penalty was applied after the pleadings closed, so it could not

have possibly formed part of the initial $407,856.74 claimed in the Statement of Claim, and that the termination penalty actually increased the indebtedness by the Appellants. Counsel for the Respondent suggested that the

summary judgment award should be modified to remove the $143,857.13 with interest, and the remainder of the decision left undisturbed. [ 29 ] This last minute suggestion speaks to the ambiguity of the evidence before the Applications Judge. It speaks to the confusion in the factual record of the Respondent and the amount being claimed.

It speaks to the complexity of this action, and it speaks to the lack of clarity in the amount owing by the Appellants for goods purchased by the Respondent on their behalf, as a result of the Respondent’s persistent failure to provide the third party invoices sought by the Appellants since before this litigation began in early 2018. [ 30 ] This is not a criticism of counsel, but rather it goes to the ambiguity and outright errors in the Respondent’s evidence that was before the Applications Judge. I cannot have the confidence required in the state of the evidentiary record to affirm the

summary judgment decision of the Applications Judge.

Adverse Inference [ 31 ] An adverse inference is a discretionary finding that is available in cases where a party has material evidence to provide, is the only party who can provide that evidence or has exclusive control of the evidence, but fails to provide that evidence without explanation: Crooked Post Shorthorns v Masterfeeds Inc , 2008 ABQB 641 at paras 220-228 . [ 32 ] The Appellants argue that the Applications Judge erred in two respects when addressing the fact that the Respondent did not provide the third party invoices detailing the amounts paid by Castle to suppliers, upon which the 2% Castle surcharge was added, so that the Appellants could assess the correct amount outstanding to Castle pursuant to the Membership Agreement. [ 33 ] First, they argue she erred by finding that the Undertaking was provided and second, they argue she found that the fact the Appellants did not pursue Questioning on this Undertaking lent strength to the evidence of the amount of indebtedness. [ 34 ] The Applications Judge held that the Response to Undertaking 23 by Ken Jenkins, where the Undertaking was to “Produce sufficient invoicing receipts from suppliers in respect of Alberta Drywall’s purchases upon which the 2% surcharge was calculated”, was answered and ”that answer has to stand as being accepted where there has been questioning on that from that answer, and the answer was the invoices set out the information that you are looking for.” [ 35 ] I find this cannot be correct where the Response was: “the records necessary to show how the 2% surcharge was calculated have been produced in Mr.

Shawn Winters’ response to Undertaking 4 arising from the questioning conducted November 28, 2019”, when, in fact, the evidence shows that Castle has never produced any third party records to support the cost plus 2% surcharge that was invoiced to Alberta Drywall. The Undertaking was not answered.

Further, this is not a new question, since the lack of third party invoices was pled by the Appellants and the invoices were requested during Questioning. [ 36 ] I agree with the Appellants that the Response provided on the question of providing third party invoices was a non answer, was unresponsive to the undertaking request, and did not provide what was requested.

Indeed, on the amplified record, the transcript of Questioning of Ken Jenkins dated October 14, 2021, Undertaking 46 – a direct request to “provide all of the invoicing receipts from suppliers in respect of Alberta Drywall’s purchases upon which the 2% surcharge was calculated” was refused. [ 37 ] In the present situation, on the amplified record, it is an error for the court to conclude that the “answer must stand” when it is now clear that large parts of the Respondent’s evidence at the initial

summary judgment hearing was unreliable and erroneous in overstating the indebtedness of the Appellants to the Respondent. [ 38 ] The third party invoices are required to address the claim in the Statement of Defence and the Counterclaim of overcharging. These documents are solely within the Respondent’s possession and control. These documents have been requested by the Appellants, who say they are relevant and material, since before the litigation began in early 2018.

The Respondents continue to refuse to provide these documents. [ 39 ] In these circumstances, I ascribe an adverse inference to the Respondent’s continued refusal to provide the third party source documents to support the quantum of their claim. 2. Was it an error to grant

summary judgment while allowing the Counterclaim to proceed? [ 40 ]

Summary judgment is governed by R 7.3(1) and available in three discrete circumstances. In this case, Castle argued, and the Applications Judge found, that R 7.3(1)(

a) applied - that there was no defence to the Statement of Claim. [ 41 ] Castle argues in its Brief before this Court that the “Defendants’ Statement of Defence and Counterclaim does not deny that the amounts claimed by Castle are due and owing to Castle”. This is incorrect on the face of the Appellant’s factum, the Statement of Defence and Counterclaim and does not even take into account the stealth inclusion, without notice, of the Termination Penalty into the “amount claimed by Castle”. [ 42 ] The Statement of Claim alleges that the Appellants are indebted to the Respondent.

