55668 Newfoundland v. Labrador Limited, 2021 NLSC 38

court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : 55668 Newfoundland and Labrador Limited v. Sullivan , 2021 NLSC 38 Date : March 17, 2021 Docket : 201001G5302 Between: 55668 Newfoundland and Labrador Limited First Plaintiff And: Michael Hall Second Plaintiff AND: CANADIAN ROOFING SOLUTIONS INC . THIRD PLAINTIFF And: Robin Sullivan First Defendant And: Christopher Winsor Second Defendant (DISCONTINUED 10/03/2014) And: 61791 Newfoundland and Labrador Ltd. Third Defendant - AND - Docket : 201201g0454 Between: 55668 Newfoundland and Labrador Limited FIRST Plaintiff AND:

MICHAEL HALL SECOND PLAINTIFF (Struck 02/20/2013) And: Paul Davis Systems Canada, Ltd. Defendant AND: PAUL DAVIS SYSTEMS CANADA, LTD. PLAINTIFF BY COUNTERCLAIM AND: 55668 Newfoundland and LABRADOR LIMITED FIRST DEFENDANT BY COUNTERCLAIM AND: MICHAEL HALL SECOND DEFENDANT BY COUNTERCLAIM AND: ROBIN SULLIVAN FIRST THIRD PARTY AND: CHRISTOPHER WINSOR SECOND THIRD PARTY (Discontinued 10/03/2014) AND: 61791 NEWFOUNDLAND AND LABRADOR LIMITED THIRD THIRD PARTY Before: Justice Frances J. Knickle Place of Hearing: St. John’s, Newfoundland and Labrador

Date of Hearing: March 12, 2021 Appearances: Paul D. Dicks, Q.C. and Megan S. Reynolds Appearing on behalf of 55668 Newfoundland and Labrador Limited and Michael Hall Christopher E. Gill Appearing on behalf of Robin Sullivan and 61791 Newfoundland and Labrador Ltd. Peter N. Browne, Q.C. and Travis D. Payne Appearing on behalf of Paul Davis Systems Canada, Ltd. Authorities Cited: CASES CONSIDERED: Donovan Homes Limited v. Modern Paving Limited, 2011 NLCA 51; LeDrew Lumber Company Limited v. R.& R. Homes Ltd., 2019 NLSC 177; 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.); Clarke v. Nucare Ltd, 2006 MBCA 101. 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. TEXTS CONSIDERED: Black’s Law Dictionary, 6th ed. (St. Paul, Minn.: West Publishing Co., 1990). REASONS FOR JUDGMENT KNICKLE, J.: INTRODUCTION [1] The Plaintiff has made an application under

section 27 of the Judgment Enforcement Act, S.N.L. 1996, c. J-1.1 (the “Act”), foran attachment order against the Third Defendant’s (61791 Newfoundland and Labrador Limited) exigible property.

As there aremultiple parties in these and ongoing proceedings, for ease of reference I will refer to the parties as Plaintiff or Defendants within thisjudgment even though this is an interlocutory application. [2] The First and Second Plaintiffs assert that the First Defendant (Robin Sullivan), as sole shareholder of the Third Defendant(61791), has been dealing with the exigible property in a manner that is not in the ordinary course of business and that in so doing, thePlaintiff will be hindered in enforcing judgment should he be successful at trial. [3] For the reasons that follow, the application is allowed, and an attachment ordered.

BACKROUND FACTS AND OVERVIEW [4] The Second Plaintiff went into business in the late 2000’s operating a franchise under Paul Davis Systems Canada, Ltd. PaulDavis Systems Canada, Ltd. is in the restoration business, and the Second Plaintiff was successful in opening a franchise in the St. John’sarea. The Second Plaintiff incorporated the First Plaintiff (55668 Newfoundland and Labrador Limited) for the purposes of running the

franchise, which would operate in eastern Newfoundland and Labrador, primarily in St. John’s and surrounding areas. There were two shareholders of 55668, the Second Plaintiff and the Second Defendant, Chris Winsor. Mr. Winsor is no longer a party to this litigation and plays no role in this application. [ 5 ] For the first couple of years business was good, and grew. Contracts were secured with major insurance companies for restoration work, and the Plaintiff invested in larger premises, more equipment and employees. The Plaintiff also facilitated Robin Sullivan’s introduction to Paul Davis Systems Canada, Ltd.

As a consequence, Mr. Sullivan started his own franchise in western Newfoundland and Labrador. That business, until recently, and the reason for this application, was still in operation. [ 6 ] The Plaintiff also expanded the nature of his business beyond the immediate restoration business with Paul Davis Systems Canada, Ltd. and incorporated a separate company, known as Canadian Roofing Solutions, for this other work.

