2055190 Ontario Limited. Appellant (Defendant/Plaintiff by Counterclaim) v. Jinsheng Zhao and Venus Trading Co. Ltd., 2018 SKCA 66

Court of Appeal for Saskatchewan Citation: 2055190 Ontario Ltd. v Zhao , 2018 SKCA 66 Date: 2018-08-23 Docket: CACV3068 Between: 2055190 Ontario Limited. Appellant (Defendant/Plaintiff by Counterclaim) And Jinsheng Zhao and Venus Trading Co. Ltd. Respondents (Plaintiffs/Defendants by Counterclaim) Docket: CACV3069 Between: Jinsheng Zhao and Venus Trading Co. Ltd. Appellants (Plaintiffs/Defendants by Counterclaim) And 2055190 Ontario Limited. Respondent (Defendant/Plaintiff by Counterclaim) And Abby’s Variety Holdings Baf Inc. Third Party (Third Party) Before: Ottenbreit, Herauf and Ryan-Froslie JJ.A.

Disposition: CACV3068 appeal allowed; CACV3069 appeal dismissed Written reasons by: The Honourable Mr. Justice Herauf In concurrence: The Honourable Mr. Justice Ottenbreit The Honourable Madam Justice Ryan-Froslie On Appeal From: 2017 SKQB 117 , Saskatoon Appeal Heard: December 12, 2017 Counsel: Naheed Bardai and Alixandra Stoicheff for 2055190 Ontario Limited Curtis Onishenko for Jinsheng Zhao and Venus Trading Co. Ltd. Herauf J.A. I. Introduction [ 1 ] There are two appeals at issue. Both involve the

interpretation of provisions of The Enforcement of Money Judgments Act , SS 2010, c E-9.22 [ EMJA ]. [ 2 ] The first appeal is an appeal by Jinsheng Zhao and Venus Trading Co. Ltd (Tenant). The main issue is whether the Chambers judge erred in reducing the amount of the preservation order (Preservation Order) from $659,633.56 to $292,000. Consideration of this issue brings into focus the proper test or analysis for determining the quantum of a preservation order. [ 3 ] The second appeal is an appeal by 2055190 Ontario Limited (Landlord).

The thrust of this appeal is whether the Chambers judge erred when he failed to require the Tenant to provide security pursuant to s. 5(7) of the EMJA . This appeal also encompasses issues relating to how one determines the amount of security and whether an “undertaking as to damages” is a viable form of security under s. 5(7) of the EMJA . [ 4 ] For the reasons that follow, I would dismiss the appeal by the Tenant. I would allow the appeal by the Landlord and remit the matter to the Chambers judge to determine the appropriate amount of security.

II. background [ 5 ] To avoid any confusion involving the two appeals, I will use the terms “Tenant” and “Landlord” throughout these reasons to describe the relevant parties. [ 6 ] In 2007, the Tenant purchased the Great Canadian Dollar Store lease located in the Saskatoon Market Mall (Mall) from its previous owner, Bre Enterprises Ltd. At the time of the purchase, the Landlord owned the Mall. The Landlord has since sold the Mall. [ 7 ] The legal dispute between the parties began in 2008, when the Tenant filed a statement of claim asserting the Landlord had breached the restrictive covenant term of their lease.

The primary contention in the Tenant’s claim was that the Landlord breached a covenant in the lease by renting Mall space to another dollar store. For reference, the restrictive covenant term reads as follows: Restrictive Covenant: So long as the Tennant [ sic ] is Bre Enterprises Ltd. and is not in default under the terms of this Offer to Lease, or the subsequent Lease, the Landlord will not lease other rentable areas in the Shopping Centre to another tenant whose primary business

is the operation of a “dollar store” (a retailer of general merchandise primarily at price points under $5.00). [ 8 ] Pursuant to its claim of breach of contract, the Tenant sought “general and special damages and amounts to be proven at trial.” [ 9 ] The Landlord defended the claim and counter-claimed for unpaid rental arrears. In 2008, the Tenant brought an application for injunctive relief and relief from forfeiture.

On November 7, 2008, the Chambers judge granted the relief from forfeiture and reduced the Tenant’s rent by 50% ( Zhao v 572376 Saskatchewan Ltd. (7 November 2008) Saskatoon, QBG No 232/2008 (Sask QB)). That order was in place for a period of one year with the option to renew the application in November 2009. [ 10 ] Due to the fact the Tenant had been experiencing financial difficulty since its purchase of the store, it decided to cease its operation in the Mall in April 2009. [ 11 ] There is no indication as to what developments, if any, took place on the Tenant’s claim between 2009 and 2016.

However, in 2017, the Tenant became aware of the Landlord’s impending sale of the Mall and brought an ex parte application for a preservation order pursuant to s. 5 of the EMJA . The Tenant sought a preservation order on the basis that the sale of the Mall would jeopardize its ability to enforce a damages award, should it be successful at trial, as the Mall was the Landlord’s only asset. [ 12 ] The Tenant sought an order directing that $909,718 ($50,000 for costs and $859,718 in general damages) of the net sale proceeds from the sale of the Mall be held in trust by counsel for the Landlord.

In support of its application, the Tenant filed the affidavit of Lloyd Ehrmantraut, a director of the Tenant Corporation. The affidavit outlined Mr. Ehrmantraut’s calculation of the amount of damages the Tenant had suffered to that point in time and Mr. Ehrmantraut opined that the Tenant would have earned a net income of $859,718 had the Landlord not breached the lease and had it been able to operate the business during the entire lease term. Attached to Mr.

Ehrmantraut’s affidavit was an undertaking to abide by and honour any court order for damages payable to the Landlord stemming from the Preservation Order. [ 13 ] On January 5, 2017, the Chambers judge granted the Tenant’s ex parte application. The Chambers judge ordered the amount of $859,718 to be held in trust for 21 days as required by the legislation. He declined to order any amount be held in relation to the costs of the overall action because such a request ought to have been brought as an application for security of costs pursuant to The Queen’s Bench Rules .

His order makes no reference to the Tenant’s undertaking to pay damages to the Landlord stemming from the Preservation Order and the decision does not discuss providing security pursuant to s. 5(7) of the EMJA . [ 14 ] The Tenant sought to extend the Preservation Order beyond the 21 days, until the end of trial pursuant to s. 8 of the EMJA . The parties consented to extending the Preservation Order until a final decision was rendered on the application to extend it.

The Tenant’s application to extend the Preservation Order was heard by the Chambers judge on February 2, 2017. [ 15 ] When the Tenant originally brought the ex parte application before the Chambers judge on January 5, 2017, the affidavit information before the Court contained a calculation error. This error resulted in a $200,084.44 overestimation of damages by the Tenant. The error resulted from the Tenant calculating its losses for a period extending almost two years beyond the expiration of the lease, including all options for renewal.

The calculation error was discovered by the certified professional accountant retained by the Landlord. The accountant noted the calculation error in her expert report, which was served on the Tenant on January 30, 2017. [ 16 ] On February 2, 2017, at the extension hearing, the Tenant acknowledged the calculation error and amended the amount sought pursuant to the Preservation Order to $659,633.56. At the extension hearing, the Landlord did not dispute that the Preservation Order was appropriate in the circumstances, but took issue with the quantum sought for the Preservation Order.

The Landlord argued the Tenant’s alleged losses were unrealistic and not borne out by the evidence. [ 17 ] The Tenant derived the quantum of $659,633.56 from a calculation, which assumed that the Tenant would have been able to reduce its cost of inventory from 45% to 36%. The evidence before the Court indicated the historic annual cost of inventory was 45%.

The Landlord challenged the Tenant’s assumption of the reduction of inventory cost claiming it was unsupported by the evidence. [ 18 ] The Landlord retained a certified professional accountant from MNP LLP to prepare a report (MNP report) analyzing the evidence filed by the Tenant to opine the potential damages the Tenant would receive if successful in its claim. Based on the Tenant’s records, the MNP report concluded that an accurate reflection of the Tenant’s potential damages was $83,105. [ 19 ] The MNP report was before the Chambers judge on February 2, 2017.