The Appellants do not dispute being in receipt of materials purchased by the Respondent on their behalf, but they claim, in both the Statement of Defence and the Counterclaim, that the Respondent invoiced them for amounts greater than they owed under the Membership Agreement. The Appellants dispute the amount owing. [ 43 ] No appeal is taken from the Applications Judge’s decision to permit the Counterclaim to continue. The Applications Judge

declined to dismiss the Counterclaim for two reasons: first, because there was no notice to Alberta Drywall that the

summary judgment application would include an application to dismiss the Counterclaim, and second, because she did “not have the confidence required by Weir-Jones to dismiss the counterclaim based on the record”. [ 44 ] In granting

summary judgment, the Applications Judge concluded that there was no defence to the claim, yet she also found that she did not have the confidence required by Weir-Jones to dismiss the Counterclaim on the record before her, when the Statement of Defence “repeat[s] the allegations of fact contained in the Counterclaim as if set forth verbatim herein”. [ 45 ] This conclusion is troubling for several reasons. First, the Counterclaim is pled directly as a defence to the Statement of Claim, so it is inconsistent that

summary judgment can be granted while at the same time permitting the Counterclaim, as a defence to that Statement of Claim, to continue. [ 46 ] The Counterclaim alleges overcharging by Castle, which belief was a primary basis for Alberta Drywall to cease paying their invoices from Castle in late 2017. The

summary judgment decision gave judgment in favour of Castle for, in part, the whole amount of outstanding invoices payable by Alberta Drywall to Castle. [ 47 ] The Appellants argue that there is an untenable conflict between the finding of the Applications Judge that there was no defence to the claim initiated by Castle, resulting in

summary judgment, and the finding that she “did not have the confidence required by Weir-Jones to dismiss the Counterclaim”, which was pled as a defence to that initial claim by Castle. [ 48 ] The Respondents argue that a Counterclaim is an independent action that will not, in and of itself, prevent a Plaintiff from obtaining

summary judgment, unless the Counterclaim constitutes a defence: Lion Creek Properties, Ltd LLP v Sorobey , 2015 ABQB 223 at para 20 . However, there is an inherent tension in cases where, as here,

summary judgment is granted and the Counterclaim, which does constitute a defence, is not dismissed. [ 49 ] In addition, the errors by Castle in applying the Termination Penalty to the total amount sought in

summary judgment, despite the fact the penalty was never mentioned in the pleadings, render the evidence ambiguous. This ambiguity is enhanced given the initial argument by Castle’s counsel that this termination penalty was actually a credit to Alberta Drywall’s account, and not part of Alberta Drywall’s indebtedness that was claimed in the

summary judgment amount. [ 50 ] While I acknowledge that it is Alberta Drywall’s obligation to provide evidence as to their claim for overcharging to resist the

summary judgment claim, and that there is little objective and credible evidence on the amplified record in this regard, it remains inconsistent to permit the Counterclaim, alleging overcharging, to continue, while at the same time, granting

summary judgment for the full amount of Castle’s claim. [ 51 ] The Appellants assert that the principle of res judicata is engaged and prejudices their ability to advance the Counterclaim in the face of the

summary judgment in favour of the Respondent. [ 52 ] I am advised by counsel for Alberta Drywall that efforts to advance the litigation relating to the Counterclaim are being resisted by Castle through invoking the doctrine of res judicata .

Summary judgment is designed to permit swift, efficient, and cost effective access to justice. It is designed to avoid increased complexity in litigation. The result of the parallel findings of granting

summary judgment and declining to dismiss the Counterclaim have resulted in added complexity and added litigation in this dispute and unfairly impacts the ability of the Appellants to advance the Counterclaim. 3.

Does the record provide a clear record of the reasons for the decision? [ 53 ] The Appellant argues that the record is incomplete such that it does not provide a transparent account of how the Applications Judge made her conclusions. [ 54 ] It is clear that the Applications Judge read all the materials submitted by both parties and had a strong command of the evidence before her, the issues in dispute, and the law in relation to the issues. [ 55 ] The Appellants argue that the record is unclear because it is difficult to parse out reasons for decision from obiter comments since the submissions of the parties consume the majority of the transcript.