Unfortunately, with the quick expansion of both the restoration business under Paul Davis Systems Canada, Ltd., and the other new business opportunities, the Plaintiff ran into financial difficulties in 2009. There were also issues interpersonally within the office between he and co-owner of 55668, Chris Winsor. By late 2009 the Plaintiff was behind in royalty payments to Paul Davis Systems Canada, Ltd., and had lost at least two major clients.

The relationship between the Plaintiff and Paul Davis Systems Canada, Ltd. was strained. [ 7 ] The Plaintiff claims the Defendants then conspired to take over his franchise business.

In particular, the Plaintiff alleges that to facilitate this takeover, in early January 2010 the Defendants conspired to change the locks and access codes on the premises in order to deny him access to the premises. [ 8 ] In early February of 2010, Robin Sullivan took over the franchise business that had been operated by the Plaintiff with a new company, the Third Defendant, 61791. [ 9 ] Two separate actions were then commenced by the Plaintiff, the first against Robin Sullivan and his company, and a second against Paul Davis Systems Canada, Ltd.

The two actions were consolidated and the trial on both matters commenced in March, 2020. The matter had to be adjourned because of the COVID-19 pandemic. The trial resumed in January, 2021 and is expected to conclude the evidence in April. Application for an order under

section 27 of the Judgment Enforcement Act [ 10 ] The application for an attachment order was filed on March 10, 2021. [ 11 ] According to the Plaintiff the two Defendants ceased operations without warning. The Plaintiff filed an affidavit stating that he has learned the employees of the Defendant have been laid off, including the manager, that an internet search of the business name reveals that the business is now listed as closed, and that the premises where the business operated has been sold and the assets of 61791 have been removed.

The Plaintiff also attached an email from the general manager of a competing restoration company that shows communications from the national office of Paul Davis Systems Canada, Ltd. According to the email, Paul Davis Systems Canada, Ltd. is offering the location of eastern Newfoundland and Labrador, where 61791 had been operating, as a franchise opportunity.

The email was dated February 23, 2021. [ 12 ] Between the dates of January 18 to 29, 2021, Robin Sullivan testified at the trial of this matter, and described himself as the owner and operator 61791 which operated the franchise under Paul Davis Systems Canada, Ltd. for eastern Newfoundland and Labrador. While the issues at trial arose between 2009 and 2010, Mr. Sullivan identified himself as the current manager and owner of 61791. Accounting records for 61791 were entered and showed substantial revenues for the business. There was no questioning or testimony as to the present state of the business.

This is only to say, that as late as January 29, 2021, and until this application, there was nothing before the Court to suggest that 61791 was anything other than an operating business as had been described at trial. [ 13 ] Robin Sullivan filed an affidavit in response to the application in which he confirms that he has closed the franchise, stating that the business was not earning enough money to meet its financial obligations. Mr. Sullivan also states that he has lost over one million dollars in revenue due to the loss of business from Intact Insurance buying its own restoration business.

He stated that in the past two years he has had to fund 61791 from his other businesses in order for it to be able to pay its bills. Mr. Sullivan also stated that the COVID-19 pandemic has adversely affected business. [ 14 ] Mr. Sullivan stated that 61791 does not own real property but does own equipment. The business is also in possession of leased equipment which will be either returned to the lessor or sold with permission, and any amounts owing will be paid to the lessor. [ 15 ] Mr. Sullivan stated that 61791 is “attempting to pay its creditors and will have to liquidate assets to do so.

If the liquidation process is permitted to proceed, there will be a shortfall and 61791 will have significant liabilities”. THE LAW [ 16 ]

Section 27 of the Judgment Enforcement Act permits an attachment order where particular criteria are established. Firstly, section 27(1) permits the Plaintiff to bring the application where it has commenced or is about to commence proceedings. Then, section 27(2) provides relevant criteria for granting the order and states: Section 27(2)

(2) On a hearing an application made under (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 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 the judgment against the defendant. [17] Thus, under section 27(2), in order to grant an attachment order as is requested here, I must be satisfied that: 1) there is a serious issue to be tried; 2) that the Defendant is dealing with its exigible property in a manner that is not for the purposes of meeting its reasonable and ordinarybusiness or personal expenses; and 3) in so doing this will likely seriously hinder the Plaintiff’s ability to enforce judgment should it be successful. [18] Further, under section 28(2) of the Act, the

section that deals with the scope of a potential attachment order, a court “shall not”make such an order unless the claimant undertakes to “prosecute the proceedings to judgment without delay”, and “pay damages orindemnity that the court may decide should be paid to the defendant or third parties”. [19] In Donovan Homes Limited v. Modern Paving Limited, 2011 NLCA 51, the Newfoundland and Labrador Court of Appealoverturned the chamber judge’s refusal to order attachment.

