The LeDrew Lumber Company Limited Plaintiff And: R & R Homes Ltd. First Defendant And: Randell Butler Second Defendant, 2019 NLSC 177

court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : The LeDrew Lumber Company Limited v. R & R Homes Ltd. , 2019 NLSC 177 Date : October 8, 2019 Docket : 201901G4541 Between: The LeDrew Lumber Company Limited Plaintiff And: R & R Homes Ltd. First Defendant And: Randell Butler Second Defendant Before: Justice Rosalie McGrath Place of Hearing: St. John’s, Newfoundland and Labrador Date of Hearing: October 4, 2019

Summary: The Court dismissed the application of the Plaintiff seeking a pre-judgment attachment order against properties of the First Defendant and properties of the Second Defendant that were held jointly with his spouse.

Appearances: Daniel W. Bennett Appearing on behalf of the Plaintiff Wayne White Appearing on behalf of the Defendants Authorities Cited: CASES CONSIDERED: Donovan Homes Limited v. Modern Paving Limited, 2011 NLCA 51; BSB Electrical Services Ltd. v. Collins,2008 NLTD 201; Stanley v. Acan Windows Inc. (1995), (NL CA), 135 Nfld. & P.E.I.R. 29, 58 A.C.W.S. (3d) 1097(Nfld. C.A.) STATUTES CONSIDERED: Judgment Enforcement Act, S.N.L. 1996, c. J-1.1 RULES CONSIDERED: Rules of the Supreme Court, 1986, S.N.L. 1986, c. 42, Sch. D REASONS FOR JUDGMENT McGrath, J.: INTRODUCTION [1] The Plaintiff/Applicant filed this application under

section 27 of the Judgment Enforcement Act, S.N.L. 1996, c. J-1.1 seekinga pre-judgment attachment order against seven properties owned by either the corporate or individual Defendant. As an additional cabinproperty was disclosed in the Affidavits of the Butlers, at the hearing the Plaintiff asked to amend the relief it was seeking to include apre-judgment attachment order against that property in addition to the seven properties identified in its application. All properties of theSecond Defendant that are the subject of this application are jointly owned with his spouse. [2]

Section 27 of the Judgment Enforcement Act allows the Court to attach property upon application by a claimant. [3] Firstly, section 27(1)(

a) requires that the claimant must have commenced or is about to commence proceedings in the Provinceto establish the claimant’s claim. In this case, the Plaintiff filed a Statement of Claim with this Court on June 27, 2019, seeking paymentof $487,170.33 alleged to be due and owing for labour and materials supplied to the First Defendant, together with interest thereon. ThePlaintiff claims against the Second Defendant, who is a shareholder and director of the First Defendant, as guarantor. The firstrequirement is therefore met. [4] Secondly, section 27(2) provides that the Court may make an attachment order before final judgment 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 dealwith 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.

[ 5 ] With respect to the first requirement under section 27(2), it is clear from a review of the pleadings that there is a serious issue to be tried. However, the parties disagree as to whether the requirements of section 27(2)(

b) have been met. POSITIONS OF THE PARTIES [ 6 ] In support of its application, the Plaintiff has filed an affidavit of Patrick Caines, credit manager of the Plaintiff. Attached to Mr. Caines’ affidavit are copies of a credit application for R & R Homes Ltd. which purports to contain the signature of the Second Defendant, Randell Butler, as guarantor of all present and future debts of the First Defendant to the Plaintiff.

This credit application is dated July 4, 2018 and indicates the credit limit sought was $500,000. [ 7 ] The Plaintiff has also provided an internal account review of the account of R & R Homes Ltd. This identifies seven different accounts: six relating to labour and materials supplied to specific properties and one main account. The total balance owing as of January 23, 2019 for all seven accounts was $487,170.33, of which $115,495.49 represented accrued interest. [ 8 ] Mr.

Caines also attached various print-outs from the Registry of Deeds of the Province of Newfoundland and Labrador in respect of properties of R & R Homes Ltd. and jointly owned properties of Randell Butler and Renee Butler (the wife of Randell Butler). It is these properties over which the Plaintiff seeks a pre-judgment attachment order. This printout shows one of these properties had been previously transferred from the First Defendant to the Butlers and certain of these properties have been mortgaged. Mr.