The Tenant filed no expert report in response but filed a reply affidavit of Mr. Ehrmantraut, which included some personal calculations speaking to the Tenant’s calculation of loss and damages. [ 20 ] The Chambers judge reserved his decision until after the parties had met for a pretrial conference. When no resolution was reached at pretrial, the Chambers judge released his decision on April 25, 2017. The Chambers judge granted the extension application until further order of the Court but ordered that the amount of the Preservation Order be reduced to $292,000 ( Zhao v 2055190 Ontario Limited , 2017 SKQB 117 ).

It is from this decision that the parties respectively appeal. III. Chambers Decision [ 21 ] The Chambers judge recognized his authority under s. 8 of the EMJA to hear the application to extend the Preservation Order as well as to hear arguments relating to modifying the quantum of order.

The Chambers judge acknowledged the infancy of the EMJA and took note of the minimal jurisprudence available about how to determine the appropriate quantum for a preservation order when that amount is put into dispute by the parties. [ 22 ] In identifying the issues before him, the Chambers judge stated “[t]he defendant [Landlord] acknowledges the criteria under s.

5 of the Act for the granting of the preservation order have been met in this case. The defendant, however, takes issue with the amount that the plaintiffs seek to preserve” (at para 2). The Chambers judge explained how the Landlord accepted that the Tenant’s claim puts forward a recognized cause of action that is not groundless and, if successful, there may be difficulty in enforcing a judgment against it as it had sold its only asset, being the Mall.

The Chambers judge explained that before him, the Landlord was alleging the Tenant was seeking a monetary sum in excess of what it could validly receive if successful at trial. [ 23 ] The Chambers judge concluded the only issue he needed to address was the appropriate quantum of the Preservation Order.

Recognizing the minimal jurisprudence on this issue, the Chambers judge inevitably had to fashion his own analysis to determine the appropriate quantum. [ 24 ] In explaining his analysis, the Chambers judge highlighted the discretionary nature of a Preservation Order and explained this discretion extended to a determination of the quantum of the Order. He concluded that ascertaining the quantum requires “some analysis” of the evidence when the appropriate quantum is put into dispute by the parties (para 19).

However, he cautioned against delving too deep into a “trial-like” analysis to determine the appropriate quantum (para 39). [ 25 ] Citing this Court’s decision in Arslan v Şekerbank T.A.Ş , 2016 SKCA 77 , 480 Sask R 235 [ Arslan ], the Chambers judge held that a court tasked with determining the appropriate quantum of a preservation order must assess the information before it to ascertain the proper calculation of the plaintiff’s alleged damages.

The Chambers judge adopted the approach from Saskatchewan Crop Insurance Corp v Avramenko , 2014 SKQB 96 , 463 Sask R 179 [ Avramenko ], stating that the analysis of the quantification of the order requires a plaintiff to “provide additional factual background supported by documentation to support the notion that his action [is] not groundless” (at para 18).

The Chambers judge noted that the defendant would then be able to respond to the evidence that the plaintiff provided. [ 26 ] The Chambers judge explained that the court is entitled to examine the affidavit evidence of the parties to decide the appropriate amount for the preservation order. He explained that the court must assess whether the “factual allegations set forth in the pleadings [are] realistic and borne out through the affidavit material” (at para 30). He noted that the ultimate determination should reflect the

summary nature of the judgment and concluded that a judge is not to undertake a detailed examination of “whose evidence to accept on a balance of probabilities” (at para 33). [ 27 ] The Chambers judge was hesitant to define a “test in a single particular phrase.” Instead he provided the following analysis: [20] In a

summary application as contemplated by the Act , it would be contrary to the wording of the legislation and unrealistic to require the plaintiffs to prove that the quantum of the claim is prima facie valid. This is especially so when the legislation contemplates that the existence of the claim only has to be established on the basis that it is not groundless. I am loath to attempt to ascribe a test in a single particular phrase. The exercise of discretion is a balancing of various pieces of information and interests.

The stronger the evidence presented on the calculation of damages the more likely the Court will lean in that direction in determining the proper amount for a preservation order.

The Court must analyze and weigh the evidence presented in more than a cursory fashion in order to do justice to the parties. [ 28 ] The “test” the Chambers judge offered was contextual and discretionary and requires the court to analyze and weigh the evidence presented before it to determine whether the proposed quantum is realistic and borne out by the evidence. [ 29 ] In undertaking this analysis, the Chambers judge explained how the Court will tend to rely on evidence from independent third parties in favor of “[a]llegations in an affidavit … that are based on alleged facts that will be difficult to prove, that are based on absolute best possible scenarios or contain on the face of them erroneous calculations” (at para 21).

He stated evidence that is more balanced and supported by an analysis and is consistent with previous cases is “likely to have the Court lean towards that number when exercising its discretion” (at para 21). [ 30 ] The Chambers judge recognized the necessity of balancing and protecting the “varied interests of the plaintiffs and defendant” (at para 19). He noted the tactical advantage that may arise in favour of one party if the quantum ordered is too high; such as putting financial pressure on the other party.

The Chambers judge explained the notion of fairness in this context and reasoned that the interests of the parties must be considered throughout the analysis.

However, he also noted that “[t]he determination of the appropriate amount can have an impact beyond the appropriate balancing of the interests of the opposing parties under the legislation” (at para 22). [ 31 ] Utilizing this framework, the Chambers judge analyzed the evidence of the parties in this case as it related to the quantification of damages. [ 32 ] The Chambers judge recognized that if he acceded to the Tenant’s requested quantum, it could result in a tactical advantage to the Tenant as the Landlord would be deprived of a significant sum of money and would feel financial pressure.

This financial pressure could induce the Landlord to seek a pretrial settlement that was unnecessarily disadvantageous. The Chambers judge sought to withhold making a decision in the hopes the parties would settle at pretrial, so as to avoid having to make a Preservation Order and possibly tilt the strategic advantage in favor of one party.

The Chambers judge filed his written reasons shortly after being advised that settlement had failed. [ 33 ] Realizing that he had to make a decision as to quantum and with the interests of fairness and of the parties in mind, the Chambers judge analyzed the affidavits filed by the parties. He highlighted the errors in the Tenant’s initial affidavit (the two-year overestimation and the inclusion of $50,000 for costs which was inappropriately sought). The Chambers judge also noted the fact that the Tenant did not file any expert evidence.

The Chambers judge reasoned that the affidavit submitted by the Tenant’s director Mr. Ehrmantraut was quite scant in terms of dealing with the projection of losses and did not provide the Court with much explanation of how he had quantified the Tenant’s projected damage. [ 34 ] The Chambers judge concluded that the calculations made by Mr. Ehrmantraut were based on “the best possible scenario for calculation of damages” and were subject to two significant critiques. The first was the obvious overestimation of approximately $200,000 based on the two-year calculation error. The second issue related to Mr.

Ehrmantraut’s usage of the average cost of sales being 36%, whereas the financial evidence submitted by the Tenant itself showed that 45% was more accurate.

[ 35 ] The Chambers judge noted that, in response to Mr. Ehrmantraut’s affidavit, the Landlord submitted the MNP report, which critiqued the damage assessment that had been made by Mr. Ehrmantraut. Without delving too deeply into the merits of the MNP report, the Chambers judge noted that it was balanced evidence from an independent and qualified third party. [ 36 ] Based on his analysis of the affidavit evidence, the Chambers judge concluded that the fair outcome for the parties was to set the Preservation Order quantum at $292,000. He concluded that this number was appropriate because it (

i) reflected the loss the Tenant would have suffered over the term of the lease using the 45% of the cost of sales ($289,563); and (ii) it took into account the Tenant’s estimate of money lost as a result of the purchase of the Dollar Store ($291,393). The Chambers judge held that this number represented the Tenant’s expectations when it entered into the lease. [ 37 ] In

summary, the Chambers judge granted the Tenant’s application for extension of the Preservation Order. He extended the Preservation Order until “further order of the Court” but reduced the amount ordered to be held in trust to $292,000. He ordered costs to be in the cause and directed the Landlord not to disburse the excess funds held in trust pursuant to the original Preservation Order, until the 30-day appeal period expired. The Chambers judge made no order respecting security pursuant to s. 5(7) of the EMJA . IV. relevant legislation [ 38 ] The following provisions of the EMJA are relevant to this appeal: Preservation order 5

(1) In this Part: (a) “action” means a legal action that would, if successful, result in: (

i) a judgment; or (ii) an order declaring a gift, conveyance, assignment, transfer, delivery over or payment of property by the defendant void as a fraudulent conveyance or fraudulent preference; ...

