Fauser Energy Inc. Appellant (Defendant/Plaintiff by Counterclaim) v. Tyson Skjerven and Breanne Skjerven, 2019 SKCA 81

Court of Appeal for Saskatchewan Docket: CACV3212 Citation: Fauser Energy Inc. v Skjerven , 2019 SKCA 81 Date: 2019-08-22 Between: Fauser Energy Inc. Appellant (Defendant/Plaintiff by Counterclaim) And Tyson Skjerven and Breanne Skjerven Respondents (Plaintiffs/Defendants by Counterclaim) Sedona Enterprises Ltd. and 101175343 Saskatchewan Ltd. Respondents (Plaintiffs by Counterclaim) Before: Richards C.J.S., Jackson and Caldwell JJ.A. Disposition: Appeal dismissed Written reasons by: The Honourable Madam Justice Jackson In concurrence: The Honourable Chief Justice Richards The Honourable Mr.

Justice Caldwell On Appeal From: 2018 SKQB 41 , Swift Current Appeal Heard: September 7, 2018 Counsel: Phillip Gallet and Riley Braun for the Appellant Lindsay Gates for the Respondent Jackson J.A. I. Introduction [ 1 ] This appeal raises classic issues pertaining to the rights of the immediate parties to a promissory note. The first issue is whether the payor under the note can resist an application for

summary judgment brought by the payee of the note by asserting a claim for unliquidated damages based on an alleged partial failure of consideration. The second issue concerns the principles to apply when deciding whether to grant a stay of execution of a

summary judgment for the amount owing under the note pending the resolution of a counterclaim to resolve a claim for unliquidated damages. [ 2 ] The background to these issues may be briefly stated. On November 1, 2013, Tyson Skjerven and Breanne Skjerven [the Sellers] sold shares in 101175343 Saskatchewan Ltd. to Fauser Energy Inc. [the Buyer]. The Sellers and the Buyer executed a purchase and sale of shares agreement [Share Purchase Agreement]. Partial payment of the purchase price was made by means of a Promissory Note.

Additionally, the parties executed a restrictive covenant agreement [Non-Competition Agreement].

The Promissory Note and the Non-Competition Agreement are schedules to the Share Purchase Agreement. [ 3 ] According to the terms of the Share Purchase Agreement, the price to be paid for the shares totaled $1,200,000, payable as follows: (a) “$20,000 by way of deposit paid upon the execution” of the Share Purchase Agreement; (b) “$730,000 to be paid on the closing date by way of a direct deposit or solicitor’s trust cheque payable to or to the order of the solicitor for the Vendor”; and (c) “$450,000 by way of the Promissory Note set forth in

Schedule 10” of the Share Purchase Agreement, the terms of which provide that the principal amount would be paid by equal, annual instalments plus interest at 4%, based on an amortization

schedule beginning on November 1, 2014, and continuing up to and including November 1, 2016. [ 4 ] The Buyer made the first two payments under the Promissory Note (on November 1, 2014, and November 1, 2015), but did not make the third and final payment, which was due on November 1, 2016, in the amount of $155,920 plus interest. [ 5 ] The Buyer did not make the final payment because it believed the Sellers had breached the terms of the Non-Competition Agreement. According to the Buyer, Mr.

Skjerven had incorporated a new company, Helix Construction Ltd. [Helix], on December 5, 2014, and was carrying on business precluded by the Non-Competition Agreement. In letters dated January 9 and June 22, 2015, counsel to the Buyer demanded that the Sellers comply with the Non-Competition Agreement. Nonetheless, the Buyer made the November 1, 2015, payment under the note. The Buyer later declined to make the final payment. [ 6 ] On January 24, 2017, the Sellers issued a Statement of Claim demanding payment of the monies owing under the Promissory Note.

On March 9, 2017, the Buyer defended the action, claiming a partial failure of consideration for the sale of the shares and denying any amount owing to the Sellers by virtue of an unliquidated claim for set-off arising from the alleged breaches of the Non- Competition Agreement. At the same time, the Buyer issued a counterclaim seeking damages for those breaches.

[ 7 ] On September 20, 2017, the Sellers brought an application seeking

summary judgment for the final installment, plus interest and court costs, and the dismissal of the counterclaim. The application was heard in the Court of Queen’s Bench Chambers. [ 8 ] The Chambers judge (

a) granted

summary judgment to the Sellers with respect to the amount outstanding under the Promissory Note, (

b) dismissed the Sellers’ application for

summary judgment with respect to the counterclaim thereby permitting that claim to proceed to trial, and (

c) declined to grant a stay of the

summary judgment pending the resolution of the counterclaim (see Skjerven v Fauser Energy Inc. , 2018 SKQB 41 [ Chambers Decision ]). The Sellers did not appeal the dismissal of their application for

summary judgment with respect to the counterclaim. [ 9 ] The Buyer appeals (

a) the decision granting

summary judgment for the amount owing under the Promissory Note and (

b) the decision declining to grant a stay of that judgment. In written argument, the Buyer asserts that the Chambers judge failed to recognize the difference “between the position of the payor, a payee and a holder in due course”. [ 10 ] I have concluded that the Chambers judge erred with respect to how he stated the law, but he did not err by granting

summary judgment. With respect to the refusal to grant a stay, I have also concluded, given the standard of review, there is no basis to interfere with that decision. II. Relevant Rules of Court and Legislative Provisions [ 11 ] The Sellers brought their application for

summary judgment pursuant to Rule 7-5 of The Queen’s Bench Rules : Disposition of application 7-5

(1) The Court may grant

summary judgment if : (

a) the Court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence ; or (

b) the parties agree to have all or part of the claim determined by

summary judgment and the Court is satisfied that it is appropriate to grant

summary judgment.

(2) In determining pursuant to clause (1)(

a) whether there is a genuine issue requiring a trial, the Court: (

a) shall consider the evidence submitted by the parties; and (

b) may exercise any of the following powers for the purpose, unless it is in the interest of justice for those powers to be exercised only at a trial: (

i) weighing the evidence; (ii) evaluating the credibility of a deponent; (iii) drawing any reasonable inference from the evidence.

(3) For the purposes of exercising any of the powers set out in subrule (2), a judge may order that oral evidence be presented by one or more parties, with or without time limits on its presentation.

(4) If the Court is satisfied that the only genuine issue is a question of law, the Court may determine the question and grant judgment accordingly.

(5) If the Court is satisfied that the only genuine issue is the amount to which the applicant is entitled, the Court may order a trial of that issue or grant judgment with a reference or an accounting to determine the amount.

