101280222 Saskatchewan Ltd. Appellant (Plaintiff) v. Silver Star Salvage (1998) Ltd. and, 2019 SKCA 59

Court of Appeal for Saskatchewan Docket: CACV3179 Citation: 101280222 Saskatchewan Ltd. v Silver Star Salvage

(1998) Ltd. , 2019 SKCA 59 Date: 2019-06-26 Between: 101280222 Saskatchewan Ltd. Appellant (Plaintiff) And Silver Star Salvage

(1998) Ltd. and Calvin Anderson Respondents (Defendants) Before: Richards C.J.S., Ryan-Froslie and Schwann JJ.A. Disposition: Appeal dismissed Written reasons by: The Honourable Chief Justice Richards In concurrence: The Honourable Madam Justice Ryan-Froslie The Honourable Madam Justice Schwann On Appeal From: QB No 40 of 2017, Moose Jaw Appeal Heard: September 4, 2018 Counsel: David Chow for the Appellant Kenneth Cornea for the Respondents Richards C.J.S. I. Introduction [ 1 ] The appellant, 101280222 Saskatchewan Ltd. [Sask Ltd], bought a business from the respondents, Silver Star Salvage

(1998) Ltd. [Silver Star] and Calvin Anderson . A negative covenant in the purchase agreement placed restrictions on the activities that Silver Star and Mr. Anderson could carry on after the sale. Sask Ltd believed those restrictions were being breached and, therefore, it commenced an action against Silver Star and Mr. Anderson. Sask Ltd then sought an interim injunction aimed at obliging Silver Star and Mr. Anderson to comply with the negative covenant. The application was dismissed by a Queen’s Bench Chambers judge. [ 2 ] Sask Ltd appeals the decision of the Chambers judge.

It argues he committed several errors in the course of deciding to reject the injunction application. As explained below, the Chambers judge did make an error of principle in his handling of the application because he failed to properly account for the fact that he was being asked to enforce a negative covenant. Nonetheless, Sask Ltd’s appeal must be dismissed. In the circumstances of this case, its failure to provide an undertaking as to damages is fatal to its attempt to obtain injunctive relief. II. background [ 3 ] Silver Star carried on a metal salvage and recycling business in Moose Jaw. Mr.

Anderson owned land used by Silver Star in connection with those operations. He was also the sole director and officer of Silver Star and held all of the shares of Silver Star either directly or through a company. [ 4 ] Sask Ltd entered into a purchase agreement [Agreement] with Silver Star and Mr. Anderson in December of 2015. Clause 10 of the Agreement contained a provision precluding Silver Star from having ongoing dealings with its existing customers, save for CPR, Yara, Mosaic and Great Western Rail in respect of ferrous metals. Clause 10 reads as follows: [Silver Star and Mr.

Anderson] acknowledge that it was a pre-condition by [Sask Ltd] that they have the exclusive rights to deal with all of [Silver Star’s] existing customers as of the closing date apart from those ones specifically set out herein whom [Silver Star and Mr.

Anderson] will continue to be able to deal with with respect to ferrous products only specifically CPR, Yara, Mosaic and Great Western Rail. [Silver Star] will separate any non-ferrous products received in salvage materials from those customers and will deposit those in a bin to be provided by [Sask Ltd]. [Sask Ltd] agrees that they will be responsible for the emptying of those bins when advised by [Silver Star] that the same are full or near to full.

Apart from these customers following the closing date any loads brought to [Silver Star’s] east yard by individuals including existing farm clients will be directed to [Sask Ltd’s] location. [ 5 ] Clause 19 of the Agreement is also of some relevance to this appeal: [Silver Star and Mr. Anderson] will, both before and after Closing, co-operate in all reasonable ways with [Sask Ltd] to assist [Sask Ltd] to retain all of the customers of [Silver Star] for the business to be carried on by [Sask Ltd]. [ 6 ] As time passed, Sask Ltd concluded that Silver Star and Mr. Anderson were not complying with the Agreement.