(2) An application for a preservation order may be made to the court by any of the following persons: (

a) a plaintiff in an action commenced in Saskatchewan; (

b) a plaintiff in an action commenced in another jurisdiction, if the action would, if successful, result in a judgment that is enforceable as a judgment of the court. ...

(5) The court may grant a preservation order if the court is satisfied that: (

a) the action would, if successful, result in: (

i) a judgment in favour of the plaintiff; or (ii) an order described in subclause (1)(a)(ii); (

b) if the preservation order is not granted, the enforcement of a judgment or order against the defendant or transferee is likely to be partially or totally ineffective as a result of the disposition of, damage to, dissipation of, destruction of, concealment of or any dealing with property, other than disposition for the purposes of: (

i) meeting reasonable living expenses of the defendant and dependants of the defendant; (ii) carrying on the business of the defendant in the ordinary course; or (iii) acquiring income to pay the expenses of defending or responding to the action; and (

c) the action will be prosecuted without delay, other than delay caused by the defendant or transferee.

(7) A preservation order shall require the plaintiff to provide security in an amount that, in the opinion of the court, is sufficient to compensate the defendant or other person affected by the preservation order for pecuniary loss that may be caused as a result of the preservation order unless, in the court’s opinion, requiring the plaintiff to provide security would cause undue hardship to the plaintiff. ... Extension, renewal and modification of preservation order 8

(1) A plaintiff, judgment creditor, defendant, judgment debtor or any other person affected by a preservation order may apply to the court to have the preservation order extended, renewed, modified or terminated.

(2) Section 5 applies, with any necessary modification, to an application made pursuant to this section.

(3) In an application to extend, renew, modify or terminate a preservation order, the onus is on the applicant to establish that the preservation order should be extended, renewed, modified or terminated.

(4) On application made pursuant to this section, the court may make any order that the court considers appropriate in the circumstances, including: (

a) an order doing one or more of the things mentioned in subsection 5(6); and (

b) an order extending, renewing, modifying or terminating a preservation order. Order re payment out of security 9

(1) A defendant, former defendant or other person affected by a preservation order may apply to the court for an order directing payment out of the security, if any, provided pursuant to subsection 5(7).

(2) The court may make an order directing payment out of the security in an amount to compensate the defendant, former defendant or other person affected by the preservation order for actual pecuniary losses suffered as a result of the preservation order if: (

a) the action with respect to which the preservation order was issued failed or was discontinued and the court is satisfied that: (

i) the failure or discontinuance of the action was a result of: (

A) the failure on the part of the plaintiff to pursue the claim; (

B) the reliance by the plaintiff on evidence or information that, to the knowledge of the plaintiff, was or was likely to be false or materially misleading; or (

C) any other misconduct on the part of the plaintiff; or (ii) at the date the action was initiated, the plaintiff had no reasonable expectation of obtaining judgment; or (

b) the court is satisfied that the preservation order was issued on the basis of evidence or information relied on by the plaintiff or judgment creditor in the knowledge that such evidence or information was or was likely to be false or materially misleading. General supervisory power of court 114 On an application of a sheriff, a receiver, a judgment creditor, a judgment debtor, a dependant of a judgment debtor or a person with an interest in property affected by an enforcement measure pursuant to this Act, the court may make one or more of the following orders: (

a) any order that is necessary to ensure compliance with this Act or to facilitate enforcement of a judgment, including a binding declaration of a right and an order for injunctive relief; (

b) an order giving directions to any person regarding the exercise of rights or the discharge of duties or functions pursuant to this Act; (

c) an order temporarily staying the enforcement or exercise of rights provided in this Act; (

d) an order directing a police authority with jurisdiction in the locality where an enforcement measure is or will be carried out to take appropriate steps to protect the sheriff, or a person executing functions delegated to that person by the sheriff, while taking the enforcement measure; (

e) an order to ensure protection of the interest of any person in property; (

f) an order extending the time for doing anything that, pursuant to this Act, is to be done within a specified period; (

g) an order requiring a person to pay costs incurred in connection with actions performed or proceedings taken pursuant to this Act; (

h) an order directing the reinstatement of a person or any other remedy as may be appropriate when the court finds that the principal reason for the person’s dismissal, layoff or demotion or for the limitation of the person’s opportunity to work was the seizure of the person’s employment remuneration pursuant to this Act; (

i) an order determining priorities between enforcement charges and security interests. Standard of conduct 115 Any person authorized by this Act to perform a function or duty or exercise a right or power, including a sheriff and a receiver, shall do so in good faith and in a commercially reasonable manner. V. Issues A. CACV3069: Quantum of the Preservation Order [ 39 ] The overarching issue in this fiat appeal is whether the Chambers judge erred in reducing the amount of the Preservation Order from $659,633.56 to $292,000.

This in turn raises the question of the proper test or analysis for determining the quantum of a preservation order. B. CACV3068: Failure to provide security [ 40 ] The Landlord has filed its own appeal of the Chambers judge’s Preservation Order decision. In this second appeal, the

Landlord submits the Chambers judge erred in failing to require the Tenant to provide security pursuant to s. 5(7) of the EMJA . Subsumed in this issue is whether an undertaking as to damages is sufficient security to meet the requirements of s. 5(7) of the EMJA . VI. Positions of the Parties A. CACV3069: Quantum of the Preservation Order [ 41 ] Since these are some of the first appeals involving significant

interpretational issues relating to provisions of the EMJA , it is beneficial to set out the positions of the parties in some detail. 1. Jinsheng Zhao & Venus Trading Co. Ltd. (Tenant/Appellant) [ 42 ] The Tenant submits that the Chambers judge erred in reducing the quantum of the Preservation Order because he (

i) erroneously rejected the Tenant’s suggested quantum; (ii) erroneously weighed the evidence before him, and (iii) erred in his

interpretation of the EMJA . a. Rejection of evidence [ 43 ] The Tenant argues that the Chambers judge erred by not accepting the quantum it requested. The Tenant contends that once it satisfied the criteria for the Preservation Order, the quantum of the Preservation Order should have been set at the amount requested by it: ...

It is submitted that once a plaintiff meets the criteria for a preservation order, the quantum of the preservation order should be set at the amount requested by the plaintiff so long as they are able to show facts, if accepted at trial, [that] would give the plaintiff the right to the preserved funds. (Tenant factum at para 47) [ 44 ] The Tenant submits that it met the criteria for a preservation order, which the Landlord conceded, and it presented the Court with sufficient facts that, if accepted at trial, would give it the right to access the preserved funds.

Therefore, the Tenant maintains that the Chambers judge was obliged to accept its requested quantum and thereby reduced the quantum in error. b. Weighing evidence [ 45 ] The Tenant contends that the Chambers judge relied too heavily on the MNP report and, in doing so, improperly disregarded the Tenant’s evidence relating to the 36% costs of sales. The Tenant submits that the Chambers judge relied on the MNP report to determine that 45% costs of sale was the appropriate number to assess the quantum of damages.

The Tenant argues that this was in error because the MNP report was not properly before the Court as it did not comply with Rule 6-14 of The Queen’s Bench Rules . Rule 6-14 outlines the time limitations pursuant to which a responding party to a claim must file its evidence and affidavits. The Tenant submits that the Landlord did not comply with the seven-day timeline prescribed in the Rule. The Tenant states that it raised this concern with the Chambers judge but that the Chambers judge did not consider its objection and instead relied heavily on the MNP report.

The Tenant argues that it was improper for the Chambers judge to have done so. [ 46 ] The Tenant also contends that the MNP report is not valid evidence because it specifically states that it would “recommend a detailed report” that took into consideration the Tenant’s “reasoning and support for the growth and expense assumptions” provided for in its calculations submitted to the Court.

The Tenant submits this showcases that the MNP report is flawed and incomplete, because it explicitly states it would be beneficial to have a full report after obtaining an explanation from the Tenant as to how it calculated its losses to arrive at such substantial potential damages. [ 47 ] In relying on the conclusions in the MNP report, specifically the 45% cost of sales number, the Tenant argues the Chambers judge correspondingly erred in rejecting the evidence from Mr. Ehrmantraut’s affidavit that stated the proper number for the calculation of its projected costs of sale was 36%.