(6) If the Court is satisfied there are one or more genuine issues requiring a trial, the Court may nevertheless grant

summary judgment with respect to any matters or issues the Court decides can and should be decided without further evidence. (Emphasis added) [ 12 ] The Buyer claimed entitlement to a set-off both as a defence to the action on the Promissory Note and as part of its counterclaim against the Sellers under Rule 3-47, which provides as follows: Claiming a set-off 3-47

(1) A matter that might be claimed by set-off may be claimed by counterclaim or by pleading set-off as a defence or by both .

(2) A defendant may plead that a claim be set-off against the claim of the plaintiff if : (

a) there are mutual debts between the plaintiff and the defendant; (

b) in the case where either party sues or is sued in a representative capacity, there are mutual debts between the person represented and the other party; or

(

c) a claim, whether of an ascertained amount or not, by the defendant arises out of the same dealings, transactions or occurrence giving rise to the claim of the plaintiff .

(3) The defendant’s claim pursuant to subrule (2) must be pleaded in accordance with the principles that would govern the pleading of the defendant’s claim if the defendant were a plaintiff.

(4) If, on a plea of set-off, a larger sum is found to be due from the plaintiff to the defendant than is found to be due from the defendant to the plaintiff, the defendant is entitled to judgment for the balance remaining due to the defendant. (Emphasis added) [ 13 ] Rule 7-7 concerns when a

summary judgment may be stayed: Stay of enforcement 7-7 If it appears that the enforcement of a

summary judgment ought to be stayed pending the determination of any other issue in the action or a counterclaim, crossclaim or third party claim, the Court may make that order on those terms that the Court considers just. [ 14 ] These are the relevant provisions from the Bills of Exchange Act , RSC 185, c B-4, and

Loi sur les lettres de change , LRC 1985, c B-4 :

Definitions Définitions 2 In this Act, 2 Les définitions qui suivent s’appliquent à la présente loi. action includes counter-claim and set-off; ( action ) action Sont assimilées à l’action la demande reconventionnelle et la défense de compensation. ( action ) defence includes counter-claim; ( défense ) défense Est assimilée à la défense la demande reconventionnelle. ( defence ) holder means the payee or endorsee of a bill or note who is in possession of it, or the bearer thereof; ( détenteur ) détenteur Soit le preneur ou l’endossataire d’une lettre ou d’un billet qui en a la possession, soit le porteur de ces effets. ( holder ) note means promissory note; ( billet ) … . billet à ordre ou au porteur. ( note ) … . … Common law of England Application de la common law d’Angleterre 9 The rules of the common law of England, including the law merchant, save in so far as they are inconsistent with the express provisions of this Act, apply to bills, notes and cheques. 9 Les règles de la common law d’Angleterre, y compris en droit commercial, s’appliquent aux lettres, billets et chèques dans la mesure de leur compatibilité avec les dispositions expresses de la présente loi. … Holder in due course Détenteur régulier 55(1) A holder in due course is a holder who has taken a bill, complete and regular on the face of it, under the following conditions, namely, 55(1) Est un détenteur régulier celui qui a pris une lettre, manifestement complète et régulière, dans les conditions suivantes: (

a) that he became the holder of it before it was overdue and without notice that it had been previously dishonoured, if such was the fact; and

a) il en est devenu détenteur avant son échéance et sans avoir été avisé d’un refus d’acceptation ou de paiement; (

b) that he took the bill in good faith and for value, and that at the time the bill was negotiated to him he had no notice of any defect in the title of the person who negotiated it.

b) il a pris la lettre de bonne foi et à

titre onéreux et, à la date de la négociation, n’avait été avisé d’aucun vice affectant le

titre du cédant. … Rights and powers of holder Droits et pouvoirs du détenteur 73 The rights and powers of the holder of a bill are as follows: 73 Les droits et pouvoirs du détenteur d’une lettre sont les suivants: … (

b) where he is a holder in due course, he holds the bill free from any defect of title of prior parties, as well as from mere personal defences available to prior parties among themselves, and may enforce payment against all parties liable on the bill … .

b) le détenteur régulier détient la lettre libérée de tout vice de

titre des parties qui le précèdent ainsi que des défenses personnelles que pouvaient faire valoir les parties antérieures entre elles; il peut exiger le paiement de toutes les parties obligées par la lettre … . … Dishonour by non-payment Défaut de paiement sur presentation

94(1) A bill is dishonoured by non-paymentwhen 94(1) Il y a refus de paiement dans les cassuivants: (

a) it is duly presented for payment andpayment is refused or cannot be obtained; ora) malgré une présentation en bonne et dueforme, le paiement a été refusé ou n’a pu êtreobtenu;(

b) presentment is excused and the bill isoverdue and unpaid.

b) il y a dispense de présentation et la lettreest échue et impayée.Recourse Recours(2) Subject to this Act, when a bill isdishonoured by non-payment, an immediateright of recourse against the drawer, acceptorand endorsers accrues to the holder.

(2) Sous réserve des autres dispositions de laprésente loi, le détenteur a, en cas de refus depaiement, un droit de recours immédiat contrele tireur, l’accepteur et les endosseurs.…Promissory Notes BilletsDefinition Définition176(1) A promissory note is an unconditionalpromise in writing made by one person toanother person, signed by the maker,engaging to pay, on demand or at a fixed ordeterminable future time, a sum certain inmoney to, or to the order of, a specifiedperson or to bearer. 176(1) Le billet est une promesse écrite signéepar laquelle le souscripteur s’engage sanscondition à payer, sur demande ou à uneéchéance déterminée ou susceptible de l’être,une somme d’argent précise à une personnedésignée ou à son ordre, ou encore au porteur.

III. Analysis A. Introduction [15] The Buyer’s grounds of appeal require the Court to decide whether the Chambers judge erred by granting

summary judgmentor by refusing to grant a stay of the

summary judgment. Those grounds of appeal raise an issue as to whether a claim to an equitable set-off is available between the immediate parties to a promissory note. It is that legal issue to which I will turn first. B.

Is equitable set-off available as between a payor and a payee as theimmediate parties to a promissory note? [16] The Chambers judge held as follows (Chambers Decision): [5] … As the court noted in Jones Collombin Investment Counsel Inc. v Fickel, 2016 ONSC 6536, at para 57, equitable set-off does notapply to bills of exchange, and for purposes of equitable set-off, promissory notes must be treated as bills of exchange: see also, forexample: Spitzer v Spitzer, 2008 CarswellOnt 10833 (WL) (Ont Sup Ct) at paras 23–24; and Haick v Smith, 1988 CarswellOnt 401 (WL)(Ont SC). (Emphasis added) [17] The Chambers judge relied on authorities that stem from the 1986 Ontario case of Iraco Ltd. v Staiman Steel (1986), (ON CA), 27 DLR (4th) 69 (WL) (Ont H Ct) [Iraco Trial] (aff’d (1987), 45 DLR (4th) 158 (WL) (Ont CA) [Iraco CA]).

