2012 NLCA 16, 2012 NLCA 16

Date: 20120313 Docket: 10/46 Citation: Eli Humby v. Newfoundland and Labrador Housing Corporation , 2012 NLCA 16 IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR COURT OF APPEAL BETWEEN : ELI HUMBY FIRST APPELLANT AND : CENTRAL SPRINGS LIMITED SECOND APPELLANT AND: NEWFOUNDLAND AND LABRADOR HOUSING CORPORATION RESPONDENT Coram: Green C.J.N.L. Court Appealed From: Supreme Court of Newfoundland and Labrador Trial Division (General) 200701T4090 Application Heard: March 6, 2012 Judgment Rendered: March 13, 2012 Reasons for Judgment by Green C.J.N.L.

Counsel for the First and Second Appellant: Robert Anstey Counsel for the Respondent: David Hurley, Q.C. Green C.J.N.L.: [ 1 ] The respondent, Newfoundland and Labrador Housing Corporation (NLHC) applied for an order, pursuant to rule 57.13 of the Rules of the Supreme Court, 1986 , that the appellants, Eli Humby and Central Springs Limited (Central) provide security for costs.

The application was made after the appellants had prepared and filed their appeal book, trial transcript, and factum, but before the respondent filed its factum, [ 2 ] I have decided that, in the circumstances of this case and, in particular, given the current stage of the appeal process, the

better exercise of discretion is to deny NLHC’s application. What follows are my reasons. Background [ 3 ] This litigation has had a protracted history. In view of the references made to parts of this history in argument on the current application, it is necessary, for context, to summarize some of that history.

For the purposes of this application, the history, in simplified form, is as follows. [ 4 ] NLHC had sued Humby and Central claiming an order preventing Humby and Central from removing certain components of a pre-engineered warehouse building erected by Humby on land in an industrial park owned by NLHC and leased to Central. (The lease had subsequently been terminated as a result of the Canada Revenue Agency (CRA) placing certain attachments on the property to enforce what it claimed was money owing by Central and possibly related companies.

This action, it was claimed, effectively put Central out of business, resulting in non-payment of future rental payments under the lease. Central and Humby have disputed CRA’s actions, including whether the underlying debt is, in fact, owing. Litigation is ongoing in the Federal Court in respect of this). NLHC claimed that the warehouse was affixed to and part of the land and was not removable by Central as tenant or by Humby.

NLHC also claimed the cost of remediation of alleged contamination of the soil where the warehouse was located and rental revenue allegedly wrongfully obtained by Humby as the purported sub-lessor of an unauthorized sub-lease of the building to the RCMP. [ 5 ] Humby and Central counterclaimed for wrongful interference with contractual relations between Humby and the RCMP, for the right to remove the building, and for compensation for loss of business opportunity. [ 6 ] A

summary trial was held on the issue of ownership of the building and the right to its removal. The

summary trial judge held that the warehouse was part of NLHC’s land and not a removable tenant fixture: 2008 NLTD 42 . On appeal, this decision was set aside on the basis that

summary trial was not an appropriate procedure for dealing with the case. The matter was remitted for trial of all issues together: 2009 NLCA 22 . [ 7 ] On the subsequent trial, there was mixed success by both parties. The trial judge held that the building was a fixture that could not be removed by Central or Humby. He awarded NLHC compensation for damages to the building in the course of its attempted removal. On the other hand, the judge dismissed NLHC’s claim for compensation for remediation.

NLHC has not appealed this determination. [ 8 ] In respect of the counterclaim, the trial judge concluded that NLHC had acted improperly, through misleading representations, in its dealings with the RCMP and by demanding that the RCMP pay rent under the purported sub-lease to NLHC rather than to Mr. Humby. He awarded compensation to Mr. Humby based on lost rent. [ 9 ] Central and Mr. Humby appealed. NLNC did not.

Amongst other things, Central and Humby submit that the trial judge erred in deciding that the building was a non-removable fixture and in his calculation of the compensation for the value of the building and in respect of the amount of rent Humby was entitled to on the counterclaim. [ 10 ] No steps were taken by the appellants to advance the appeal during the year following the filing of the notice of appeal.

In 2010, just prior to the appeal being deemed abandoned for inactivity pursuant to rule 57.20(4), the appellants filed an application for an order dispensing with the filing of a trial transcript for the hearing of the appeal, because of a lack of funds to pay for the cost of its preparation. In response, NLHC applied for, amongst other things, orders striking the appeal or, in the alternative, granting security for costs. This Court granted an extension of four months for the filing of the appeal book, with or without a transcript and deferred the issue of security for costs: 2011 NCLA 48.