The Tenant submits that, as the MNP report was not properly before the Court and did not provide the full picture, 36% was the more appropriate percentage to use to calculate the projected damages quantum. It contends the Chambers judge’s rejection of this evidence resulted in the erroneous reduction of the quantum of the Preservation Order. c.

Interpretation of the EMJA [ 48 ] The Tenant states the Chambers judge’s reduction of the quantum of the Preservation Order failed to recognize the need to “strike a balance that ensures the preservation of assets while also protecting the defendant’s property rights” and resulted in a reversible error.

The Tenant contends the Landlord put forward no evidence of financial hardship that merited a reduction of the quantum in favour of the Landlord and therefore the reduction represents an erroneous application of the inherent balancing considerations under the EMJA . [ 49 ] In conclusion, the Tenant asks this Court to allow the appeal and order the sum of $659,633.56 be held in trust by the lawyers for the Landlord until the trial.

The Tenant also asks for costs of this appeal and in the court below. 2. 2055190 Ontario Ltd. (Landlord/Respondent) [ 50 ] The Landlord recognizes the minimal guidance available to the Chambers judge to determine the appropriate quantum for the Preservation Order. However, the Landlord contends that the setting of a quantum for a preservation order is a discretionary decision and

it submits the Chambers judge in this case exercised his discretion reasonably and judiciously. [ 51 ] The Landlord argues that the wording of s. 5 of the EMJA affords broad discretion to the court, which requires the court to delve, at least to some extent, into the evidence before it to determine whether the amount sought is attainable based on the claim as pled. [ 52 ] The Landlord submits that the EMJA and the jurisprudence clearly do not dictate that the court is bound to accept the “bare assertions” of a plaintiff as to its projected damages, without undergoing an assessment as to the reality of those assertions.

The Landlord contends the Court must undertake some analysis of the evidence to determine whether the amount requested by the plaintiff is realistic and borne out on the evidence and the law. The Landlord emphasizes the importance of the court’s analysis when the plaintiff’s own evidence casts doubt on its requested amount. [ 53 ] The Landlord submits the Chambers judge was permitted to analyze the evidence before the Court as there were clear errors and omissions in the Tenant’s evidence.

The Landlord further submits the Chambers judge was correct in finding the 36% “dream scenario” put forward by the Tenant was unrealistic.

The Landlord argues the 36% costs of sales presented by the Tenant was not only unsupported by the evidence but also defied common sense given the discrepancy between that number and the Tenant’s historical costs of sale at 45%. [ 54 ] The Landlord rejects the Tenant’s submission that its requested quantification should be accepted if it has satisfied the criteria for an order and if it has presented facts that show there is a basis for a claim that would entitle it to access the Landlord’s funds.

The Landlord contends that this test is too simple and would result in problematic quantum awards in preservation orders. The Landlord argues that the test cannot simply be that the plaintiff must show that their claim is not “groundless” before the court orders a subsequent freeze of a large sum of the defendant’s assets without an assessment of whether there is any validity to the quantum requested for freezing.

This, the Landlord states, would be unjust and in contradiction to the wording and purposes of the EMJA and its jurisprudence. [ 55 ] The Landlord submits that the wording of the EMJA requires the Court to undergo a discretionary analysis and weighing of the evidence to determine an amount that “is just in all of the circumstances.” The Landlord also submits it would have been unjust for the Court to simply accept the “dream scenario” of the Tenant without paying credence to the evidence before it, which undermined the Tenant’s calculation of this scenario.

The Landlord contends that the Chambers judge undertook the proper analysis and was very careful not to overstep his authority and go too deeply into an analysis of the merits. The Landlord argues the approach of the Chambers judge is consistent with the jurisprudence and specifically this Court’s pronouncement in Arslan . [ 56 ] The Landlord rejects the Tenant’s submission that the Chambers judge relied too heavily on the MNP report.

The Landlord argues that the Chambers judge specifically declined to wade into or weigh the MNP report in any depth as he did not want to get into a trial-like analysis of the merits of the parties’ evidence. In further support of its position, the Landlord points out that, had the Chambers judge relied on the MNP report as alleged by the Tenant, he would have set the quantum at $83,105 as suggested by the MNP report. Instead, he set the quantum at $292,000.

The Landlord submits that the evidence the Chambers judge relied on in reaching this number was predominantly the financial information submitted on behalf of the Tenant itself. This evidence, the Landlord contends, clearly shows the reasonableness of the 45% figure for costs of sales in preference to the 36% figure. [ 57 ] The Landlord also points out that the Tenant failed to provide the Court with an expert report to substantiate its assertions and calculations.

The Landlord states that the Chambers judge was correct in analyzing and relying, to the limited extent he did, on the evidence of the independent third party expert in favor of the unsupported calculation in the affidavit of Mr. Ehrmantraut. [ 58 ] For these reasons, the Landlord asks that the Tenant’s appeal be dismissed, with costs. B. CACV3068: Failure to Provide Security 1. 2055190 Ontario Ltd. (Landlord/Appellant) [ 59 ] This appeal is brought by the Landlord.

The Landlord submits that the Chambers judge erred in failing to order the Tenant to provide security or erred by failing to provide reasons for why he did not order security. [ 60 ] The Landlord submits that it specifically raised the issue of s. 5(7) of the EMJA before the Chambers judge.

Section 5(7) requires a plaintiff seeking a preservation order to provide security in an amount sufficient to compensate the defendant for pecuniary loss that may be caused as a result of the preservation order. [ 61 ] The Landlord states that, while it raised the issue of security at the extension hearing, it did not specify the amount sought to be set aside by the Tenant as this was dependent on the amount ultimately ordered by the Court pursuant to the Preservation Order and the parties were more than $500,000 apart in their respective positions on that issue.

Therefore, the Landlord left the sum in the hands of the Court. [ 62 ] The Landlord argues that the presence of s. 5(7) and the requirement of a plaintiff to post security flows from the EMJA ’s goal of balancing the parties’ interests and submits that it is an important component that must be satisfied when granting a preservation order pursuant to s. 5 .

The Landlord points out that the EMJA has created a relatively easy test for a plaintiff to obtain a preservation order, but has also imposed inherent limits on a plaintiff, including a plaintiff’s requirement to post security for pecuniary damages a defendant may suffer. The Landlord submits that this “balancing tool” located in s. 5(7) is crucial to the purpose of the EMJA framework. [ 63 ] The Landlord contends that the wording of s. 5(7) indicates the Court’s obligation, not option, to order security, unless the plaintiff can demonstrate undue hardship.

The Landlord submits it was incumbent on the Tenant to have adduced evidence at the ex parte hearing as to the potential loss the Landlord would suffer from the Preservation Order and, beyond that, the Tenant was required to have posted security. The Landlord states the Tenant failed to discharge its onus because its undertaking as to damages was insufficient

in the circumstances to satisfy s. 5(7) . The Landlord submits that the Chambers judge erred by ordering the Tenant to provide security at the extension hearing. [ 64 ] The Landlord states, in the circumstances, that the undertaking as to damages was not sufficient to satisfy the legislative wording of “an amount” found in s. 5(7) . The Landlord argues that an undertaking as to damages does not create a pot of funds for which the defendant can be compensated, which the legislation requires.

The Landlord recognizes that an undertaking has been sufficient on other occasions, but states this case is distinguishable because here, unlike in previous cases, there was a specific monetary amount being preserved by the Preservation Order.

The Landlord submits that the use of an undertaking to satisfy the posting of security pursuant to s. 5(7) should be the rare exception to the rule and only invoked when there is no evidence as to the quantum of the preservation order sought or evidence related to the pecuniary loss that might be suffered. [ 65 ] The Landlord submits that in the circumstances, the Chambers judge was obliged to order the Tenant to provide security pursuant to s. 5(7), and states that the Chambers judge should have established the proper quantum of security by assessing and balancing the interests of the parties and apportioning the security amount from the amount ordered for the Preservation Order. [ 66 ] The Landlord contends that without requiring the Tenant to post security pursuant to s. 5(7), at the end of trial the money the Tenant undertook to pay could be inaccessible or no longer available.

The Landlord submits that this is why the presence of a s. 5(7) order to provide security is vital in the circumstances. [ 67 ] The Landlord contends that, not only did the Chambers judge fail to address the issue of security, he provided no explanation as to why he did not order it.