Inhis review of the law in Iraco Trial, Holland J. referred to English authority in support of his decision to grant

summary judgment infavour of the original holder of an international note, notwithstanding a claim for unliquidated damages, and to refuse a stay of theenforcement of the judgment. In doing so, Holland J. wrote as follows: [20] In England the weight of authority indicates that a counterclaim for damages for breach of warranty of quality of the goods is nodefence and judgment should issue for the plaintiff with no stay of execution. As far back as the turn of the century this also appears tobe the law of Ontario. In Goldie & McCulloch Co. (Ltd.) v. Harper (1899), 31 O.R. 284 (Div.

Ct.), Chief Justice Meredith, at p. 287,said: The action is upon the note, and it appears to be clear law that unless there is a total failure of consideration, or unless there is a partialfailure as to something which is ascertained and liquidated, the partial failure of consideration is no answer to an action upon the note. (Emphasis added) [18] Based on his review of the law, Holland J. concluded that “the law of equitable set-off probably does not apply to bills ofexchange” (emphasis added, at para 24).

He noted only one Canadian case that had taken a contrary position: [25] The only case in Canada that appears to hold otherwise is Edcal Industrial Agents Ltd. v.

Redl and Zimmer (1967), (AB CA), 60 D.L.R. (2d) 289, 58 W.W.R. 527, where the majority of the court held that an assignee of an overdue bill of exchange tookit subject to the equities with which it may have been encumbered and that, per Johnson J.A. at p. 293: There would appear to be no doubt that what would now be called breaches of contract were such equities. [19] Justice Holland expressed the opinion that the laws of Canada and England pertaining to the effect of defects of title in bills of

exchange should be the same: “In order to help provide certainty in matters of international trade, it appears to me that, if possible, thelaw of Canada should be the same as the law of England on this point and, in the circumstances, I have come to the conclusion that thedefence of equitable set-off is not available on the facts of this case” (emphasis added, at para 29). [20] As noted, Holland J. stated he had found only one case in Canada that appeared to hold contrary to the English authorities:Edcal Industrial Agents Ltd. v Redl (1967), (AB CA), 60 DLR (2d) 289 (Alta CA) [Edcal].

In that regard, he bypassedauthorities, at the very least, from Nova Scotia, British Columbia and Québec, which had also taken a contrary view. [21] The Nova Scotia decision of Brown v Trynor (1980), (NS CA), 109 DLR (3d) 312 (NSCA) [Trynor],predates Iraco Trial. In Trynor, the Court had before it an appeal from an application to strike out a defence and enter

summary judgmentfor the balance owing under a promissory note. The defendant had claimed that the consideration for the note was the balance of thepurchase price for the sale of shares and “misrepresentations were made in the negotiations for the sale of these shares” (at para 3). Afterreferring extensively to the English authorities, the majority discussed Stolberg Mill Construction Limited v Selkirk Spruce Mills Limited(1957), (BC SC), 22 WWR 605 (BCSC) [Stolberg Mill], and W.H. Malkin Ltd. v Jackson (1963), (BC SC), 44 WWR 63 (BCSC).

From these two decisions, the majority observed that “in Canada when the action is on a note betweenimmediate parties, if the maker can establish misrepresentation, he will be protected either by an order allowing him to defend or at leastby a stay pending the trial of the issue which he has raised” (Trynor at para 62). The majority also referred to Aetna Insurance Co. vMojan Ltee (1986), (NB CA), 106 DLR (3d) 286 (NBCA) [Aetna].

From Aetna, the majority indicated that it was notprepared to “interfere with the exercise of a trial judge’s discretion” (Trynor at para 65) and concluded the following: “It would be verycumbersome to follow the strict method of allowing the appellant to enter judgment for the full amount of this note and then require therespondent to take new procedure in order to establish the claim which they allege” (at para 66).

Cooper J.A., speaking for himself inconcurring reasons in Trynor, held the following: [85] I add with some hesitation that promissory notes, which have not been discounted or in any way got into the hands of holders in duecourse, should not in this jurisdiction have the inviolable character apparently attached to them under the English authorities as cash to bepaid forthwith leaving the promisee to sue later on the very contract which has given rise to the note. (Emphasis added) In the result, the Court of Appeal in Trynor dismissed an appeal from the order refusing

summary judgment on the promissory note. [22] In Butkovsky v Jalbuena (1982), (BC SC), 132 DLR (3d) 177 (BC Co Ct) [Butkovsky], McLachlin Co. Ct.J., as she then was, canvassed the English position as represented by Lamont (James) & Co Ltd v Hyland Ltd, [1950] 1 KB 585 (CA)[James Lamont], and Brown Shipley & Co Ltd v Alicia Hosiery Ltd, [1966] 1 Lloyd’s Rep 668 (CA).

She also referred to an earlierdecision of the British Columbia Supreme Court, Stolberg Mill, referred to in Trynor, which she concluded “arguably goes no furtherthan to follow the English authorities with the qualification that execution was stayed, with the comment that the plaintiff did not insiston judgment without stay” (Butkovsky at para 7). She noted, with approval, the concurring reasons of Cooper J.A. in Trynor. With thisauthority in support, she proceeded “on the basis that this Court possesses a discretion as to whether to grant the

summary judgment onthe promissory note” and answered the question as to “whether, in the circumstances of the case before me, the goal of doing justicebetween the parties is best served by granting such judgment” (Butkovsky at para 8). While recognizing she had a discretion, she foundno “exceptional circumstances” that “would justify departure from the usual rule that bills of exchange are to be treated as cash”.

Nofraud had been alleged, nor had it been contended that the makers of the note had not received full consideration. [23] The law in Québec recognizes a distinction between the immediate and remote parties to promissory notes and, in that regard,appears to be more in line with the Nova Scotia and British Columbia authorities than the law as stated, at least, in Iraco Trial: seeNicole L’Heureux, Édith Fortin and Marc Lacoursière, Droit bancaire, 4th ed (Montreal: Éditions Yvon Blais, 2004) at 417 [Droitbancaire]; Maximilien Caron, Albert Bohémier and Michel Deschamps (eds), “Précis de droit des effets de commerce”, 7th ed(Montreal: Beauchemin, 1978) at 226); Louis-Joseph de la Durantaye, Traité des effets négociables (Montreal: Wilson and Lafleur,1964) at 214; and St-Louis Auto Ltée c Ouellet, [1981] CP 309 (Que).

For a doctrinal opinion that refers only to Iraco CA, see Droitbancaire at 519. [24] In this jurisdiction, too, decisions of this Court had permitted a defence based on a claim of unliquidated damages to proceedagainst a claim under a promissory note, albeit with no discussion of the nature of the note as a negotiable instrument: see Imperial Bankof Canada v Annable Company Limited, (SK CA), [1925] 1 DLR 946 (Sask CA).