On the issue of security for costs, Harrington J.A., for the court, stated: [ 11 ] …

(3) Given the current circumstances of this appeal, the respondent’s application for security for costs is deferred until the filing of the appeal book at which time the respondent shall have leave to bring on its application. [11] The appellants filed an appeal book, with transcript, on November 17, 2011. This was followed by a factum on December 19, 2011. NLHC failed to file its factum within the thirty days allowed by rule 57.15(2); instead, it filed, on January 10, 2012, an application renewing its request for security for costs.

This was nearly two months after the appeal book had been filed. [ 12 ] The basis of the application for security is the respondent’s assertion that “both appellants are insolvent and unable to pay their respective debts, and will be unable to pay any costs should their appeal be unsuccessful” (para. 7 of respondent’s application). This assertion is based on the fact that Mr. Humby and Central, have, respectively, a total of $61,944.70 and $263,649.85 registered against them in the Judgment Enforcement Registry.

The respondent also relies on the fact that Central has been dissolved as a corporation, as a result of not having filed its annual returns under the Corporations Act and no steps have been taken to have the company revived. [ 13 ] The appellants respond by saying that the amounts registered in the Judgment Enforcement Registry are not accurate.

They point out that the amounts are primarily claimed by the CRA and the Workplace Health, Safety and Compensation Commission (WHSCC) and that these agencies have a mechanism for filing certificates of claim, as if they were a judgment, in the registry without having to initiate action in the court and to have their claims tested by trial.

Counsel for the appellants also says that in fact litigation by the appellants against the CRA in the Tax Court of Canada has resulted in a favourable ruling to the extent that the amounts claimed by CRA have been declared to be overstated and vacating the original assessments: Central Springs Ltd. v. R. , 2010 TCC 543 , [2010] 2 C.T.C. 2131. Litigation is ongoing to determine whether, in fact, any money is owing and, if so, how much.

Counsel also says that the WHSCC claims are derivative from the calculations of the CRA, and to the extent that the CRA claims are reduced or eliminated, so will the WHSCC claims have to be reduced or eliminated. [ 14 ] Counsel for the appellants acknowledges that Central has been dissolved but points out that although the dissolution occurred before the appeal was filed it occurred after the original litigation had been commenced. The appellants rely on s. 355(2) (

a) of the Corporations Act , RSNL 1990, c. C-36, which provides that, notwithstanding the dissolution of a corporation under the Act, “a civil …

proceeding started by or against a corporation before its dissolution may be continued as if the corporation had not been dissolved.”Counsel for NLHC submits that this

section is of no help because an appeal is a separate proceeding and, therefore, the “civilproceeding” in this case was not started before dissolution. The appellants, on the other hand, submit that an appeal is only a continuingphase of one proceeding which was started well before the dissolution. [15] It is not necessary to resolve this difference of

interpretation on this application. It may be relevant as an argument on appeal(provided it can be raised within the umbrella of the notice of appeal - see rule 57.07(1)) and may raise issues of how the corporation, ifsuccessful on the appeal, could obtain the benefit of the judgment if it remains dissolved.

For present purposes, however, the status ofCentral as a currently dissolved corporation is relevant only insofar as it raises questions about the ability of NLHC to recover its costsagainst such an entity if it were successful on the appeal. [16] Counsel for the appellants also submits, citing NPV Management Ltd. v.

Anthony, 2007 NLCA 66, 270 Nfld. & P.E.I.R. 355that NLHC should be disentitled to security because the application was made too late in the process, after they have incurred theexpense of preparing their documentation for the appeal. [17] Rule 57.13 provides that no security for costs shall be required by the Court unless “special circumstances” exist. In JardinDirect Inc. v. Floradin Florists Ltd., 2008 NLCA 31, 276 Nfld. & P.E.I.R. 186, Rowe J.A. concluded that impecuniosity coupled withextra-provincial residence, rendering enforcement difficult, could constitute special circumstances.

See also Hydro-Mac Inc. v. Star LineInc., 2009 NLCA 7, 282 Nfld. & P.E.I.R. 233. In Colt Engineering and Construction Ltd. v. Bond Architects and Engineers Ltd. (1993), (NL CA), 113 Nfld. & P.E.I.R. 186 (Nfld. C.A.) it was recognized that impecuniosity alone could also be a groundfor awarding security on the basis of special circumstances. The impecuniosity must, however, be clearly established (NPV ManagementLtd. v.