Caines also attached MLS listings showing that three properties registered in the names of Randell and Renee Butler were listed for sale as at June 11, 2019. [ 9 ] Mr. Caines deposed that it is not customary or expected for the Plaintiff’s business, or in the industry generally, for a property to be transferred or mortgaged without a building supply company being paid for material supplied to the property. He therefore suggests the Defendants have not been forthright with the Plaintiff in failing to pay the amounts owed.

The Plaintiff, therefore, has major concerns about recovering on these accounts unless a mechanism is put in place to ensure payment pending resolution of the claim. [ 10 ] The Defendants do not dispute the accuracy of the information from the Registry of Deeds, nor that certain properties of the Butlers had been listed for sale. However, they dispute the amount claimed to be due and owing by R & R Homes Ltd. to the Plaintiff, indicating that they have been seeking to reconcile their accounts with the Plaintiff for quite some time. Mr.

Butler also denies that he signed a valid personal guarantee for the indebtedness of R & R Homes Ltd. [ 11 ] However, of most significant relevance to this application is the Defendants’ position that they have not been dealing with their exigible property, and are not likely to deal with their exigible property, otherwise than for the purpose of meeting the Defendants’ reasonable and ordinary business or living expenses.

They further deny that the Defendants have or are likely to deal with their exigible property in a manner that would be likely to seriously hinder the Plaintiff in the enforcement of a judgment against them. [ 12 ] In support of this position, the Defendants have filed affidavits of Randell Butler, Renee Butler and the accountant for R & R Homes Ltd., Kevin Dwyer. [ 13 ] Mr. Dwyer’s affidavit is relatively brief. It supports the Defendants’ assertion that they were attempting to reconcile unapplied entries on the accounts with the Plaintiff as early as 2017. As well, his affidavit confirms that Ms.

Butler was unable to identify invoices for certain of the amounts claimed. [ 14 ] Both Mr. and Mrs. Butler state that the corporate First Defendant, R & R Homes Ltd., is and continues to be in the business of constructing and selling homes and other property. That business is their sole source of family income.

They say that none of the actions of R & R Homes Ltd. show that it is in any way operating its business other than to meet its ordinary business expenses. [ 15 ] Further, while they acknowledge that three properties registered in their joint names have been listed for sale on the public MLS listing service, one of these listings is no longer active. [ 16 ] They also state that their intention with respect to the proceeds of sale of the other two listed properties is to use any sale proceeds to pay down the debts of R & R Homes Ltd., including any amount that may be legitimately owed to the Plaintiff.

They reference prior attempts to transfer properties to the Plaintiff to satisfy the debts of the First Defendant, as well as a payment made to the Plaintiff in excess of $30,000.00 in late 2018 when another property of the First Defendant was sold. [ 17 ] Finally, they state that not only do they have significant equity in the property that they are now occupying as their matrimonial home, they also own a cabin property at Mahers with a value of approximately $300,000. It is currently unencumbered.

It is not listed for sale and they have no intention to do so. [ 18 ] Overall, the Defendants state that the evidence suggests a pre-judgment attachment order is not warranted. The Plaintiff’s evidence merely amounts to an expression of concern regarding its ability to ultimately collect on any amounts that may be adjudged as due and owing. Something more than mere listing of properties for sale or prior mortgaging of properties is necessary to justify the imposition of an attachment order. ISSUES [ 19 ] The issues that I am tasked to decide on this application are as follows: 1.

Has the applicant satisfied the requirements of

section 27 of the Judgment Enforcement Act to obtain an order for pre-judgment attachment? 2. If so, should properties jointly owned by Randell and Renee Butler be subject to a pre-judgment attachment order? LAW AND ANALYSIS

[20] Both parties referred to the Newfoundland and Labrador Court of Appeal decision of Donovan Homes Limited v. ModernPaving Limited, 2011 NLCA 51 which sets out the requirements a claimant must establish in order for a court to grant a pre-judgmentattachment order. [21] The Court of Appeal noted that, once a court is satisfied there is a serious issue to be tried, the court must then consider whetherthe Defendant is dealing with its exigible property:

i) in the case of a business entity, otherwise than for the purpose of meeting its reasonable and ordinary business expenses (as was thecase in Donovan Homes); and ii) in the case of an individual, otherwise than for the purpose of meeting his or her reasonable and ordinary living expenses; and iii) in a manner that would be likely to seriously hinder the Plaintiff in enforcement of a judgment against the Defendant. [22] Both counsel also refer to the decision of Dymond, J., in BSB Electrical Services Ltd. v.