The Landlord submits the Chambers judge left it with no understanding as to why it was not ordered which violates the principles of sufficiency of reasons prescribed in R v Sheppard , 2002 SCC 26 , [2002] 1 SCR 869. [ 68 ] In conclusion, the Landlord asks this Court to order the Tenant to provide security pursuant to s. 5(7) in the amount of $50,000, or in any greater amount as determined by this Court. 2. Jinsheng Zhao & Venus Trading Co. Ltd. (Tenant/Respondent) [ 69 ] The Tenant contests the Landlord’s claim that the Chambers judge ought to have ordered security pursuant to s. 5(7).

The Tenant submits there was no error because (

i) the Chambers judge was not asked to deal with posting security; and (ii) the undertaking as to damages was sufficient to discharge its legal obligation pursuant to s. 5 of the EMJA . [ 70 ] The Tenant claims the Landlord did not raise the issue of s. 5(7) security in its material or submissions before the Chambers judge. The Tenant states the Chambers judge, therefore, did not err in not ordering it, or in failing to address it in his decision.

In addition, as the issue was not argued in the court below, the Tenant states this appeal is inappropriately before this Court as the requisite body of evidence is lacking for this Court’s review and the Tenant has been denied the opportunity to submit evidence relating to the issue. [ 71 ] The Tenant contends that the undertaking it submitted at the ex parte preservation hearing satisfied the Court of Queen’s Bench when the initial Preservation Order was made and thereafter the onus shifted to the Landlord to challenge its sufficiency at the extension hearing.

Failure to do so does not now permit this Court to determine the issue on appeal. [ 72 ] The Tenant cites the significant discretion granted to the Court of Queen’s Bench to support the Chambers judge’s determination that the undertaking as to damages was sufficient to satisfy s. 5(7) and cites case law where the Court of Queen’s Bench has previously considered an undertaking to be sufficient in support. [ 73 ] The Tenant argues that the Chambers judge exercised his discretion judiciously in not ordering the Tenant to provide security beyond the undertaking it provided as to damages, and asks this Court to dismiss the appeal with costs.

VII. Standard of Review [ 74 ] Leave to appeal was granted pursuant to s. 112 of the EMJA in this matter on June 6, 2017. [ 75 ] The amount to be preserved under s. 5(5) of the EMJA is a discretionary decision (see Arslan at paras 81, 84 and 88 ).

The standard of review on this issue is the deferential standard set out by this Court in Rimmer v Adshead , 2002 SKCA 12 at para 58 , 217 Sask R 94: ... [I]t is necessary to bear in mind that the powers in issue are discretionary and therefore fall to be exercised as the judge vested with them thinks fit, having regard for such criteria as bear upon their proper exercise. The discretion is that of the judge of first instance, not ours. Hence, our function, at least at the outset, is one of review only: review to determine if, in light of such criteria, the judge abused his or her discretion.

Did the judge err in principle, disregard a material matter of fact, or fail to act judicially? Only if some such failing is present are we free to override the decision of the judge and do as we think fit.

Either that, or the result must be so plainly wrong as to amount to an injustice and invite intervention on that basis. ... [ 76 ] However, as this Court identified in Houk v Daniels Investments Ltd. , 2016 SKCA 147 at para 10 , 5 CPC (8th) 272, in order to exercise discretion, a judge must correctly identify the law that governs that exercise. [ 77 ] With respect to appeals relating to s. 5(7) of the EMJA , the parties are in agreement that the decision to order the Tenant to provide security involves an

interpretation of a statutory provision and, as such, it is a question of law subject to review on the standard of correctness. However, the amount of security required is based on the discretion of the court and subject to a deferential standard of review.

VIII. Analysis A. Quantum of the Preservation Order [ 78 ] In Arslan , Caldwell J.A. thoroughly reviewed the law surrounding the applicable test for when a court should grant a preservation order under s. 5 of the EMJA . He began his analysis by summarising the modern principle of statutory

interpretation as follows at paragraph 59: ... the court first forms an initial impression as to the meaning of a legislative provision from its text ( i.e. , its “grammatical and ordinary sense”). Then, so as to infer what the Legislature intended to enact, the court will take into account the purpose of the provision and all relevant context. As this suggests, the latter part of the inquiry involves the contextual determination of legislative intent. [ 79 ] This approach is particularly important when it comes to the EMJA and preservation orders since Caldwell J.A., citing the authors, Tamara M.

Buckwold & Ronald C.C. Cumming, of Modernization of Saskatchewan Money Judgement Enforcement Law (Final Report) , (Saskatoon: College of Law, 2005) [ Final Report ], stated: [66] In that work, the authors note that the term preservation order was intended to reflect the functional effect of the order without evoking the concepts associated with pre- EMJA asset preservation measures, such as pre-judgment garnishment under The Attachment of Debts Act , RSS 1978, c A-32 (repealed), attachment under The Absconding Debtors Act , RSS 1978, c A-2 (repealed), or Mareva injunctions.

In this sense, in the authors’ assessment (at page 21): “The proposed statutory remedy [a preservation order] is sui generis and not derived from any prior law providing for the attachment of property or persons.” [67] The EMJA is certainly an integrated piece of legislation. It is not an extension of common law structures. It completely displaces enforcement measures available under prior law.

These conclusions are borne out by the scheme of the EMJA itself, the object of the EMJA , the legislation repealed upon its enactment and, lastly, by the debates in the Legislature regarding its passage. ... (Emphasis added) [ 80 ] In

summary, it is clear that the drafters of the EMJA intended for preservation orders to be a separate and new legal enforcement measures.

Furthermore, Caldwell J.A. went on to review the Legislature’s discussion of the EMJA and concluded that it was the intent of the Legislature for the EMJA to “completely displace prior law”; however, existing authorities may still be used in a limited role “by reason of the old policy considerations they reflect under pre- EMJA enforcement remedies as compared to and displaced by the new policy choices the Legislature has made through the EMJA ” ( Arslan at para 73 ). [ 81 ] Justice Caldwell then reviewed the existing case law dealing with ss. 5 and 8 of the EMJA , the Final Report and The Saskatchewan Enforcement of Money Judgement’s Act: Commentary and Analysis (Regina: Office of the Queen’s Printer, 2012) [EMJA Commentary], by Professor Ronald C.C.

Cumming and Donald H. Layh (as he then was). He summarized the results of his review and analysis stating: [88] To obtain a preservation order, s. 5(5) (

a) requires a plaintiff to, at a minimum, establish it has commenced an action that, if successful, would result in: (

a) a judgment in the plaintiff’s favour that requires a person to pay money; or (

b) an order declaring a gift, conveyance, assignment, transfer, delivery over or payment of property by the defendant void as a fraudulent conveyance or fraudulent preference. By “if successful”, s. 5(5) (

a) requires the plaintiff to establish its action rests on a recognised cause of action that is not groundless, in the sense that it offers some possibility the plaintiff will obtain a judgment within the meaning of s. 2(1)(aa) or an order described in s. 5(1)(a)(ii) if the factual allegations set forth in the pleadings, as may be supplemented by affidavit, are realistic and are borne out.

The court retains the discretion to require additional support for the application or to refuse to grant a preservation order even where the plaintiff has satisfied the evidentiary requirements of s. 5(5) (a) (and its other clauses) because the language of s. 5(5) is permissive, allowing the court to do what is just in the circumstances.

Lastly, a judge’s discretion under s. 8(4) is broad by reason that “the court may make any order that the court considers appropriate in the circumstances.” (Emphasis added) [ 82 ] It is clear that the necessary standard for an applicant to obtain a preservation order under the EMJA is less than a strong prima facie case.

Instead, the applicant must establish that its action is “not groundless” and is based on a recognized cause of action in the sense the plaintiff will obtain judgment if the factual allegations it rests upon are “realistic and borne out.” As well, the permissive language used in ss. 5(5) and 8(4) provide a court with wide discretion and the ability to require additional support from the applicant. [ 83 ] In conclusion, the current test, as to whether a preservation order should be granted under s. 5 of the EMJA , requires an applicant to file affidavit material to establish that its action is not groundless and has some possibility of success if the factual allegations set forth are realistic and borne out. [ 84 ] The EMJA does not provide how a court, once it has decided to grant a preservation order, should determine the quantum of that order.