Anthony), although the presentation of evidence showing a “reasonable prospect” that the appellant may not be able to pay costs,coupled with silence of that party in putting forward some “plausible basis to the contrary” in the face of such inference, or at least“point[ing] to other countervailing considerations that would nevertheless justify allowing him or her to proceed with the appeal” may besufficient for the court to conclude that special circumstances exist: Curl v.

Snow, 2010 NLCA 16, 295 Nfld. & P.E.I.R. 249 at para. 21. [18] In this case, NLHC has put information before the Court which, if unanswered, would have raised questions about the ability ofthe appellants to satisfy an award of costs if they are unsuccessful on the appeal. The appellants, however, have put forward anexplanation that weakens considerably the impression left by the mere fact that attachments have been registered in the JudgmentEnforcement Registry. I am not at all satisfied that Mr. Humby is completely impecunious and unable to meet any adverse costs award.

Inote that he was able to access funds to pay for the cost of the transcript following the filing extension that was granted to him. Cashflow problems do not necessarily mean insolvency. [19] The fact that Central is dissolved raises more serious questions as far as that appellant is concerned; however, it appears that themain beneficiary on the appeal will be Mr. Humby, if the appellants are successful.

I am not, in the circumstances of this case, preparedto award security, on this basis alone, especially where the evidence in support of NLHC’s characterization of the extent of Central’simpecuniosity is weakened by the appellants’ explanations. [20] I am also concerned that the issue of whether security should be ordered is being dealt with so late in the process.

In NPVManagement, Welsh J.A. stated: [6] … the respondents, as is their right, delayed in making their applications for security for costs until after all the materials had beenfiled and all the costs of the appeal had been incurred except the cost of appearances at the hearing.

Generally speaking, it could beexpected that an application of this type would be made after a notice of appeal is filed, but before other appellate costs are incurred… [21] In this case, the matter is complicated by the previous order of this Court deferring an earlier security application and givingNLHC leave to revive its application for security after the appeal book was filed. NLHC cannot therefore be faulted for not bringing onthe application after the appeal book was filed. Furthermore, the decision in Curl v.

Snow acknowledges that there will be circumstanceswhere an application for security late in the game may nevertheless be acceptable. [22] That said, however, NLHC did not move promptly after the appeal book was filed but delayed nearly two months, and justbefore the time limit for filing its factum was running out, before making the application.

Given that, following the preparation of theappeal book, the appellants were incurring additional costs in preparing and filing their factum, it is not unreasonable to have expectedNLHC, if it was seriously going to revive its request for security, to have done so forthwith after the appeal book was filed and beforethe appellants proceeded to incur additional costs in relation to factum preparation. To that extent, the principle in NPV Management stillapplies. I note as well that in Curl v.

Snow, although the appeal book had been filed, neither party had filed his or her factum and that thatwas a factor considered by the Court in making an award for security in that case. [23] Taking the foregoing into consideration, I have decided that the better exercise of discretion is to decline to make an order forsecurity for costs at this stage. NLHC should proceed to file its factum without further delay. [24] As to costs on this application, the appellants shall have their costs on a party-and-party basis, with Column 2 of the Schedulein Rule 55 applying. [25] I would make one further observation.

NLHC submitted that, if security were to be granted, it should be in the amount of$10,000, but it provided no rationale for this number. It is not sufficient for counsel to assert a number without providing some rationalefor its calculation. This has been commented upon in other cases. See Curl v. Snow at para. 31. I would reiterate that ideally anapplication for security should be accompanied by a draft bill of costs that might reasonably be expected to be awarded which can thenbe used as a starting point for determining an appropriate and reasonable estimate of the costs.

From that base, a determination can bemade as to what portion is prospective and what portion retrospective, in case it is decided – as will usually be the case – that securitywill only be given for costs yet to be incurred. Of course, security will not be given for already incurred trial costs (Colt Engineering) inany event. Security for retrospective costs is limited, if available at all, to previously-incurred appeal costs. It may also be appropriate toaward security for only a percentage of the total calculated costs (Curl v. Snow).

It is for these reasons that a proper base for making areasonable estimate (rather than leaving it to the judge to make “little more than an educated guess”, as was stated in Jardin, para. 13) of

the potential costs is important. J. G. Green C.J.N.L.