Sask Ltd caused a statement of claim to be issued wherein, in relevant part, it alleged Silver Star had breached the terms of the Agreement by accepting and selling ferrous and non-ferrous metal in violation of clause 10. The statement of claim further alleged that Sask Ltd had suffered damages by virtue of the breach of the Agreement. It sought relief in the form of, among other things, damages and an order enforcing the terms of the Agreement. [ 7 ] Silver Star and Mr. Anderson filed a statement of defence in which they took issue with Sask Ltd’s allegations. With respect to

the contention that they had breached clauses 10 and 19 of the Agreement, they pled as follows: 13. In reply to paragraphs 32 and 33 of the Claim the Defendants state that they have fully complied with all of the requirements ofparagraphs 10 and 19 of the Closing Agreement and that all customers apart from those that the Defendant reserved under the terms of theAgreement have been directed to the Plaintiff.

The Defendants further state that in the event that there are some customers that have notbeen prepared to make deliveries to the Plaintiff it is as a result of the poor business practices adopted by the Plaintiff subsequent to takingover operations of the West Yard from the Defendants. III. The decision of the Chambers judge [8] Sask Ltd applied for an interim injunction cast in these terms: 2.

An immediate injunction preventing the Defendants from continuing to deal in the acceptance, purchase or sale of scrap metalgoods other than ferrous metal goods received from, purchased from or sold to Canadian Pacific Rail, YARA, Mosaic and Great WesternRail[.] [9] As noted above, the Chambers judge dismissed the application. He did so for three reasons. First, he noted that Sask Ltd hadnot provided an undertaking as to damages or asked that the requirement of an undertaking be dispensed with.

As a result, the Chambersjudge concluded that he had little alternative but to deny the injunction. [10] Second, the Chambers judge held that an interim injunction could not be granted because, in its statement of claim, Sask Ltdhad not sought a permanent injunction by way of relief. [11] Third, the Chambers judge indicated that, putting aside the issues concerning the undertaking as to damages and the reliefsought in the statement of claim, he would not grant the injunction because Sask Ltd had not shown it would suffer irreparable harm in theabsence of an injunction.

IV. analysis [12] Sask Ltd submits the Chambers judge erred in all three branches of his analysis: (

a) the undertaking as to damages issue; (

b) thequestion of the failure to seek a permanent injunction; and (

c) the assessment of irreparable harm. I will deal with each of these matters inturn. However, before doing so, it is necessary to confirm the applicable standard of review. A. Standard of review [13] A deferential standard of review applies when considering an appeal from the grant or denial of an interim injunction. ThisCourt may not interfere with a Queen’s Bench decision of this sort merely because its members might have exercised the discretion inquestion differently than did the Chambers judge. See: Manitoba (Attorney General) v Metropolitan Stores Ltd., (SCC),[1987] 1 SCR 110 at 153–156.

See also: Fettes v Culligan Canada Ltd., 2009 SKCA 144 at para 13, [2010] 6 WWR 420. [14] Deciding whether to grant an interim injunction involves the exercise of judicial discretion. Accordingly, as per Rimmer vAdshead, 2002 SKCA 12, [2002] 4 WWR 119, this Court should interfere with a Queen’s Bench decision only if it involves an error ofprinciple, the disregard or misapprehension of a material fact, a failure to act judicially or a result that is so plainly wrong as to amount toan injustice. B.

Undertaking as to damages [15] As indicated above, the Chambers judge noted that Sask Ltd had not provided an undertaking as to damages or sought to havehim dispense with the requirement of an undertaking. In light of this, the Chambers judge concluded that he had “little alternative” but todeny the injunction application. [16] Sask Ltd submits the Chambers judge made two errors in dealing with the issue of the undertaking. First, it argues theChambers judge erred because the subject of an undertaking was not raised in Chambers either by Silver Star and Mr. Anderson, or by theChambers judge himself.

In short, Sask Ltd contends it was denied an opportunity to respond to, or make submissions on, this issue. SaskLtd’s second argument is that the Chambers judge wrongly saw the lack of an undertaking as a stand-alone reason to deny the injunction.It suggests the absence of an undertaking was merely one factor to consider in the balance of convenience analysis. [17] Sask Ltd’s first argument has obvious merit if it sits on a solid factual foundation, i.e., if its injunction application was deniedon a ground about which it had no notice and in relation to which it had no chance to make submissions.