Later authority had also taken thesame view but, again, with no reference to the issues arising from the Bills of Exchange Act (e.g., Alfredo’s Holdings Ltd. v 618279Saskatchewan Ltd, 2002 SKQB 490). [25] Thus, at the time that Holland J. issued his decision in Iraco Trial in 1986, other provinces had addressed the issue to someextent.

It also should be noted that the decision of Goldie and McCulloch Company Limited v Harper (1899), 31 OR 284 (HC (Div Ct)),relied upon by Holland J. in Iraco Trial, was based on English law that was not part of the law of Canada and, in any event, appears toexceed what that law requires: see Bradley Crawford, The Law of Banking and Payment in Canada, loose-leaf (Rel 27, October 2018)(Aurora, Ont: Canada Law Book, 2018) at 26-15, s 26:30.40(3), and at 26-29, s 26:30.40(4)(e) [Crawford]. Crawford also commentsfavourably on the

summary of the English law pertaining to

summary judgments contained in O’Hanlon Paving Ltd. v SerengettiDevelopments Ltd., 2013 ABQB 428 at paras 33, 567 AR 140, et seq. [26] Returning to Iraco Trial, on appeal to the Ontario Court of Appeal, the court sustained the decision of Holland J. with briefreasons only. On the point presently before us, the court in Iraco CA held as follows: [1] We are in agreement with the reasons and the conclusion of the learned motions court judge and are of the view that this court is notin a position to now set aside a rule of the law merchant, which has been in existence and relied on by the business community for many

years. The appeal is, accordingly, dismissed with costs. (Emphasis added) [27] Importantly, however, the Ontario Court of Appeal disagreed with Holland J. as to whether a stay would detract from thestatus of the note as a bill of exchange. The court overturned his decision refusing a stay of enforcement and imposed a stay on thecondition that the appellant pay into court to the credit of the action the amount of the judgment: [2] We are, however, equally of the view under the circumstances, that the enforcement of this

summary judgment ought to be stayed, oncondition, pending the determination of the counterclaim which will proceed. The plaintiffs reside out of the jurisdiction, and, from thematerial we have, appear not to have any local residence or assets in the country.

Further, the counterclaim arises out of the sametransactions that gave rise to the cheque which was sued on. [3] Finally, on the material, the counterclaim does not appear to be unmeritorious, and, in view of the condition which we propose, anystay will not seriously prejudice the respondents. [28] While these particular reasons of the Court of Appeal are brief, Ontario courts have robustly followed Iraco CA since then,extending it beyond the international context. The courts of that jurisdiction almost invariably grant

summary judgment to the immediateholder of the note with or without a stay. I provide the following list by way of example only: (

a) Neiman v Edward (1987), 17 CPC (2d) 133 (Ont D Ct) [Neiman] – enforcement of the

summary judgment stayed, aff’d 1989CarswellOnt 4955 (WL) (CA), leave to appeal to the SCC refused, [1989] SCCA No 426 (QL); (

b) Comtract Air Compressors Inc. v A.W. Service Industries Inc. (2000), (ON SC), 6 BLR (3d) 136 (OntSC) – enforcement of the

summary judgment stayed, remaining portion of the monies paid into court; (

c) Marketing Products Inc. v 1254719 Ontario Ltd. (2000), (ON CA), 142 OAC 61 (CA) – enforcement ofthe

summary judgment stayed, monies paid into court; (

d) Balilty v Commercial Aluminum Solutions Inc. (2004), (ON CA), 192 OAC 98 (CA) [Balilty] – no stayrequested; (

e) Freedom International Brokerage Company v Anastakis (2006), (ON SC), 21 BLR (4th) 246 atpara 4 (Ont Sup Ct), additional reasons, (Ont Sup Ct) – stay of execution granted; (

f) Tupperware Canada Inc. v 1196815 Ontario Limited, (Ont Sup Ct) –

summary judgment refused; and (

g) Jones Collombin Investment Counsel Inc. v Fickel, 2016 ONSC 6536 [Collombin] – enforcement stayed (aff’d 2017 ONCA288).

Of these decisions, I note in particular Balilty, where the court stated, “While a promissory note may not be a bill of exchange for allpurposes, the rationale for not allowing the doctrine of equitable set-off to apply to claims under bills of exchange is applicable topromissory notes” (at para 1). [29] Outside of Ontario, however, since Iraco CA, courts have continued to acknowledge a discretion not to enforce bills ofexchange summarily, but it is a discretion that is exercised rarely in relation to claims for unliquidated damages (in the absence of aclaim of some form of dishonesty on behalf of the payee of the note).

The Nova Scotia position continues to be as stated in Trynor. InAmica Mature Lifestyles Inc. v Brett, 2005 NSCA 25, 230 NSR (2d) 37, the court held the following: [11] Promissory notes are generally treated as cash. Where there is no dispute as to the validity of the note itself, in an action between theoriginal parties to the note, the Court has a discretion whether to award

summary judgment notwithstanding the assertion of a set-off orthe filing of a counterclaim (Brown v. Trynor et al., (1980) (NS CA), 109 D.L.R. (3d) 312 (N.S.C.A.); First CityDevelopment Corp. v. Stevenson Construction Co. (1983), (BC CA), 3 D.L.R. (4th) 505; B.C.J. No. 2197 (Q.L.)(B.C.C.A.); Butkovsky v. Jalbuena (1982), (BC SC), 132 D.L.R. (3d) 177; B.C.J. No. 178 (Q.L.) (B.C. Co. Ct.)). [30] The courts of British Columbia continue to recognize “a discretion to either refuse to grant

summary judgment or to stay theexecution of the judgment” (Anadolu Efes Biracilik Ve Malt Sanayii Anonim Sirketi v Sebucom International Corporation, 2016 BCSC1583 at para 25). In that case, on the basis of the pleadings, there were “no exceptional circumstances that would warrant refusal or stayof the

summary judgment” (at para 26). Nonetheless, on the basis of the affidavit evidence, the defendant was permitted to amend hispleadings to assert a defence of misrepresentation. In the result, the

summary judgment application was dismissed. It should be notedthat, apart from a reference to Butkovsky in First City Development Corp. Ltd. v Stevenson Construction Co. Ltd. (1983), (BC CA), 3 DLR (4th) 505 (BCCA) at para 23 (a non-promissory note case), the British Columbia Court of Appeal has notconsidered the issue extensively. [31] As well, excluding Edcal, the Alberta Court of Appeal has not considered the question facing this Court, but the issue hasbeen considered by the Masters of that jurisdiction and by the Court of Queen’s Bench. In Tomcat Machinery (EDM) Inc. v Knight, 2001ABQB 95, [2001] 8 WWR 396 [Tomcat Machinery], Master Funduk considered an application for