Collins, 2008 NLTD 201. [23] In that case, Justice Dymond quoted with approval from the dissenting opinion of Marshall, J.A. in the Newfoundland andLabrador Court of Appeal decision in Stanley v. Acan Windows Inc. (1995), (NL CA), 135 Nfld. & P.E.I.R. 29, 58A.C.W.S. (3d) 1097 (Nfld. C.A.).

That Court of Appeal decision involved an appeal of a decision of a judge not to vacate a pre-judgment attachment order that had been granted by the Registrar. [24] As the Judgment Enforcement Act was not in place at the time, the order was made under former Rule 28.02 of the Rules of theSupreme Court, 1986, S.N.L. 1986, c. 42, Sch. D. The test to be met under that Rule was different than the test under

section 27 of theJudgment Enforcement Act. The former rule has allowed for an ex parte application to be made to the Registrar, supported by a bond. The defendant could then apply to have the order vacated, modified or amended. [25] The majority of the Court of Appeal upheld the decision not to vacate the attachment order as there were grounds on which theRegistrar could have exercised his discretion to grant the original order and the defendant had not adduced evidence to satisfy theapplications judge that the order originally granted should be amended, modified or vacated.

Further, the asset was the onlyunencumbered asset owned by the defendant.

As such, it was held that the applications judge made no error. [26] However, in his dissenting opinion, Marshall, J.A. went through the evolution of the law relating to pre-judgment attachmentorders, noting that, over time, legislation has imposed restrictions on the formerly broad common law right of a plaintiff to attachproperty of a defendant before judgment. [27] At paragraph 22, Marshall, J.A. noted that legislative changes reflect a policy that recognizes the need to take into account theintrusive, and potentially inequitable, effect of the remedy on a defendant while still protecting a claimant from a foreseeable overtattempt to frustrate or thwart the course of justice.

A pre-judgment attachment order intrudes upon vested rights of the defendant for theprotection of those of the plaintiff that are yet unestablished. The incursion into the parties’ relations can only be regarded as extremejudicial intervention. As such, its application should be strictly linked to the rationale justifying the availability of the extreme remedy. [28] It was these statements that Dymond, J. approved of in BSB Electrical when interpreting and applying

section 27 of theJudgment Enforcement Act. While not expressly stated in BSB Electrical, I find the statements of Marshall, J.A. all the more applicableto this current legislative provision than the former Rule 28.03. [29] In particular,

section 27 of the Judgment Enforcement Act now contemplates an application with notice to the defendant, therebygiving the defendant the right to challenge the grounds at first instance. [30] Further,

section 27 requires a judge to be satisfied that there are reasonable grounds for believing that the defendant has dealtwith, or is likely to deal with, exigible property (

i) otherwise than for the purpose of meeting the defendant’s reasonable andordinary business or living expenses; and (ii) in a manner that would be likely to seriously hinder the claimant in the enforcement of ajudgment against the defendant. The aspects of the test bolded above were not included under the former subrule that was underconsideration in Stanley v. Acan Windows. [31] Rule 28.02(1)(

e) had required the plaintiff to show facts to support the assertion that the defendant had concealed, removed,assigned, transferred, conveyed, converted or otherwise disposed or all or any part of his property with intent to hinder or delay hiscreditors, or was about to do so.