However, this is apparently notwhat happened. [18] Counsel for Sask Ltd indicated in oral argument that, to his recollection, no issue about the undertaking had been brought up inChambers. At the same time, counsel indicated that he was prepared to be corrected on the point. In his oral submissions, counsel forSilver Star and Mr. Anderson advised that he had raised the matter of the undertaking with the Chambers judge but had seen no need topress it because of what he called the well-recognized convention that a plaintiff must provide an undertaking in order to secure aninjunction.

Counsel for Sask Ltd took no exception to this account of events in his reply. Accordingly, I am left to conclude that thequestion of the undertaking was raised in Chambers and that, as a result, Sask Ltd’s first argument on this point must fail. [19] Sask Ltd’s second argument cannot succeed either. It rests both on a faulty reading of the Chambers judge’s decision and on amisunderstanding of the basic principles that apply in determining whether to grant an interim injunction.

[20] Let me begin with the Chambers judge’s decision. Contrary to the submission of Sask Ltd, the judge did not proceed on thebasis that the failure to provide an undertaking as to damages was, in and of itself, a basis for denying Sask Ltd’s injunction application.Rather, the Chambers judge seems to have weighed the absence of an undertaking into the balance when determining the overall equitiesand justice of the situation.

This is apparent from his reference to Automated Tank Manufacturing Inc. v Miller, 2012 SKQB 300, 402 SaskR 23, and his reliance on the following passage from that case: [44] However, in its notice of motion, ATM asks the Court not to require an undertaking as to damages. While the Court has discretionin requiring such an undertaking (see s. 55 of The Queen’s Bench Act, 1998, S.S. 1998, c. Q-1.01), as far as I am aware, no court inSaskatchewan has failed to include such a requirement in granting an interim injunction.

The fact that the applicant has requested relieffrom such an undertaking leads me to an inference that ATM is either not confident in the merits of its case or wishes to avoid any risk inthis regard. That is a significant factor in considering whether to grant the relief sought as “it goes to the overall equities and justice of thesituation at hand”. See Potash Corp. of Saskatchewan Inc. v. Mosaic Potash Esterhazy Limited Partnership, supra, at subparagraph113(d). In my opinion, the equities do not favour ATM. [21] That, however, takes the analysis to the principles that govern undertakings as to damages.

Simply put, I do not accept SaskLtd’s assumption, an assumption reflected in the Chambers judge’s line of thinking, that such undertakings are merely one factor amongmany to be weighed in the balance of convenience analysis.

As Justice Robert Sharpe explains in Injunctions and Specific Performance,loose-leaf (Rel 27, Nov 2018) (Toronto: Thomson Reuters, 2017) at para 2.470, “[i]t is well established that, as a condition of obtaining aninterlocutory injunction, the plaintiff must give an undertaking to pay to the defendant any damages that the defendant sustains by reasonof the injunction, should the plaintiff fail in the ultimate result”.

Justice Sharpe also points out at paragraph 2.500 of the same text that anundertaking as to damages is almost always required in commercial cases although there is a discretion to relieve a plaintiff of theobligation to give an undertaking in special circumstances.

In my view, and as the authorities suggest, all of this is best consideredindependently from, and subsequent to, the analysis of whether the plaintiff has otherwise made out a case for an injunction. [22] It follows that, while the Chambers judge erred in his handling of the undertaking as to damages issue, he erred for preciselythe opposite reason than the one suggested by Sask Ltd. He incorrectly saw the absence of an undertaking as no more than a factor to beconsidered in the assessment of the overall justice and equities of the situation. [23] This does not mean that Sask Ltd carries the day on this appeal.

It means only that, as explained below at paragraphs 38 andfollowing, the issue of an undertaking as to damages falls to be dealt with as a separate consideration in deciding whether to grant theinjunction in issue here. C. Failure to seek a permanent injunction [24] The Chambers judge’s second basis for dismissing Sask Ltd’s application was that it had not claimed permanent injunctiverelief in its statement of claim.