summary judgment on promissorynotes given to secure the lease payments of a piece of machinery. The holder of the note, who was an original party to it, asked that it begranted

summary judgment for the face value of the note “with a stay of execution on it until the counterclaim is decided” (at para 24).Master Funduk held that where the lawsuit is between the immediate parties to a note, and the counterclaim is on the transaction that

gave rise to the note, it is not logical to grant

summary judgment, even with a stay of execution, as there is no saving in time or cost to the parties if they must proceed to trial on the underlying transaction in any event. Similarly, in Challenger Geomatics Ltd. v Hasco Development Corporation , 2012 ABQB 54 , 14 CLR (4th) 341 [ Challenger ], Master Schlosser denied

summary judgment. He held that even if equitable set-off were not available, procedural set-off would be. Further, although procedural set-off might not be a defence, judicial economy weighed in favour of “balancing up these two claims and giving a net judgment” (at para 11). [ 32 ] In Quinney v 1075398 Alberta Ltd , 2015 ABQB 452 , 24 Alta LR (6th) 202 [ Quinney ], Topolniski J. canvassed much of the case law that I have considered in these reasons. She acknowledged the Ontario case law and, having regard for Tomcat Machinery and Challenger , then opined, “The position in Alberta is not so clear” (at para 31).

She reinforced her opinion regarding the lack of clarity in the law outside of Ontario by a reference to Crawford (as it existed at a point in time on July 13, 2015, which is the date of her decision): [ 33 ] … Crawford comments in The Law of Banking and Payment in Canada (Aurora, Ont: Canada Law Book, 2008) at 26:30:10(2)(b)– 26:30:21: [P]artial or total failure of consideration … may be raised in actions between immediate parties to enforce payment of the instrument only if judicially considered to be procedurally expedient and required by the dictates of justice.

The most recent cases [ referring to Ontario case law ] have begun to deny contractual defences even as between immediate parties. [ 34 ] Crawford notes at 26:30:10(3) the variety of approaches in Canadian law to the problem of unliquidated claims in these circumstances: In the result we now have decisions illustrating virtually every possible result, and establishing no common principle as to whether an unliquidated claim may be pleaded in defence to a claim by an immediate party on a cheque or note. Under one line of cases, now very much a majority, the defence is struck out peremptorily and

summary judgment entered on the instrument on the dogmatic ground that no set-off is admissible on a claim under a negotiable instrument. Under another, the technique of giving simultaneous judgment and an order staying execution is occasionally employed. A third approach is to reject the plea after consideration and reaching the conclusion that it is unsupported by evidence and unlikely to succeed.

Even less often, a case arises applying the old tradition of sending both the claim on the negotiable instrument and the defence to trial, but these are now rare and ought to remain so except, of course, where the defence pleaded would be effective to completely nullify liability, if established on the evidence.

Crawford opines that a claim of set-off or counterclaim ought not to be characterized as “closely related” for this purpose where the defendant alleges no defence relative to the making and delivery of the note. [ 35 ] Crawford further states at 26:40:10(4) that the laws of set-off and counterclaim are of provincial provenance and insensitive to the essential characteristics of the federal law of negotiable instruments. He opines that their proper sphere of application is to the processes of the court, not the rights or duties of parties to negotiable instruments.

However, he favoured Master Funduk’s approach in Tomcat , reasoning:

Summary judgment, when accompanied by a stay of execution, is no more than lip service to the theory that bills of exchange are an exalted form of obligation entitled to greater respect. I now agree with Master Funduk: if there is some material advantage to the plaintiff in having a purely symbolic

summary judgment for the sum payable on the instrument, why deny it? But if there is no such advantage, why grant it? (Italic emphasis in original) [33] As of the 2018 release, however, those particular passages of Crawford , quoted in paragraph 34 above, are no longer present. The following passages reflect the author’s current opinion on the law of

summary judgment and equitable set-off between the immediate parties to a promissory note (at 26-51 to 26-53, s. 26:40.10(3)): It is important to note that the rule against admitting equitable set-offs as defences to actions on cheques was confirmed [in Iraco CA ], while the effect of it was softened by the exercise of judicial discretion. The final decision in Iraco did not impugn the status of the payee as a holder in due course or diminish the rights of that condition. Rather, the Court awarded

summary judgment to the holder for the full sum payable on the instrument, only suspending execution until the merits and effect of the claim of equitable set-off could be judicially determined. That must be kept in mind by the reader when researching the issue, since many reported subsequent decisions may be misleading in bluntly asserting that equitable set-off is unavailable to an immediate party obligor on a negotiable instrument, without giving any apparent consideration to the possibility of any ameliorating discretionary stay on execution of the judgments .

However, since the jurisdiction to impose a stay in appropriate circumstances has also been confirmed by the Ontario Court of Appeal on at least three subsequent occasions, and by many lower courts, both in Ontario, and other provinces, these more dogmatic rulings are probably best understood as grounded in circumstances in which no credible or valid basis for the exercise of discretionary stay was present or pleaded. An examination of the precedents will disclose that the rule operates in the same manner for all classes of bills, cheques and notes.

It is not limited in application to international bills of exchange, such as were under consideration in Iraco . Other subsequent decisions have established that judicial discretion may be exercised for reasons other than those invoked by the Court of Appeal in Iraco , and may be denied when the “equity” pleaded is unsupported by convincing evidence, or judicially considered to be unlikely to succeed if a trial were to be ordered.

Alternatively, a trial may be ordered where it appears to the court that the plea of equitable set-off is plausible and should be given the opportunity of a trial to establish the conditions of a valid claim. Surprisingly, support for the new approach fashioned by the Court of Appeal in Iraco has been strong, but not unanimous, even in the same Court. Cases are still being reported in which peremptory reasoning is applied to reach simpler conclusions, perhaps in some cases made possible by the simplicity of the circumstances; perhaps in others through oversight of counsel and the court .

The only principled attack on the technique of which I am aware has been by Master Funduk of the Alberta Court of Queen’s Bench who, in sending both the holder’s claim and the obligor’s counterclaim to trial, disparaged the Iraco technique on the pragmatic ground that a stayed

summary judgment was of no practical utility to the plaintiff, and unlikely to produce any saving of time or cost. With respect, that opinion appears

to fail to give the intended effect to s. 94(2) of the Bills of Exchange Act , which expressly assures the holder of a dishonoured bill, cheque or note “immediate right of recourse” to the principal obligor. The Iraco technique respects that mandate by giving immediate judgment for the sum payable on the negotiable instrument. On the other hand, failure to do so reduces the right of the holder to a simple action for breach of contract, as though no negotiable instrument had been delivered . (Footnotes omitted, emphasis added) [34] The persuasive authority of Crawford , and its predecessor texts, cannot be denied.