There was no recognition, as there is in the current legislative provision, that a defendant should not beimpeded from operating its business or his or her life in the reasonable and ordinary course pending resolution of the claim. [32] Further, section 27(2) of the Judgment Enforcement Act contains an even more stringent requirement that the defendant’sdealings with property must have been carried out in a manner that would be likely to seriously hinder enforcement, rather than merelyhinder or delay creditors. [33] I will therefore now examine the nature of the evidence before me in light of the express wording of section 27(2) and the abovecase law to determine whether sufficient grounds exist for me to grant such an order. [34] Firstly, I must consider the nature of the evidence regarding the Defendants’ alleged dealing with their properties: 1. 16 Ronald Drive, Conception Bay South (CBS) 16 Ronald Drive was conveyed to Randell and Renee Butler on May 29, 2015.

It was acquired by the Butlers for $375,000 and amortgage to the TD Bank was granted on the same date in the amount of $291,750. This property has a LeDrew Lumber account

associated with it in the amount of $73,176.63. The last payment noted on the Plaintiff’s account review document was on August 1, 2016. The MLS listing shows it was listed at a sale price of $369,900 as of June 11, 2019. The Butlers have sworn affidavits indicating there is currently a purchase and sale agreement in place for this property. When or if it sells, the proceeds of sale will go toward payment of liens, including the mortgage, against that property and payment of debts of R & R Homes Ltd.

This would include any amounts owed to the Plaintiff after the accounts are reconciled. 2. 68 Middle Bight Road, CBS 68 Middle Bight Road is registered in the names of Randell and Renee Butler. This property was mortgaged to National Bank on January 14, 2015 in the amount of $420,000. This is another property with an associated account. The Plaintiff’s account review indicates the amount owing as $180,407.97, but does not state when the last payment was made. An MLS listing from June 11, 2019 shows this property listed for sale at $389,900.

However, the Butlers have indicated this property is no longer listed for sale as they decided to move their family, including their two children (ages 12 and 14), from their former matrimonial home at 70 Middle Bight Road to 68 Middle Bight Road. As such, they took 68 Middle Bight Road off the market and no longer intend to sell it. They have made this decision in consideration of the needs of their children as well as their own personal living expenses. 3. 70 Middle Bight Road, CBS 70 Middle Bight Road is owned by Randell and Renee Butler.

It has an existing mortgage in favour of TD Bank for $500,000 dated August 3, 2012. An MLS listing shows that it is currently listed for sale at $789,900. There is no associated account noted on the Plaintiff’s account review. As previously noted, this was the matrimonial home of Randell and Renee Butler but they now intend to sell it to reduce their living expenses and to use sale proceeds to reduce the debt of R & R Homes Ltd. 4. 13 Minerals Road, CBS 13 Minerals Road was conveyed to R & R Homes Ltd. on July 6, 2017 together with another parcel of land which is now 15 Minerals Road.

Both 13 and 15 Minerals Road, CBS, were mortgaged to Boreal Atlantic Ltd. for $331,500 the next day. There is a balance owing on the R & R Homes Ltd. account associated with 13 Minerals Road of $11,894.14. However, the Plaintiff commenced a separate action, 2018 01G 8770, in respect of a mechanics lien it had filed against that property in late 2018. The Defendants state that both 13 and 15 Minerals Road have been on the market for a long time and the properties are not selling.

It is the Defendants’ intention for R & R Homes Ltd. to expedite the sale of these houses in order to meet the First Defendant’s business expenses and obligations to its creditors, including satisfaction of the Plaintiff’s accounts for which liens have been filed. If sold, the Plaintiff would have knowledge of the sale. 5. 15 Minerals Road, CBS The history and encumbrance information with respect to 15 Minerals Road is noted above. Again, it is a property that is currently listed for sale. The Plaintiff asserts there is an outstanding account associated with that property for $65,097.65.

However, there is no evidence that any mechanics’ lien has been filed in respect of that property. 6. 31 Farmland Road, CBS Both 31 and 33 Farmland Road were conveyed to R & R Homes Ltd. on December 22, 2017 for the purchase price of $105,000. They were both mortgaged to Boreal Atlantic Ltd. in the amount of $55,000 on March 7, 2018. The Plaintiff says there is an account associated with 31 Farmland Road, with $71,343.41 owing.