I disagree. The reasons for decision are brief, but they address the issues and the application of the law. The reasons also come at the conclusion of a half day of hearing where the Applications Judge was fully engaged with counsel, asking questions, challenging the assumptions in their arguments, and seeking clarification on points of evidence. Her command of the facts is borne out by the numerous times she brought evidence to the attention of counsel that perhaps contradicted their position. [ 56 ] She also set out her concerns with the Appellant’s argument against

summary dismissal during their oral argument and gave counsel the opportunity to address her concerns. It is the whole of the record that should be considered in assessing whether there is a clear record of the reasons for the decision. The whole of the record leaves no doubt that both parties received a full hearing, the evidence was reviewed in full, and that their arguments were understood.

The record provides clear reasons for the decision. [ 57 ] Finally, the Appellants argue that given the complexity of the issues and the amount of the award claimed, the Applications Judge ought to have issued a written decision. I disagree. In this case, it was clear that the Applications Judge had done the advance work of reading and understanding all the material filed on the application. She is an experienced Applications Judge who was clearly well familiar with the Rules and the law on the application before her. She was fully engaged with counsel during the hearing. [ 58 ]

Summary judgment is an application that is based, in part, on the efficient resolution of claims. Requiring written reasons would add a level of delay and inefficiency. Given that the Applications Judge had command of the facts and the law before the hearing even began, she was able to dispatch the claim at the conclusion of the hearing. There was no need for her to issue a written decision in order for her reasons to be understood and transparent.

[ 59 ] The hearing before the Applications Judge occurred during public health restrictions occasioned by the COVID pandemic. In response to public health orders the Courts were operating virtually, with hearings, such as the one January 19, 2021, occurring over WebEx. These appearances are still “on the record” and a clerk operated the recording program from the courtroom where all parties, including the Applications Judge, appeared virtually.

The stability of each individual Internet connection for the virtual attendees can interfere with the ability of the recording device to accurately capture the words spoken. The transcript of the hearing is replete with “INDISCERNABLE” notations, the marker in the transcript for times when the recording is insufficiently audible. [ 60 ] The “INDISCERNABLE” notation gives rise to three concerns for the Appellants. First, that the decision itself, while brief, contains four separate “INDISCERNABLE” notations, which impair the ability to capture the meaning of the decision.

Second, the parties’ submissions and arguments dominate the transcript, yet the number of times INDISCERNABLE is displayed in the transcript make it difficult to follow what part of the submissions form part of the findings of the Court. Finally, the Appellants argue that since the Counterclaim was continued on a without prejudice basis, the absence of a complete record leaves them not knowing what topics can be questioned on and what topics are res judicata going forward.

They assert that this offends principles of fairness. [ 61 ] I agree that the number of INDISCERNABLES liberally sprinkled throughout the transcript poses a challenge to transparency, especially in a case such as this, with a voluminous evidentiary record. However, read as a whole, the record provides sufficient detail to understand the position of the parties, the concerns and reasoning of the Applications Judge, and provides a clear record of the reasons for decision. 4. Costs award [ 62 ] The Respondent urged the Court not to disturb the costs award made by the Applications Judge in the event the

summary judgment decision is overturned. The Appellants argued that the costs should follow the outcome of the appeal. I agree. [ 63 ] Counsel for the Respondent argued both orally and in his written material before the Applications Judge that the termination penalty actually reduced the amount owing by the Appellants to the Respondent, when in fact, the termination penalty increased the amount owing to the Respondent. Counsel for the Respondent persisted in this mischaracterization of the evidence until the very end of this appeal.

This evidentiary confusion, which was in error in favour of the Respondent, along with counsel for the Respondent maintaining this error in writing and in oral argument before the Applications Judge and in the appeal, limits the weight of their argument that the costs awarded to the Respondent ought not to be disturbed. [ 64 ] The Respondent cannot rely upon the terms of the Membership Agreement to claim solicitor client costs following success at the initial

summary judgment application when the Membership Agreement version signed by Alberta Drywall did not account for the payment of a termination penalty and Respondent’s evidence and argument at the initial hearing was in error in including that penalty. [ 65 ] The costs award made by the Applications Judge is overturned. Conclusion [ 66 ] The appeal is allowed. The

summary judgment decision is overturned. As determined by the Applications Judge, the Counterclaim remains outstanding. The costs award by the Applications Judge is also overturned. Heard on the 27 th day of May, 2022 Dated at the City of Edmonton, Alberta this 18 th day of January, 2023. S.E. Richardson J.C.K.B.A. Appearances: Eliza Maynes For the Appellant/Defendant

Richard J Cotter K.C., and Kurtis P. Letwin For the Respondent/Plaintiff