Each edition of these texts canvasses a vast body of case law and doctrine to arrive at a principled theory regarding the rights of immediate parties to a promissory note. It must be noted, however, that the opinions reflected in the various texts have changed over time as the case law has developed and that changed opinion, in turn, has had an impact on the continuing development of the law. For example, Trynor relies on Arthur W.

Rogers, Falconbridge on Banking and Bills of Exchange , 7th ed (Toronto: Canada Law Book, 1969) at 665, where the author opined the following: The general rule as between immediate parties , as, for example, if an action is brought by the original payee of a note against the maker, the defendant may set up any defence which he might have set up if the action had been brought on any simple contract.

But if the parties to the action are not immediate parties, as, for example, if the endorsee of a note sues the maker, it becomes necessary to draw distinctions between different kinds of holders and between different kinds of defences. (Emphasis added) [35] Iraco Trial was issued just before the release of Bradley Crawford’s Crawford and Falconbridge – Banking and Bills of Exchange: A Treatise on the Law of Banks, Banking, Bills of Exchange and the Payment System in Canada , 8th ed (Toronto: Canada Law Book, 1986) [ Falconbridge ], which is the last issue of Falconbridge , as such.

There, the author welcomed the Iraco Trial decision (at 1439, s. 5005.2). As a result, Falconbridge proceeded to describe the rule between immediate parties to a note in these terms (at 1519): The general, theoretical rule is that as between immediate parties , (as, for example, if an action is brought by the original payee of a note against the maker) the defendant may set up any defence which he might have set up if the action had been brought on any simple contract.

But if the parties to the action are not immediate parties (as, for example, if the endorsee of a note sues the maker) it becomes necessary to draw distinctions between different kinds of holders and between different kinds of defences. (Emphasis added) [ 36 ] Today, building on the discussion developed in Falonbridge , Crawford comments on this same point (at 26-8, s. 26:30.20): Where procedural considerations do not require such severance, the general, theoretical rule is that, as between immediate parties, the defendant may set up any defence that he might have set up if the action had been brought on any simple contract.

But as between remote parties, “the cases have been clear and consistent over a number of decades” that a claim of unliquidated damages arising out of the underlying transaction cannot be raised by the maker against a holder in due course of a promissory note. (Emphasis added) As will be noted, what was once a “general rule” became a “general, theoretical, rule”, which now applies “where procedural considerations do not require such severance”. [ 37 ] To round out this jurisprudential and doctrinal review, it is important to mention two articles by Professor Benjamin Geva, the first of which is relied upon by the Buyer in this appeal.

In Benjamin Geva, “Equities as to Liability on Bills and Notes: Rights of a Note Holder Not in Due Course” (1980) 5 Can Bus L J 53 [“Note Holder Rights”], the author extensively reviews the Bills of Exchange Act and the law on point in defence of the proposition that a “failure of consideration, whether total or partial, whether in an ascertained or liquidated amount or not, is an equity as to liability on a bill or note and as such is available as a defence to an action thereon by any holder not in due course, whether immediate or remote party” (at 87).

Professor Geva argues that the Bills of Exchange Act does not preclude such an opinion and that the case law, which is extensive, has largely glossed over principles and distinctions in the law to arrive incorrectly at a different conclusion. For example, he criticizes James Lamont , which held that an immediate party cannot set up a defence or bring a counterclaim or apply for a stay of execution based on alleged unliquidated damages due from the plaintiff arising from the latter’s breach of the contract for which the bill was given. He notes, as well, that

Article 3 of the Uniform Commercial Code (UCC) expressly provides for the opposite conclusion than that arrived at in Iraco CA . Appendix 2 of “Note Holder Rights” (at 91) reproduces the pertinent

section of the UCC: §3-306 Rights of One Not Holder in Due Course Unless he has the rights of a holder in due course any person takes the instrument subject to … (

b) all defences of any party which would be available in an action on a simple contract; and (

c) the defenses of want or failure of consideration. Professor Geva advocates for a similar clarification to the Bills of Exchange Act . [ 38 ] The Sellers, however, refer the Court to Professor Geva’s second

article on point: “The Modernization of the Bills of Exchange Act : A Proposal” (2013) 50 Can Bus L J 1 [“Bills of Exchange Modernization”]. In this article, the author appears to have resigned himself to the conclusion that “at present, the prevailing view is that the failure of consideration in an unascertained amount

(e.g., breach of contract resulting in unliquidated damages) is not available against a holder not in due course, even when he is an immediate party” (at 9). However, he continues to recommend that the Bills of Exchange Act be amended to overcome this

interpretation. Professor Geva’s “Note Holder Rights” pre-dates the explosion of case law mentioned in these reasons and the “Bills of Exchange Modernization”

article mentions Iraco CA only. [ 39 ] If one approaches the issue as an exercise of statutory

interpretation, a conclusion that does not recognize a distinction between immediate and remote parties to a promissory note is not obvious. According to the specific wording of the Bills of Exchange Act , the right of the holder of a bill of exchange to hold the bill, free from any defect of title of prior parties, as well as from mere personal defences, appears to be given to holders in due course only. In that regard, s. 73 of the Bills of Exchange Act is relevant ( reproduced earlier ): Rights and powers of holder 73 The rights and powers of the holder of a bill are as follows: … (

b) where he is a holder in due course , he holds the bill free from any defect of title of prior parties, as well as from mere personal defences available to prior parties among themselves, and may enforce payment against all parties liable on the bill … . (Emphasis added) [ 40 ] By its reference to a person “who negotiated” the bill, the definition of holder in due course also appears to confer rights on remote parties rather than on the original holder of the note (reproduced earlier): Holder in due course 55(1) A holder in due course is a holder who has taken a bill, complete and regular on the face of it, under the following conditions, namely, (

a) that he became the holder of it before it was overdue and without notice that it had been previously dishonoured, if such was the fact; and (

b) that he took the bill in good faith and for value, and that at the time the bill was negotiated to him he had no notice of any defect in the title of the person who negotiated it. (Emphasis added) [ 41 ] Further, defence is defined to include counterclaim (s. 2) – lending further support to a statutory

interpretation that permits the maker of the note to pursue the holder for a breach of the underlying contract. However, it is significant that s. 9 of the Bills of Exchange Act provides the following (reproduced earlier): Common law of England 9 The rules of the common law of England, including the law merchant, save in so far as they are inconsistent with the express provisions of this Act, apply to bills, notes and cheques.