Again, the Plaintiff has caused a separate action to be issued out of this Court in respect of this property. 31 Farmland Road has a mechanics lien filed against it by the Plaintiff in the amount of $70,728.40, with a statement of claim being filed in this Court for the same amount in action 2018 01G 8772. The Defendants state that both 31 and 33 Farmland Road are currently listed for sale. As with the Minerals Road properties, they are hoping to expedite the sale of those houses in order to meet R & R Homes Ltd.’s business expenses.

In any event, there are mechanics liens against these properties and the Plaintiff would be entitled to have those liens paid before the properties could be sold. The Plaintiff would also therefore have knowledge of any sale. 7. 33 Farmland Road, CBS The relevant acquisition and encumbrance information for 33 Farmland Road is noted above. This property has an account associated with it of $69,531.65, according to the Plaintiff’s account review.

It also has a mechanics’ lien filed against it by the Plaintiff in the amount of $68,679.59, with a statement of claim being filed in this Court for the same amount in action 2018 01G 8688. [ 35 ] Having fully considered the affidavit evidence filed by both parties as well the parties’ written and oral submissions, I find that the evidence falls far short of establishing that R & R Homes Ltd. is dealing with its exigible property, or is likely to deal with that property, otherwise than for the purpose of meeting its reasonable and ordinary business expenses. [ 36 ] The affidavit evidence of Randell and Renee Butler establishes that R & R Homes Ltd. is an ongoing enterprise whose business is the construction and sale of homes.

Mr. Butler deposed that R & R Homes Ltd. has continuing in-progress projects involving the construction of turn-key homes in CBS. Mr. Butler also deposed that R & R Homes Ltd. is in the process of finalizing contracts for the construction of a new pharmacy building and a turn-key home in Brigus.

[ 37 ] On the other hand, the Plaintiff has provided no evidence to show that R & R Homes Ltd. is doing anything otherwise than in the ordinary course of its’ business. [ 38 ] In oral submissions, counsel for the Plaintiff focused on the sale by the First Defendant to the Butlers of 16 Ronald Drive, CBS, together with the mortgage on the same date, as evidence of a dealing outside the ordinary and reasonable course of business that would be likely to seriously hinder it in an enforcement of a judgment. [ 39 ] However, I note that this transfer and mortgage took place in May, 2015.

The Plaintiff and First Defendant continued to do business long after, as the First Defendant did not discontinue its business relationship with the Plaintiff until the Fall of 2018. Further, the First Defendant made payments on that account after the transfer, with the last payment noted on the account review being August 1, 2016. Of significant relevance, as well, is the fact that the property was transferred to someone who had guaranteed the debt of the former owner.

Such a transfer is not the sort of action commonly taken by a person who is dealing with exigible property in a manner that is likely to seriously hinder enforcement by a creditor. [ 40 ] The other property on which counsel for the Plaintiff focused its submissions is 68 Middle Bight Road. While it is true that the account review sheet showed no payments were made on the account associated with that property, the Registry of Deeds printout showed that the mortgage that had been placed over that property was granted on January 14, 2015.

Again, the Plaintiff and the First Defendant continued to have an ongoing business relationship for years after the mortgage. Further, there is no evidence this property was ever transferred out of the First Defendant to the Second Defendant and his wife. Even if it had, such a transfer would have been on or before January 14, 2015. [ 41 ] With respect to all properties, the Plaintiff has merely provided evidence that homes that were already constructed are now for sale. In light of the nature of the First Defendant’s business, this does not suggest anything out of the ordinary course of business.

Further, there is no evidence of any recent mortgages or conveyances to non-arm’s length parties. [ 42 ] This is distinguishable from the case of Donovan Homes Ltd. in which Rowe, J.A. held that a pre-judgment attachment order was warranted. In that case, Donovan Homes had 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 (in some cases to companies owned by friends and relatives). As well, the evidence led by the claimant in that case demonstrated that Modern Paving had a practice of flowing cash out to its shareholders.

The proceeds of sale would therefore likely not be retained by the company. Modern Paving offered no evidence to the contrary. As a result, the court was left with uncontroverted affidavit evidence led on behalf of the claimant pointing to Modern Paving being stripped of assets. [ 43 ] In this case, the evidence put forward by the Plaintiff can at most be described as evidence on which to base a conjecture or concern that the Plaintiff may not be able to ultimately recover funds that may be owed by R & R Homes Ltd. or Mr. Butler.