However, in Triple A Farms v State Agriculture Development Inc , 2014 SKQB 368 , 461 Sask R 197 [ Triple A Farms ], Elson J. faced a similar scenario.

After determining that the applicant’s claim was not groundless and rose above the level of slim possibility of success—demonstrating that the applicant met the initial requirement for a preservation order—Elson J. went on to deny the application because it failed to properly set out the impact and extent of the preservation order ( Triple A Farms at para 44 ). [ 85 ] In essence, based on the materials in front of him, Elson J. could not reasonably determine what the quantum of damages would be if the applicant’s action was successful. However, the denial of the application did not turn on this point alone.

The preservation order was also denied on the basis that the applicants had not met the burden of showing that they would be unable to enforce any judgment if the order was not granted as required by s. 5(5) (

b) of the EMJA .

[ 86 ] In Triple A Farms , Elson J. had taken the analysis a step further by stating that the applicant has an onus of demonstrating that the remedy it seeks is attainable based on its pleadings. This is a kind of analysis of the appropriate quantum of the preservation order and extends beyond the question of whether an applicant’s claim is “not groundless”. [ 87 ] In Arslan , Caldwell J.A. rejected this approach. At paragraphs 85–87 he stated: [85] ... With reference to Jorgensen and Avramenko , Elson J. summarised the requirements of s. 5 of the EMJA , but then went on to frame the s. 5(5) (

a) test in negative terms, asking whether the plaintiff’s claim was “groundless and does not rise to a level above a slim possibility of success.” But, in its application to the facts at issue in Triple A Farms , Elson J. departed from his colleagues by essentially determining that a plaintiff must adduce evidence sufficient to make out a claim for liquidated damages, as had been a requirement under pre-EMJA law. [86] The Chambers judge in this case was “not prepared to adopt a different legal test than that adopted by the previous decisions” of his court. He also observed the EMJA bears the

interpretation reflected by the earlier jurisprudence from his court and that that

interpretation was “entirely consistent” with the modern principle of statutory

interpretation affirmed in Rizzo . [87] Like the Chambers judge, on the basis of the modern principle of statutory

interpretation ( Rizzo ), I find the textual meaning, legislative intent and relevant norms all support a single, consistent

interpretation of s. 5(5) (

a) of the EMJA . I find the

interpretation given to s. 5(5)(

a) in Jorgensen , Flynn , Taylor , and Avramenko is the correct

interpretation. (Emphasis added) [ 88 ] While not expressly stating it, by endorsing the

interpretation taken by the Court of Queen’s Bench in several earlier decisions dealing with preservation orders but not the approach taken in Triple A Farms , Caldwell J.A. has implicitly rejected the requirement that a preservation order applicant must prove the amount of the order as if the applicant was required to establish a claim for liquidated damages or some such.

This is also in line with the understanding that preservation orders under the EMJA are not a codification of prior enforcement law, but rather, are sui generis . [ 89 ] If an applicant is not required to prove specific liquidated damages or that the damages they seek are attainable under the facts pleaded, then it is necessary to determine what should guide a court’s decision when setting the quantum of a preservation order.

An obvious place to look is the stated purpose and guiding principles of the EMJA . [ 90 ] In the EMJA Commentary at 59–61, Cumming and Layh wrote that: ¶5[1] It has long been accepted in common law jurisdictions that the legal system must provide measures designed to reduce the opportunity for defendants to frustrate the enforcement of a money judgement that may be ultimately obtained against them by dissipating, destroying or disposing of exigible property, or moving it out of the jurisdiction of the court.

However, important public policy considerations are involved in the design and implementation of these measures. By definition they restrict the freedom of defendants and, in some cases, third persons to deal with their property at a time when the plaintiff has only a claim that has not been proved through court proceedings. Of greater concern is the potential use of these measures as a tactical weapon against a defendant who has a valid defence to a claim. A defendant might be induced to settle a groundless or doubtful claim simply to recover control of assets subject to a legal asset preservation measure.

Defendants deprived of the use of income earning assets may not have the resources to defend invalid claims. … ¶5[4]

Part II provides an asset preservation remedy that employs within a statutory framework the basic approach of the Mareva injunction.

It embodies the assumption that a balance between the need to ensure that assets are not put out of reach of [ judgment ] enforcement measures before those measures can be invoked, on the one hand, and the need to protect defendants’ and third parties’ property rights, on the other, can best be achieved through discretionary judicial intervention within clear statutory parameters. … (Emphasis added) [ 91 ] Since the EMJA is silent on the determination of how to determine the quantum of a preservation order, and Caldwell J.A. rejected the approach taken by Elson J. in Triple A.

Farms , this is an area of the EMJA that will require discretionary judicial intervention as discussed in the EMJA Commentary. According to Cumming and Layh, the exercise of this discretion must be within statutory parameters and take into consideration the public policy goal of balancing the applicant’s need to ensure that assets are not put out of reach of judgment enforcement, and the defendant’s right to deal freely with its property.

Furthermore, a court must also be aware of the potential for an applicant to abuse a preservation order by seeking a large quantum in order to gain a tactical advantage. [ 92 ] Support for this position can be found in the Final Report at 8, where Buckwold and Cumming state The EMJA reflects the recognition that no codification of an area of law can provide an appropriate response to every eventuality. Accordingly, the court would play an important supplementary and supervisory role in the proposed system.

The enforcement measures prescribed by the proposed Act are designed to advance the interests of creditors while protecting those of debtors. … [ 93 ] Additionally, Caldwell J.A. points out in Arslan : [88] … The court retains discretion to require additional support for the application or to refuse to grant a preservation order even where the plaintiff has satisfied the evidentiary requirements of s. 5(5)(a) (and its other clauses) because the language of s. 5(5) is permissive, allowing the court to do what is just in the circumstances . … (Emphasis added)

[ 94 ] Two further statutory parameters that a court should consider in exercising its discretion to set the quantum of a preservation order are ss. 5(7) and 115 of the EMJA . At page 23 of the Final Report , Buckwold and Cumming state: 16. … The potential for the procurement of a preservation order on the basis of a plaintiff’s groundless allegations of fact would be greatly diminished by the provisions of

section 5 relating to the provision of security by the plaintiff, and by the general requirement that a person must exercise rights conferred by the Act in good faith and in a commercially reasonable manner. [ 95 ] Section 5(7) of the EMJA as stated above requires the applicant for a preservation order to provide security that could compensate the defendant for any loss they suffer because of the order, while s. 115 requires any party exercising a right or power under the EMJA do so in good faith and a commercially reasonable manner.

Both of these sections provide a defendant with protection from a plaintiff who advances groundless claims or is attempting to gain a tactical advantage to procure settlement. [ 96 ] In conclusion, this Court rejected the position set out in Triple A Farms that an applicant must establish the extent of the preservation order in a manner similar to proving liquidated damages. This suggests that once an applicant has established that a preservation order should be granted, a court should apply a less stringent standard in determining the appropriate quantum of that order.

In exercising its inherent discretion within the EMJA , a court must consider the applicable statutory parameters and inherent purpose of the Act . [ 97 ] These considerations include the balancing of the interests between preserving the defendant’s assets for future enforcement and the defendant’s property rights in those assets and the concern that applicants may abuse preservation orders and use them as tactical weapons in order to facilitate settlements.

Sections 5(7) and 115 of the EMJA alleviate some of these latter concerns and may, in some cases, play a predominate role in allowing a chambers judge to st the quantum at the amount that is requested. They also serve to rationalize the less stringent standard when it comes to the quantum of the preservation order compared to the standard used when applying to obtain it.

However, it would not appear to be within the statutory parameters of the Act , good policy, or for that matter, a proper exercise of discretionary authority, for a court simply to set the quantum of the preservation order at whatever amount an applicant requests without question particularly in a case where the applicant’s own material calls into question the reasonableness of the assertions made. [ 98 ] Section 5(5) of the EMJA specifically gives the court discretion when making preservation orders and a judge must keep in mind the objectives and parameters of the EMJA when exercising his or her discretion. B.