Relying on Bank of Montreal v Ostapowich, (Sask QB), he saw this as obliging him todeny Sask Ltd’s application. [25] Sask Ltd argues the Chambers judge erred by refusing the injunction on this ground. It contends there is no absolute necessityfor a plaintiff to seek a permanent injunction in its statement of claim as a precondition to securing an interim injunction. Sask Ltd alsosubmits that, in any event, the statement of claim does request a permanent injunction. [26] I agree with Sask Ltd’s second point. Its statement of claim did not, in express terms, seek an injunction.

However, it didrequest the following relief at paragraph 44(c):

c) An order enforcing the provisions of the Closing Agreement specifically reserving the collection and sale of certain metalsexclusively to the Plaintiff and to the exclusion of the Defendant and estopping the Defendant and its agents and representatives fromaccepting, soliciting, collecting and selling any non-ferrous metal from any source as well as any ferrous metal from a source other thanCPR, YARA, Mosaic and Great Western Rail[.] [27] In my view, an order framed in these terms would be a permanent injunction in all but name. Moreover, counsel for Silver Starand Mr.

Anderson quite properly acknowledged in oral argument that the obvious way for a court to provide the relief requested inparagraph 44(

c) would be to grant an injunction. As a result, I respectfully conclude the Chambers judge proceeded on an erroneouspremise in this branch of his decision, i.e., he erroneously proceeded on the premise that Sask Ltd had not sought permanent injunctiverelief in its statement of claim. It follows that the Chambers judge should not have denied Sask Ltd’s application on the basis that it hadfailed to request a permanent injunction.

Accordingly, I need not deal with the question of whether, as a matter of principle, a plaintiffmust seek a permanent injunction in its statement of claim before it can secure an interim injunction. That question can wait until anotherday. D. Consideration of irreparable harm [28] The Chambers judge also held that Sask Ltd had not established it would suffer irreparable harm unless an injunction wasgranted.

He based this conclusion on the fact that Robert Nelson, the President of Sask Ltd, had sworn an affidavit indicating he hadlearned Silver Star was buying stainless steel contrary to the Agreement in June of 2016 and that, in June of 2017, he had learned used fueltanks were being taken to Silver Star’s yard in breach of the Agreement.

Referring to Smith v Dawgs Canada Distribution Ltd., 2008SKQB 219, [2008] 11 WWR 342, the Chambers judge said it was difficult for a plaintiff to argue irreparable harm when a considerableamount of time had elapsed since the alleged breach of an agreement. [29] Sask Ltd contends this line of analysis was wrong in principle because it failed to take account of the fact that Silver Star and

Mr. Anderson were contravening the negative covenant found in clause 10 of the Agreement. It submits an interim injunction intended toenforce a negative covenant stands on different ground than interim injunctions more generally. This submission has merit. [30] The foundational case in this area is Doherty v Allman (1878), 3 App Cas 709 (HL) [Doherty]. There, speaking of a finalinjunction sought at trial, Lord Cairns held that the standard line of analysis generally applicable to injunction applications did not applywhen the issue was the enforcement of a negative covenant.

He explained this at page 720: … If parties, for valuable consideration, with their eyes open, contract that a particular thing shall not be done, all that a Court of Equityhas to do is to say, by way of injunction, that which the parties have already said by way of covenant, that the thing shall not be done; andin such case the injunction does nothing more than give the sanction of the process of the Court to that which already is the contractbetween the parties.

It is not then a question of the balance of convenience or inconvenience, or of the amount of damage or of injury—itis the specific performance, by the Court, of that negative bargain which the parties have made, with their eyes open, between themselves.… (Emphasis added) [31] In Saskatchewan, the leading decision on the issue of interim injunctions aimed at enforcing negative covenants is Canada(Attorney General) v Saskatchewan Water Corp., (SK CA), [1992] 4 WWR 712 (Sask CA) [Sask. Water].

In that case,Bayda C.J.S., writing for the Court, put a gloss on what Lord Cairns had said in Doherty by indicating there were occasions when thenotions of irreparable harm and balance of convenience would have a role to play in an application for an interim injunction to restrain thebreach of a negative covenant. He said this: [34] With respect, we agree with the approach by the Manitoba court that while irreparable harm and the balance of convenience neednot be weighed nicely in deciding whether to enforce a negative covenant, they remain of some relevance.