The Court of Appeal found that the defendant was dealing with its exigibleproperty, which was the subject matter of the litigation, in a manner that was not reasonably for the purpose of meeting ordinary businessexpenses. The evidence established that the defendant was selling property that was the subject of the litigation below market value, andin such a way that the defendant would not realize the profits.

The Court had little difficulty in being satisfied that the defendantcompany was “being stripped of assets” and that this course of action would seriously hinder the plaintiff in enforcing judgment should itbe successful at trial (see paragraph 14). [20] In LeDrew Lumber Company Limited v. R. & R. Homes Ltd., 2019 NLSC 177, McGrath, J. had an opportunity to consider anapplication for an attachment order under

section 27 of the Act, and reviewed the history of this type of order. McGrath, J. observed andaccepted the statements from Dymond, J. in BSB Electrical Services Ltd. v. Collins, 2008 NLTD 201, who in turn accepted the dissent ofMarshall, J.A. in 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.) that this kind of order, as a pre-judgment type of order, is an “extreme remedy” (see paragraph 27). Although Marshall,J.A.’s comments were in relation to repealed Rule 28 of the Rules of the Supreme Court, 1986, S.N.L. 1986, c. 42, Sch. D. which allowedfor an attachment order, McGrath, J. reasoned that the comments were applicable under

section 27 of the Act which established a morestrenuous threshold before such an order could be granted by the Court. [21] I agree with the observations of McGrath, J. that as a remedy which intrudes upon the defendant’s property rights prior to aplaintiff being successful in their litigation, it is a remedy that is extreme (or “drastic”, see LeDrew also at paragraph 50). [22] A similar view was taken in Clarke v. Nucare Ltd, 2006 MBCA 101 where both an attachment order and a Mareva injunctionwere at issue.

In clarifying the difference between the two remedies and thresholds to be established, at paragraph 72 the court alsoagreed with Marshall, J.A.’s observations in Stanley v. Acan Windows that an attachment order, as a remedy prior to judgment, and priorto the plaintiff proving their case, were considered a “drastic or extreme” type of remedy. This is because generally a plaintiff mustprove its claim before it is entitled to judgment against a defendant. [23] As a measure that may be considered extreme or drastic, I agree with McGrath, J. that the criteria under

section 27 of the Actshould be strictly construed. It is with this framework that I will review the criteria under

section 27 as it applies to the presentcircumstances. [24] As a preliminary matter, there is no issue the Plaintiff has “commenced proceedings” as required under section 27(1) of theAct. A statement of claim was filed several years ago. As of the hearing of this application, the parties have completed several weeks ofevidence in the trial of this matter. I also accept this establishes that the Plaintiff is, as required per

section 28 of the Act, prosecuting thematter without delay. 1) There is a serious issue to be tried [25] Both the Plaintiff and Defendants agreed there is no dispute that there is a serious issue to be tried. In Donovan Homes the factthat the appellant had commenced proceedings was sufficient for the court to be satisfied that there was a serious issue to be tried (seealso LeDrew, at paragraph 5).

In these circumstances, the trial having been well under way, I am satisfied that this criteria has been met. 2) Is the Defendant dealing with its exigible property in a manner that is not for the purposes of meeting its reasonable and ordinarybusiness or personal expenses? [26] The evidence is not in dispute as to the conduct at issue: that Robin Sullivan has closed the business operations of 61791, and isabout to or has begun to liquidate the assets.

The affidavit of Robin Sullivan states that 61791 cannot meet its debt obligation, and so hedecided to close the business. [27] The question is whether the Defendants, in closing the business and selling or disposing of 61791’s inventory “is dealing withthe exigible property” in a manner to meet the Defendants’ “reasonable and ordinary business or living expenses”. [28] The Plaintiff submits that closing the business and liquidating the assets is not conduct that is in the ordinary course of

business. This is an extreme step that is being taken by the Defendants and if allowed to continue will seriously hinder the Plaintiff’s ability to enforce any judgment against 61791 should it be successful. [ 29 ] In contrast, the Defendants assert that a business closing is ordinary in the sense that businesses come and go and open and close as part of the realities of the commercial world. [ 30 ] I am not satisfied that the conduct of closing the business and liquidation of the assets can be said to be dealing with the exigible property in a manner to meet 61791’s “reasonable and ordinary” expenses.

In my view, closing the business is an extraordinary step, even if an effort to meet debt obligations are reasonable and ordinary in the sense that they were accrued as part of the business operating in its usual course. [ 31 ] Black’s Law Dictionary, 6th ed. (St. Paul, Minn.: West Publishing Co., 1990) defines the ordinary course of business as: Ordinary course of business The transaction of business according to the common usages and customs of the commercial world generally or of the particular community or (in some cases) of the particular individual whose acts are under consideration.