Application to CACV3069 [ 99 ] At paragraph 9 of his judgment, the Chambers judge correctly stated the appropriate test for preservation orders under the EMJA , as laid out by this Court in Arslan and referenced in paragraph 22 of this judgment. Also, at paragraphs 19 and 20, the Chambers judge correctly stated: [19] The issuance of a preservation order is discretionary, and in attempting to protect the varied interests of the plaintiffs and defendant, some analysis of the quantum of the claim is required when it is put into dispute. [20] In a

summary application as contemplated by the Act , it would be contrary to the wording of the legislation and unrealistic to require the plaintiffs to prove the quantum of the claim is prima facie valid. … [ 100 ] Furthermore, the Chambers judge correctly identified the principles that should guide a court’s discretion when setting the quantum of a preservation order.

In particular, the Chambers judge acknowledged the balancing of interests at stake (para 22), the possibility of using the preservation order for a tactical advantage (para 23), and that the purpose of the assessment not being to determine the specific amount of damages the applicant has proven (para 31). [ 101 ] Simply put, I cannot find that the Chambers judge made any reviewable error in his statement of the applicable law or his

interpretation of the EMJA . [ 102 ] At paragraph 47 of its factum the Tenant states: … It is submitted that once a plaintiff meets the criteria for a preservation order, the quantum of the preservation order should be set at the amount requested by the plaintiff so long as they are able to show facts, if accepted at trial, would give the plaintiff the right to the preserved funds. [ 103 ] For the reasons discussed above, this submission does not represent the applicable test for the determination of a preservation order quantum.

Determining the quantum of such an order is a matter of judicial discretion that requires the court to weigh the interests of both parties involved. In addition, setting the quantum in the amount the Tenant submits would ignore the possibility that the parties may be using preservation orders as tactical weapon and that the court plays a supervisory role under the EMJA ( Final Report at 8). [ 104 ] The Tenant also argues that the judge erred in his weighing of the evidence.

The weighing of affidavit evidence is subject to a deferential standard of review and, for the reasons that follow, I find no error in how the judge weighed the evidence. [ 105 ] The Tenant’s contention that the Chambers judge should not have relied on the Landlord’s expert report because it had not been filed before the court in accordance with Rule 6-14 of the Queen’s Bench Rules must be addressed. Rule 6-14 states: 6-14(1) A party intending to oppose a claim made in an application shall: (

a) at least 7 days before the date set for hearing the application, serve a copy of each affidavit on which that party intends to rely at the hearing on every other party to the application; and

(

b) file the affidavits in accordance with rule 13-23.1, with proof of service.

(2) The party bringing the application may: (

a) serve an affidavit replying only to any new matters raised by the opposite party; and (

b) file the affidavit with proof of service at least 2 clear days before the date set for hearing the application. [ 106 ] The extension hearing was scheduled for Thursday, February 2, 2017. The Landlord served the MNP report on counsel on Monday, January 30, 2017, three days before the extension hearing. The Tenant argues that it objected to the Chambers judge’s review of the MNP report at the extension hearing because it had not had an opportunity to file material in response, but the Chambers judge relied on the MNP report notwithstanding the Tenant’s objection.

It should be noted that the Tenant did not bring an expert report of its own to the extension hearing, nor did it request an adjournment at the extension hearing on the ground that it needed time to file its own expert report or to review the MNP report more thoroughly. [ 107 ] The Chambers judge did not address the Tenant’s objection in his decision, but did provide reasons for why he considered the MNP report. The Chambers judge stated: [20] ... The exercise of discretion is a balancing of various pieces of information and interests.

The stronger the evidence presented on the calculation of damages the more likely the Court will lean in that direction in determining the proper amount for a preservation order.

The Court must analyze and weigh the evidence presented in more than a cursory fashion in order to do justice to the parties. [ 108 ] I can find no fault with the decision of the Chambers judge in the absence of a request by the Tenant for an adjournment to consider the MNP Report or a suggestion that it intended to file its own expert report. [ 109 ] The Chambers judge identified several discrepancies and errors the Tenant had made in its initial calculation of damages.

First, the Tenant’s initial request to the Court of Queen’s Bench included $50,000 for costs, which the Court denied on the basis of separate provisions in The Queen’s Bench Rules dealing with security for costs. Second, the Tenant’s original calculation of loss of profit included losses that would have occurred after the expiry of the lease. When the Landlord’s expert witness pointed this out, the Tenant voluntarily reduced its original claim by approximately $200,000. Finally, the Tenant’s affidavit provided little explanation or details on how it arrived at its projection of losses (para 32).

The material filed by the Tenant was controverted by both its own loan application and the expert report filed by the Landlord. Clearly, the Chambers judge relied on several factors in his decision to disregard the 36% cost of sales figure put forth by the Tenant, and not just the expert report submitted by the Landlord (para 35). [ 110 ] In conclusion on this appeal, when determining the appropriate quantum for the preservation order, the Chambers judge did not exercise his discretion in a way that was an abuse, nor did he disregard a material fact, err in principle, or fail to act judicially.

He correctly noted that the exercise of discretion required “a balancing of various pieces of information and interests” (at para 20). He weighed the evidence before him and without determining the merits of the parties’ claims in a trial-like process, determined what a fair quantum in these circumstances would be. [ 111 ] For these reasons, the appeal by the Tenant (CACV3069) is dismissed with costs. C. Failure to grant security [ 112 ] As previously noted, the second appeal by the Landlord relates to the requirement to provide security and whether an undertaking as to damages is sufficient for this purpose. a.

Is this Court the proper venue to order the Tenant to provide security? [ 113 ] The Tenant contends that the issue of security was not argued before the Chambers judge at the extension hearing and the Landlord should not be able to raise this issue on appeal. In my opinion, having regard to the record, the issue of security was before the Chambers judge at both the ex parte application and the extension hearing. [ 114 ] In the Tenant’s memorandum to the Chambers judge for the ex parte application, the Tenant argued that it should not be required to provide security (memorandum to the judge at paras 31 and 32).

The Tenant stated: 31. The Action against the [Landlord] is meritorious. Given the circumstances of this case, namely the risk that the Defendant may dissipate its assets or put them beyond the reach of the [Tenant], it would not be just and equitable to order the posting of security. 32. Alternatively, the [Tenant] would undertake to pay any damages or indemnity this Honourable Court may subsequently decide should be paid to the [Landlord] arising out of the preservation Order being granted.

An Undertaking as to Damages has been provided by the [Tenant]. [ 115 ] At the extension hearing, the Tenant’s brief of law did not address security.

However, the Landlord’s Brief of Law quoted s. 5(7) and noted that security by a plaintiff in an application for a preservation order is mandated unless the plaintiff provides evidence that it would suffer undue hardship if security was ordered against it (para 30 Landlord brief of law). [ 116 ] The Landlord acknowledges that, at the extension hearing, it did not specify the amount of security that should be ordered because that number was dependent on the quantum of the Preservation Order that was in issue at the hearing.

Nonetheless, the Landlord did raise s. 5(7) with the Chambers judge at the extension hearing (para 22 Landlord factum). I can find no case authorities stating that a defendant must raise the issue of security in order for the court to order it against the plaintiff. The EMJA states that security shall be ordered to compensate the defendant for any loss that may occur as the result of a preservation order.

[ 117 ] Therefore, the issue of security can be addressed by this Court. b.

Was the Chambers judge obligated to order security pursuant to s. 5(7) of the EMJA ? [ 118 ] Section 5(7) of the EMJA reads as follows: A preservation order shall require the plaintiff to provide security in an amount that, in the opinion of the court, is sufficient to compensate the defendant or other person affected by the preservation order for pecuniary loss that may be caused as a result of the preservation order unless, in the court’s opinion, requiring the plaintiff to provide security would cause undue hardship to the plaintiff. [ 119 ] Section 5(7) of the EMJA requires the plaintiff to “provide security” under a preservation order. “Security” is defined under s. 2 (tt) of the EMJA as “security as defined in The Securities Transfer Act .” [ 120 ] The Securities Transfer Act , SS 2007, c S-42.3, s 2(ff), defines security as: (ff) “ security ” means, except as otherwise provided in sections 10 to 16, an obligation of an issuer or a share, participation or other interest in an issuer or in property or an enterprise of an issuer: (

i) that is represented by a security certificate in bearer form or registered form, or the transfer of which may be registered on books maintained for that purpose by or on behalf of the issuer; (ii) that is one of a class or series, or by its terms is divisible into a class or series, of shares, participations, interests or obligations; and (iii) that: (

A) is, or is of a type, dealt in or traded on securities exchanges or securities markets; or (

B) is a medium for investment and by its terms expressly provides that it is a security for the purposes of this Act; [ 121 ] It is apparent from the definition of “security” that an undertaking is not a prescribed form of security for the purposes of s. 5(7) of the EMJA . [ 122 ] The definition provided in The Securities Transfer Act is applicable to other sections of the EMJA and appears to be referring to a “security” as it relates to a type of personal property, namely, as reference to some form of collateral.