This is because, as ProfessorSharpe points out, there could be a danger in an unreserved adoption of the Doherty principle that is applicable to injunctions at the trialstage. Facts and law which seem so clear at the interlocutory stage could look much different when the matter comes on for trial. Indeed,many of the cases which concern negative covenants refer to plain and uncontested breaches of clear covenants, as does Megarry J. inHampstead.

In cases where the plaintiff's prima facie case is not so strong as a plain and uncontested breach of a clear covenant, thebalance of convenience will assume more, though not central, importance.

In any event, irreparable harm may usually be inferred from thenature of a negative covenant, and need not be proved. (Emphasis in original) [32] In summarizing the Court’s view, Bayda C.J.S. emphasized that the role played by irreparable harm and the balance ofconvenience in the analysis of an application to enjoin non-compliance with a negative covenant should be a function of the strength of theplaintiff’s contention that the covenant had been breached. He put it this way: [36] In

summary, we find that to apply the appropriate test where an interlocutory injunction is sought on the basis of breach of anegative covenant the judge should use the following approach. To satisfy the first test he must undertake a preliminary and tentativeanalysis of the strength of the case put forward by the plaintiff. Is it overwhelming? Is it a strong prima facie case? Is it a prima faciecase? Is it less than a prima facie case?

Similarly he must make a tentative and preliminary assessment of the possible defences whichmay be offered, all with a view to estimating the extent to which those defences reduce the strength of the case initially shown by theplaintiff. At the end of that process the judge must answer the question: Is the plaintiff left with at least a prima facie case? If the answeris yes, the first test has been satisfied.

As for the second and third tests, the strength of the case that the plaintiff is left with will determinehow heavily the balance of convenience and irreparable harm must be weighed in the context of negative covenants. If the plaintiff is leftwith a strong prima facie case approaching a plain and uncontested breach of a clear covenant, then an injunction ought to be grantedwithout much regard to the balance of convenience and irreparable harm. If the plaintiff is left with only a prima facie case then moreregard needs to be had to the balance of convenience and irreparable harm. (Emphasis added) [33] Sask.

Water was decided almost 28 years ago and there have been developments in the jurisprudence during those interveningyears that suggest the line of analysis prescribed by the Court should be updated. [34] The most significant evolution in the law since Sask. Water concerns the “strength of the case” aspect of the test for decidingwhether to grant an interim injunction. It is now firmly established that, as a general rule, a plaintiff seeking such an injunction mustdemonstrate a serious issue to be tried and not, as Bayda C.J.S. suggested in Sask. Water, a prima facie case.

See: Mosaic Potash EsterhazyLimited Partnership v Potash Corporation of Saskatchewan Inc., 2011 SKCA 120 at paras 29–48, 341 DLR (4th) 407 [Potash Corp.]. [35] It is also important to note what the Court has said, since Sask. Water, about the rest of the analysis required to determine if aninterim injunction should be granted. The proper approach was summarized at paragraph 113 of Potash Corp.: … (

b) Irreparable harm is best seen as an aspect of the balance of convenience. The general rule here is that the plaintiff must establish atleast a meaningful doubt as to whether the loss he or she might suffer before trial if an injunction is not granted can be compensated for, oradequately compensated for, in damages. Put another way, the plaintiff must demonstrate a meaningful risk of irreparable harm. If this isdone, the analysis turns to the balance of convenience proper. (

c) The assessment of the balance of convenience is usually the core of the analysis. In this regard, the relative strength of theplaintiff’s case, the relative likelihood of irreparable harm, and the likely amount and nature of such harm will typically all be relevantconsiderations. Depending on the particulars of the case, strength in relation to one of these matters might compensate for weakness inanother.