It is this aspect of the Bills of Exchange Act that was given predominance in Iraco CA when the court said it was “not in a position to now set aside a rule of the law merchant, which has been in existence and relied on by the business community for many years” (at para 1). [1] [ 42 ] As Crawford demonstrates at 26:40.10(1) – and Nicholas Elliot, John Odgers, and Jonathan Phillips, Byles on Bills of Exchange and Cheques , 29th ed (London: Sweet & Maxwell, 2007) [ Byles on Bills ], confirms – the English position solidly supports the conclusion that

summary judgment will be granted to enforce a bill of exchange, notwithstanding a claim for unliquidated damages. In Byles on Bills , the authors state the following (at 414): 26-018 The courts have repeatedly emphasised the commercial importance of the independence of the contract upon a bill from its underlying subject matter . In the words of Lord Denning M.R. in Fielding & Platt v Najjar , [1969] 1 W.L.R. 357 at 361, CA: “ a bill of exchange or promissory note is to be treated as cash.

It is to be honoured unless there is some good reason to the contrary ” (see also Montechhi v Shimco (UK) Ltd , [1979] 1 W.L.R. 1180 at 1183) . In particular, as will be seen, although the court has jurisdiction to entertain a counterclaim in an action upon a bill, the existence of such a claim will not generally operate as a defence to, a bar to

summary judgment for, or a ground for staying execution of, moneys due under a bill. (Emphasis added) [ 43 ] Nonetheless, as I have indicated, some Canadian courts do recognize a difference between immediate parties to a note and remote parties to a note in the domestic context, which permits the exercise of a discretion to refuse to grant

summary judgment to the holder of a note in certain circumstances. By recognizing a discretion to refuse

summary judgment of a note, as well as a discretion to stay enforcement when judgment is granted, the courts have effectively developed a common law rule that is unique to Canada, and one that introduces some uncertainty. Since an important animating principle of commercial law is certainty, it is important to state that the discretion to dismiss an application for

summary judgment on a promissory note must be exercised judicially and in exceptional circumstances, having regard for the nature of instrument. Regardless of how individual courts have expressed the rule, they are not that far apart in practical terms. The usual result is that the court grants

summary judgment to the note holder and then determines whether it

is appropriate to exercise a separate discretion to stay the enforcement of the judgment (a point to which I will return later in these reasons). C. Did the Chambers judge err by granting

summary judgment in this case? [ 44 ] Before I proceed to apply the law as above stated, it is useful to determine precisely what the Buyer was claiming by virtue of its defence and counterclaim. As stated in the defence and counterclaim, and as supported by the documentary evidence, the Share Purchase Agreement contained a clause wherein the Sellers purported to indemnify the Buyer as follows: 7.

INDEMNIFICATION 7.1 Indemnification by the Vendor and the Corporation The Vendor and the Corporation jointly and severally agree to indemnify and save harmless the Purchaser from all Losses suffered or incurred by the Purchaser, as and when the same arise, as a result of or arising directly or indirectly out of or in connection with: … 7.1.2 any breach or non-performance by the Vendor or the Corporation of any covenant to be performed that is contained in this agreement or in any agreement, certificates or other document delivered pursuant hereto … . [ 45 ]

Schedule 9 to the Share Purchase Agreement contains the Non-Competition Agreement, which provided as follows: 1.

Definitions: For the purposes of this Agreement, the following terms shall have the meanings set out below: (a) “Business” means the business currently operated by the Protected Parties, including maintenance and renting of Oilfield Equipment, the provision of boiler/steamer trucks, the provision of small capacity picker trucks (defined to be a capacity of 2 metric tonne or lower), the provision of gravel hauling services, the provision of vac-truck services, the hauling of oilfield fluids, oilfield excavation services, and any other service previously provided to the oilfield by Sedona Enterprises Ltd. … (e) “Territory” means southwest Saskatchewan and shall be defined as the area whose north boundary shall be the #1 Highway, from the Alberta border to Swift Current, Saskatchewan, whose southern boundary shall be the U.S.A.–Canadian border, whose western boundary shall be the Alberta–Saskatchewan border, and whose eastern boundary shall consist of the #4 highway. 2.

Non-Competition (a) [The Sellers] covenants, acknowledges and agrees that it will not at any time during the Five Year period, directly or indirectly, either individually or in a partnership or jointly or in conjunction with any one or more persons, firms, bodies corporate, partnerships, associations, syndicates, trusts or other entities whatsoever, as principal, agent, employer, employee, consultant, trustee, shareholder (unless as a shareholder in a public company which [the Sellers] holds less than 5% of the issued and outstanding voting shares) or in any other manner whatsoever, carry on or be engaged in or interested in or operate, manage, provide any management consulting services to, advise, lend money to, guarantee the debts or obligations of or permit the name of [the Sellers], or any part thereof, to be used or employed by or associated with, any person, firm, body corporate or other entity engaged in or concerned with or interested in, any business or venture located within the Territory which is the same as or similar to or competitive with, directly or indirectly, the Business. (All emphasis in original) [ 46 ] According to the pleadings, the Buyer seeks indemnification from the Sellers in accordance with subsection 7.1.2 of the Share Purchase Agreement.

The Buyer asserts that “as a result of the breach of the Share Purchase Agreement, there is no debt due and owing to [the Sellers]” and the Buyer “claims a set-off and a judgment for all loss, costs and damages”. The Buyer goes on to outline various breaches of the Non-Competition Agreement. [ 47 ] In an affidavit responding to the application for

summary judgment, the Buyer attests to the following: “In order to obtain the Non-Competition Agreement, [the Buyer] paid a premium for the assets that were the subject of the Transaction”. [ 48 ] Notwithstanding the preceding paragraph, I conclude that the Buyer’s claim is for a partial failure of consideration giving rise to a claim for unliquidated damages, thus raising the classic issue identified in the authorities above: whether, as between the immediate parties to a domestic promissory note, the payor can assert a partial failure of consideration based on a claim for unliquidated damages as a defence to an application for

summary judgment on the note. [ 49 ] The Chambers judge stated that “equitable set-off does not apply to bills of exchange” ( Chambers Decision at para 5). Given my review of the law, this must be considered an overstatement. To underscore this point, it is sufficient to note that Haick v Smith (1988), 27 CPC (2d) 193 (Ont SC) [ Haick ] , which is one of the decisions cited by the Chambers judge, has been criticized. The authors of Crawford cite Haick as an example of a case that “may be misleading in bluntly asserting that equitable set-off is unavailable to an immediate party obligor on a negotiable instrument” (at 26-51, s. 26:40.10(3)).

[50] That said, however, the Chambers judge was clearly correct to recognize the special status of a promissory note. In thatregard, earlier Saskatchewan authority to the contrary must be considered per incuriam. Applying the common law rule as I have statedit, while a discretion to refuse to grant

summary judgment exists, I cannot find any exceptional circumstances justifying the withholdingof

summary judgment in this case. Thus, the Chambers judge did not err by granting

summary judgment. D. Did the Chambers judge err by refusing to stay the enforcement of thesummary judgment on the Promissory Note? [51] The Chambers judge refused the stay, writing as follows: [31] In my view, Rule 7-7 should be applied in a manner consistent with the principles reflected in Peterson [2016 BCSC 1318] and Lau[2002 BCSC 1155]. In this case, the link between the claim on the promissory note and the alleged breach of the non-compete weighs infavour of a stay. However, there is no evidence as to the amount that might be awarded on the counterclaim.