Term used in connection with sales made by a merchant as part of his regular business and in contrast with a sale in bulk which is regulated by statute, e.g. U.C.C.ss6-102(1). In general, any matter which transpires as a matter or normal and incidental daily customs and practices in business. [ 32 ] While I accept that it may be a matter of “normal and incidental customs” of commercial life generally that businesses open and businesses close, it is not an ordinary course for the particular business in question to cease operations, or for Mr. Sullivan personally.

It is not “regular business” to cease operating a business. It is the last recourse for any business. As a last step, it can hardly be said to be an ordinary step to meet expenses even if it could be said to be a reasonable step. [ 33 ] The circumstances here can be distinguished from the circumstances in LeDrew where it was clear to McGrath, J. that the impugned conduct engaged in by the defendants, in selling specific properties constructed by them, was the actual business in which the defendants were engaged.

At paragraph 41, McGrath, J. stated; 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. [ 34 ] This is not the situation here. The business of 61791 is to restore homes that have suffered damage for one reason or another.

Closing the business and selling the assets to pay off creditors cannot be described as dealing with exigible property in a manner that is “reasonable and ordinary” as per section 27(2) (b)(

i) of the Act . [ 35 ] For this reason I am satisfied this criteria under section 27 (2) (b)(

i) of the Act has been met. 3) Will the manner in which the Defendant is dealing with its exigible property seriously hinder the Plaintiff’s ability to enforce judgment should it be successful? [ 36 ] In deciding to close the business operations of 61791 and liquidate the available assets or inventory to satisfy creditors, there is no dispute that this will seriously hinder the Plaintiff’s ability to enforce judgment should it be successful in its claim against 61791. There will be nothing left of the business from which to enforce a judgment if unsecured creditors are paid before judgment is obtained.

It will be a hollow victory for the Plaintiff should he be successful in his claim against 61791 if there is nothing left of 61791 to fulfill the judgment. Indeed, some of the property Mr. Sullivan identified as being owned by 61791, such as the washer and dryer, appear to be part of the very items at issue in this litigation. [ 37 ] Thus, notwithstanding that I am cognizant of the caution in LeDrew that this kind of remedy is extreme, and that this

section should be narrowly construed, on the evidence before me, I am satisfied that the criteria under section 27(2) of the Act have been met. [ 38 ] The application is allowed and an attachment order under

section 28 of the Act will issue attaching all exigible property of the Defendant 61791.

The Defendants are prohibited from dealing with the exigible property in any fashion until further order of this Court. [ 39 ] I make no limit as to the amount of the attachment order as the evidence to date before this Court is that all exigible property of 61791 is of a value that is less than the claim of the Plaintiff, including interest and costs. [ 40 ] I agree with the Defendants that given the Plaintiff during his testimony described his own financial difficulties since conflict between the parties arose, and which is the subject of this litigation, and given the potential impact of this remedy on the Defendants, I further order that the Plaintiff shall provide security by way of a bond. [ 41 ] In making this order, I am taking into account that the trial of this matter is almost complete.

That the trial is soon to be complete reduces concern that there may be an adverse impact on the Defendants as a result of this order. CONCLUSION [ 42 ] The application for an attachment order is allowed. [ 43 ] It is ordered under section 28(1) (a)(

i) of the Judgment Enforcement Act that an attachment order should issue against all exigible property of 61791, the Third Defendant, as named in the statement of claim. [ 44 ] It is further ordered that Robin Sullivan, the First Defendant, and owner and sole shareholder of 61791, is prohibited from dealing with 61791’s exigible property in a manner that would be likely to hinder the Plaintiff in the enforcement of a judgment against Robin Sullivan and/or 61791 until termination of this attachment order. [ 45 ] It is also both necessary and desirable in these circumstances that it is further ordered under section 28(1) (

g) of the Act that

Robin Sullivan provide a full accounting of the nature, extent, value and location of all exigible property of 61791, verified by the accountants of 61791. [ 46 ] It is further ordered that pursuant to section 28(2) (

a) and (

c) of the Act that the Second Plaintiff shall provide an undertaking that he will prosecute the proceeding to judgment without delay; and will pay such damages or indemnity that the Court may decide should be paid to the Defendant(

s) or third person. [ 47 ] It is further ordered that pursuant to section 28(2)(

c) of the Act the Second Plaintiff shall provide security in the form of a bond, to be accompanied by two sureties of whom the Court finds suitable. [ 48 ] As neither party provided submissions with respect to the amount of the bond or the identification of suitable sureties under this section, I will now hear from the parties as to their position specifically as to the amount of the bond to be provided and the identity and suitability of two sureties. [ 49 ] Costs of this application will be in the cause. [ 50 ] Judgment accordingly. _____________________________ fRANCES J. KNICKLE Justice