In contrast, s. 5(7) of the EMJA appears to use the term “security” in a different way. [ 123 ] However, for the purposes of this appeal, it is not necessary to determine whether the definition of “security” as defined in The Securities Transfer Act applies to s. 5(7) of the EMJA . It may be an issue the parties address in the future when this matter is remitted to the Chambers judge. I mention this only for the reason that it was the Court who raised the issue with counsel when the appeal was argued.

I am reluctant to make a definitive ruling on this point without having informed submissions. [ 124 ] Recently, Danyliuk J. addressed the issue of providing security for a preservation order in Custom Foundations Ltd. v Welcome Homes Ltd , 2017 SKQB 148 [ Custom Foundations ]. In that decision, the applicants did not deal with the issue of security and only stated, “it is the responsibility of the Defendant to prove, and provide the court with evidence of these costs. Without leading such evidence, we submit that no security is required” (at para 37).

Justice Danyliuk disagreed and opined that: … I do not agree that “it is the responsibility of the Defendant” to prove or at least provide some evidence as to the amount of security required. Certainly, that would be helpful.

But prior cases also make it incumbent on the plaintiff to be proactive in this regard. (Emphasis added, para 38) [ 125 ] Justice Danyliuk went on to find that the party applying for a preservation order has a duty to deal with the security aspect of the application ( Custom Foundations at para 40 ). [ 126 ] In addition to this obligation, Danyliuk J. determined that an undertaking is no longer sufficient to meet this duty under s. 5(7) of the EMJA : [41] The EMJA is a new regime.

From the clear language of the statute, the filing of an undertaking to support, for example, a Mareva injunction [ Mareva Compania Naviera SA v International Bulkcarriers SA , [1975] 2 Lloyd’s Rep 509 ] is no longer sufficient. An undertaking is really nothing more than a promise to pay damages in the event the court order ought not to have been granted. In the world of injunctions, the efficacy of such undertakings is often questioned as they are only as good as the party providing them. [42] Under the EMJA , it is security that must be posted as ordered by the court.

The use of the word “security” as opposed to “undertaking” must be seen as having been intentional. Clearly, the legislature anticipated something more than a bare promise to be filed . … (Italics emphasis added, underlining in original) [ 127 ] Other Saskatchewan courts have allowed applicants to provide an undertaking as security under s. 5(7) of the EMJA .

In Grant Thornton Alger Inc. v Jorgensen , 2013 SKQB 250 , 424 Sask R 252 [ Jorgensen ], for example, Gabrielson J. determined that an undertaking was the appropriate order: [33] In my opinion, the requirement that an applicant provide security to compensate anyone affected by the preservation order for pecuniary loss is mandatory even in the circumstances of this case. The fact that the applicant may be a trustee in bankruptcy does not

mean that it may not be liable to the respondent for any loss caused as a result of the preservation order. However there is no evidence in this case as to the type of pecuniary loss that might be caused by the preservation order which I could then use to determine the amount of security required. Accordingly, in my opinion, an undertaking to be responsible for any such losses, similar to an undertaking as to damages which is a requirement for most injunctions, would be the appropriate order and sufficient security in this case .

I therefore make the filing of such an undertaking a condition precedent to the preservation order. (Emphasis added) [ 128 ] In Custom Foundations , Danyliuk J. addressed this discrepancy in the case law: [47] Thus, it strikes me that an applicant under s. 5 of the EMJA must propose something concrete in the way of posting security. If an applicant has no knowledge of damages, it may be forced to state just that in its evidence and perhaps even propose a somewhat arbitrary sum.

It does not necessarily have to be for the full amount of the claim, but the plaintiff must deal with this portion of such an application. While I have already opined that the use of “security” instead of “undertaking” was intentional and that attention must be paid to this change, Justice Gabrielson has indicated that in some instances (such as where there is no evidence of the amount of security) the more traditional undertaking may be used.

While I do not contest what Justice Gabrielson said in Tru Northcentral RV , it is my own view that to ensure the change in s. 5(7) of the EMJA is meaningful and to ensure that we do not simply lapse back into the old Mareva injunction processes, the use of a traditional undertaking should be discouraged and used sparingly. (Emphasis in original) [ 129 ] Both Danyliuk and Gabrielson JJ. agree that s. 5(7) includes a mandatory security requirement.

Where they disagree is whether an undertaking to be responsible for any losses the defendant suffers is sufficient to satisfy this security requirement. [ 130 ] In Ṣekerbank T.A.Ṣ. v Arslan , 2017 SKQB 205 [ Ṣekerbank ], Barrington-Foote J. endorsed the view of Danyliuk J. and stated: [54] It is, however, my view that the Order should be modified to provide that Ṣekerbank provide security as contemplated by ss. 5(7) of the EMJA , despite the fact that the defendants agreed to an Order that did not provide for security.

I reach that conclusion for two reasons. [55] First, I agree with the conclusion of Danyliuk J. in Custom Foundations Ltd. v. Welcome Homes Ltd. , 2017 SKQB 148 , at paras 41-43 [Custom] that ss. 5(7) requires that the plaintiff provide security .

Section 5(7) describes the measure to be applied: that is, the security should be in an amount “sufficient to compensate the defendant or other person affected by the preservation order for pecuniary loss that may be caused as a result of the preservation order”. [56] Further, the plaintiff should, to the extent possible, deal with this issue in its application: see Custom at paras 39-40, and Alliance Pulse Processors Inc. v. Hudson Bay Port Co ., 2016 SKQB 307 , at para 14 . That said, I agree with Danyliuk J. that a plaintiff may have little or no ability to quantify a defendant’s potential losses.

It should not be denied relief for that reason. In practical terms, the defendant may be obliged to provide evidence if it wishes to ensure there is adequate security. (Emphasis added) [ 131 ] While not explicitly stating so, it appears that Barrington-Foote J. also found that an undertaking is not sufficient security under s. 5(7) .

Justice Barrington-Foote went on to order the applicant to provide $1 million in security ( Ṣekerbank at para 62 ). [ 132 ] A review of Saskatchewan decisions dealing with s. 5(7) of the EMJA seems to indicate that often the applicant makes no mention or submission as to the amount of security that should be provided. If a value is given, there is no explanation as to why that amount is appropriate. In McCrimmon v Northwest Tile Inc. , 2017 SKQB 365 [ McCrimmon ], the applicants did not address the security requirement under s. 5(7) .

Justice Barrington-Foote undertook his own analysis and determined that security in the amount of $2,500 would be appropriate (para 15). [ 133 ] There is currently no definitive position in Saskatchewan that an undertaking is sufficient to satisfy the security requirement under s. 5(7) of the EMJA . While Danyliuk and Barrington-Foote JJ. have endorsed the approach that an undertaking is insufficient, Gabrielson J. came to the opposite conclusion in Jorgenson .

The authors of the EMJA Commentary have provided the following guidance on s. 5(7) : ¶5[25] Subsection 5(7) of the Act provides that a preservation order must require the plaintiff to provide security from which the defendant or third party affected by the order can be compensated should the action against the defendant fail for the reasons specified in subsection 9(2) . However, the court may dispense with this requirement when an order for security would cause “undue hardship” to the plaintiff.

While the Act does not define what constitutes “undue hardship”, it implicitly includes situations where the plaintiff does not have sufficient resources or access to funding or assets to provide the security. An absolute requirement that the plaintiff provide security would effectively deny the remedy to a plaintiff for financial reasons even though the plaintiff has otherwise met the requirements of the Act.

However, given the risk to which the defendant may be exposed when no security is provided, as an alternative to ordering security, the court may include in the preservation order conditions and limitations that reflect the lack of security. For example, the duration of the order may be shorter or t

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