As noted by Dymond, J. in BSB Electrical Services , quoting with approval from the decision of Marshall, J.A. in Stanley , the financial condition of a defendant is not a ground for granting a pre-judgment attachment order. [ 44 ] Further, the fact that property held in the name of Randell Butler (jointly with his spouse, Renee Butler) is listed for sale is also not evidence of a sufficient ground to grant a pre-judgment attachment.

As noted by Dymond, J., at paragraph 13 of BSB Electrical , again quoting from Marshall, J.A. in Stanley , a sale of an asset by a debtor is not, in and of itself, sufficient grounds to warrant the attachment.

If the Defendant provides affidavit evidence explaining on its face why a property was sold and that explanation seems reasonable, this is sufficient to rebut the allegation property is being dealt with other than for the purposes of meeting a defendant’s reasonable and ordinary living expenses and in a manner that is likely to seriously hinder recovery by the claimant. [ 45 ] In this case, the Butlers have provided affidavit evidence explaining that they have two properties listed in their names.

They are listed for sale for the purpose of assisting them to reduce their living expenses, pay off their own debts and to also pay down the debt of the corporate Defendant, R & R Homes Ltd. This seems a prudent course of action. The properties are listed for sale on a public MLS listing. There is nothing to indicate that the listings are not genuine or are made so as to seriously hinder the claimant in the enforcement of any ultimate judgment as against the Defendants. [ 46 ] Finally, I have affidavit evidence of the Defendants’ offers to convey certain properties to the Plaintiff in payment of amounts due.

The First Defendant also made a significant payment to the Plaintiff from the sale of another property less than a year ago. [ 47 ] In determining whether grounds have been established to warrant an attachment, I have also considered the clear legislative intent that a person not be put out of business or rendered unable to pay for reasonable and ordinary expenses of living before a Plaintiff has even proven its case. [ 48 ] In oral submissions, the Plaintiff suggested all it was seeking was an attachment order that did not deprive the Defendants of their property but merely required them to pay proceeds of sale of any of the properties into Court pending resolution of the action. [ 49 ] However, the probable practical effect of such an order in respect of the First Defendant would be to put it out of business.

It is unlikely other suppliers of labour or materials would continue to provide services to the First Defendant on future projects if they were not paid on past projects. As well, payment into Court would tie up the company’s cash flow needed to continue its operations. The Plaintiff’s suggestion that other creditors could apply to Court to be paid out of the funds that were paid into Court is not a workable solution to that problem. [ 50 ] It must also be kept in mind that a pre-judgment attachment order is a drastic measure that interferes with property rights.

The granting of such an order may have a significant chilling effect on the Defendants’ dealing with other creditors, including secured creditors. [ 51 ] The corporate income is also the sole source of family income for the Second Defendant, his spouse and two children. Restricting payment of any corporate income to working shareholders and/or employed family members would no doubt impact on their ability to meet their reasonable and ordinary living expenses.

[ 52 ] Overall, I am therefore satisfied that the Plaintiff has failed to establish reasonable grounds for this Court to order a pre- judgment attachment order in accordance with

section 27 of the Judgment Enforcement Act . [ 53 ] Given my finding on this issue, it is not necessary to deal with the issue of whether a pre-judgment attachment order should issue as against properties that are jointly held by Randell Butler and Renee Butler. I would, however, note that I do not agree with the Plaintiff’s assertion that Ms. Butler, as a joint owner, should have to apply to be added as an intervenor in the action merely because the Plaintiff seeks to attach property that is jointly in her name. She is entitled to notice of the application but Mr.

Butler has every right to oppose the application in his own right and on behalf of the First Defendant by filing his own affidavit as well as the affidavit of Renee Butler. conclusion [ 54 ] The application is dismissed and the Defendants are entitled to their costs of this application to be taxed at the conclusion of the proceedings on Column 3 of the Scale of Costs under Rule 55. Such taxed costs may be set off against any amounts that may be awarded to the Plaintiff. _____________________________ Rosalie McGrath Justice