Centrally, the judge must weigh the risk of the irreparable harm the plaintiff is likely to suffer before trial if the injunction is notgranted, and he or she succeeds at trial, against the risk of the irreparable harm the defendant is likely to suffer if the injunction is grantedand he or she prevails at trial. That said, the balance of convenience analysis is compendious. It can accommodate a range of equitable and

other considerations. (

d) The judge’s ultimate focus in considering whether to grant interlocutory injunctive relief must be on the overall equities and justice of the situation at hand. [ 36 ] Factoring these developments into the Sask. Water framework yields a template that varies somewhat from the one laid out in that case by Bayda C.J.S. When faced with an application for an interim injunction to enforce a negative covenant, a judge should first assess the strength of the plaintiff’s case.

Is that case overwhelming, a strong prima facie case, a prima facie case, a case that raises a serious issue to be tried or one that has even less merit than that? If the plaintiff’s case raises at least a serious issue to be tried, the judge must go on to consider the questions of irreparable harm and the balance of convenience with, as per Potash Corp ., an ultimate focus on the overall equities and justice of the situation at hand.

In a circumstance where the plaintiff’s case is strong, equity and justice will normally incline very clearly in favour of granting the injunction on the theory that the judge is doing little more than enforcing a bargain made between the plaintiff and the defendant. In a situation where the plaintiff’s case is less compelling, the issues of irreparable harm and the balance of convenience will play a more central role and the advisability of granting an injunction may be less obvious. [ 37 ] It appears that Sask. Water was not drawn to the attention of the Chambers judge.

In any event, the reality is that he did not consider that decision, let alone grapple with the issue of how recent developments in the law have affected what was said in it. Rather, the Chambers judge focussed narrowly on the issue of irreparable harm without any apparent regard to the fact that he was doing so in the context of an application to enjoin the breach of a negative covenant. As explained above, he should have analyzed the strength of Sask Ltd’s argument that clause 10 of the Agreement was being violated and gone on from there.

This was a consequential error because the affidavit material filed by the parties establishes in rather clear terms that, to at least some extent, clause 10 of the Agreement had been breached by Silver Star and Mr. Anderson. [ 38 ] Nonetheless, all of this comes to naught as far as Sask Ltd is concerned. This is because it has not provided an undertaking as to damages. In my view, its injunction application founders on that point. [ 39 ] Sask Ltd suggests no undertaking is necessary here because it seeks nothing more than the enforcement of the bargain made between it and Silver Star and Mr. Anderson.

Given that Silver Star and Mr. Anderson do not challenge the validity of the Agreement, Sask Ltd submits no harm can come to them from an interim injunction that merely obliges compliance with the Agreement. [ 40 ] However, the situation is not this simple or straightforward. Silver Star and Mr. Anderson do not contest the validity of the Agreement but they certainly do seem to dispute what clauses 10 and 19 of the Agreement mean in practice. Paragraph 13 of the statement of defence, for example, suggests the Agreement does not prohibit Silver Star and Mr.

Anderson from dealing with customers who have deliberately turned away from Sask Ltd because of what paragraph 13 describes as Sask Ltd’s poor business practices. Mr. Anderson’s affidavit appears to reveal another argument to the effect that the Agreement is not breached if Silver Star accepts metal items too large to be conveniently handled at Sask Ltd’s yard. In short, it is apparent there will be issues raised at trial about the scope or meaning of the Agreement and, as a result, there is at least some meaningful prospect that an injunction could enjoin Silver Star and Mr.

Anderson’s rights as they are finally ascertained. This is precisely why undertakings as to damages are required. [ 41 ] In the end, therefore, I conclude that Sask Ltd’s failure to provide an undertaking as to damages is a fatal shortcoming in its application. V. conclusion [ 42 ] As indicated above, I conclude the Chambers judge erred in principle when considering whether to grant the injunction sought by Sask Ltd. Nonetheless, Sask Ltd’s application must fail because it has not provided an undertaking as to damages and has not established any proper basis for dispensing with an undertaking.

It follows that Sask Ltd’s appeal must be dismissed. [ 43 ] Silver Star and Mr. Anderson are entitled to a single set of costs. “Richards C.J.S.” Richards C.J.S. I concur. “Richards C.J.S.” for Ryan-Froslie J.A., as per authorization I concur. “Schwann J.A.” Schwann J.A.