There is limited evidence asto the merits, and no evidence as to the ability of the plaintiffs to satisfy a judgment. The defendant first alleged a breach of the non-compete in January 2015, but did not pursue the matter until it filed the counterclaim March 15, 2017. These factors weigh against thegrant of a stay. [52] On first review, the Chambers judge’s conclusion would seem to be contrary to the trend elsewhere in Canada, and appears toespouse a view shared by the English courts – but which was discarded in Iraco CA.

On that point, in Iraco Trial, it is significant thatHolland J. stated, “In England the weight of authority indicates that a counterclaim for damages for breach of warranty of quality of thegoods is no defence and judgment should issue for the plaintiff with no stay of execution” (emphasis added, at para 20). He did not granta stay, but the Ontario Court of Appeal set aside that aspect of his decision, indicating the following, and I repeat (Iraco CA): [2] We are, however, equally of the view under the circumstances, that the enforcement of this

summary judgment ought to be stayed, oncondition, pending the determination of the counterclaim which will proceed. … Further, the counterclaim arises out of the sametransactions that gave rise to the cheque which was sued on. (Emphasis added) [53] On the same point, in Hinke v Thermal Energy International Inc, 2012 ONCA 635 [Hinke], cited in Halsbury’s Laws ofCanada Debt and Creditor (Markham: LexisNexis, 2018) at para HDC-14, the court confirmed that “[t]he law is clear that a stay shouldbe granted unless the counterclaim is without merit” (at para 29).

As authority for this proposition, Hinke cites Freedom InternationalBrokerage Company v Anastakis, (ON SC), 21 BLR (4th) 246 (Ont Sup Ct) – which, at paragraph 8, cites a long lineof Ontario authorities beginning with Hurwitz v Baz, [1955] OWN 978 (Ont CA), where the court held that the judge had erred bydirecting judgment for the plaintiff without staying proceedings until a counterclaim, not found to be without merit, could be heard.

Inother jurisdictions, where appellate guidance has been provided as to when a judgment should be stayed in the face of a counterclaim, thelanguage used usually accommodates the issuing of a stay, unless there has been a finding that the claim is not meritorious: see also,Clearly Canadian Beverage Corporation v Remic Marketing & Distribution Inc. (1992), (BC SC), 22 CPC (3d) 387(WL) at para 11 (BCSC) [Clearly Canadian Beverage]. [54] In the course of his reasons, the Chambers judge also noted a number of authorities, all of which had granted

summaryjudgment on the basis of a promissory note but which had also ordered a stay of execution: Trynor, Collombin, Spitzer v Spitzer, (Ont Sup Ct), and Haick. See, further, Neiman and the other decisions cited by way of example in paragraph 28 above. [55] Nonetheless, Rule 7-7 of The Queen’s Bench Rules (previously cited) confers a discretion on the judges of the Court ofQueen’s Bench to stay the enforcement of judgments as they see fit. The decision not to exercise that power is accordingly entitled todeference.

This Court is only entitled to set aside the refusal of the stay in this case if we are prepared to say the Chambers judge abusedhis discretion, erred in principle, disregarded a material matter of fact or failed to act judicially or rendered a decision that is so plainlywrong as to amount to an injustice (Rimmer v Adshead, 2002 SKCA 12 at para 58, [2002] 4 WWR 119). With that standard in mind, Iwill now proceed to review the reasons of the Chambers judge. [56] The Chambers judge recognized that it was open to him to grant a stay. In addition to citing numerous cases where a stay ofthe enforcement of a

summary judgment on a promissory note had been granted, the Chambers judge also referred to Canada (AttorneyGeneral) v Lau, 2002 BCSC 1155 [Lau], where Burnyeat J. granted a stay following his

summary of the law on point: [28] Accordingly, the principle set out in Barclays Bank of Canada, [(1983), (BC SC), 48 BCLR 364], is only onefactor to be considered in deciding whether it is an appropriate case to exercise the jurisdiction to order a stay of execution. There are anumber of principles frequently considered by the Court when considering whether a stay should be granted: (

a) the Court has the inherent jurisdiction to order a stay of execution “in special circumstances”: Buxton v. Carriss (1958), (BC CA), 13 D.L.R. (2d) 671 (B.C.C.A.); (

b) the “balance of convenience” in determining the appropriateness of granting a stay: C.T.F. Holdings Ltd. v. Flint Motors, [1996]B.C.J. (Q.L.) 1526 (B.C.S.C.); (

c) where the “justice between the parties” requires it, the Court has inherent jurisdiction to exercise a stay of judgment and, while thepower ought not lightly to be exercised, in a proper case in order to avoid unnecessary proceedings and expense, and where it isnecessary to do justice between the parties: M & P Enterprises Ltd. v. London & Lancashire Guarantee& Accident Co. of Canada,(1965), (MB KB), 54 D.L.R. (2d) 284 (Man. Q.B.) and Humberstone v. Trelle, [(1910), WLR 145 (Alta QB)]; (

d) after weighing the relative prejudice to the parties: Barclays Bank of Canada v. N.B. Cook, supra, Borkowich v. CanadianMembership Warehouse Ltd., [1991] B.C.J. (Q.L.) 651 (B.C.S.C.);

(

e) to enable the Court to protect either litigant: Leskovar v. Saskatchewan Government Insurance Office (1964), (SKCA), 51 W.W.R. 46 (Sask. C.A.); (

f) where there is no outstanding appeal: C.T.F. Holdings Ltd. v. Flint Motors Ltd., [1996] B.C.J. (Q.L.) No. 1526 (B.C.S.C.); and (

g) to allow sufficient time to a judgment debtor to prosecute a counterclaim against the judgment creditor: Humberstone v. Trelle, supra;Morrison v. Mulry, (BC SC), [1935] 1 W.W.R. 423 (B.C.S.C.); Masterman v. Malin, (1831) 131 E.R. 168; Wells v.Knott, (1910) 15 W.L.R. 285; Olympia Pizza Ltd. v. Moon, [1979] B.C.J. (Q.L.) No. 675 (B.C.C.A.); and Re Royal Trust Corp. ofCanada et al and Kendal Adjusters Ltd., (1984), 1984 ABCA 241 , 13 D.L.R. (4th) 472 (Alta. C.A.). [57] Of the 12 decisions referred to in Lau, 6 concern whether to stay the enforcement of an order pending determination of sometype of counterclaim.

In all 6, the Court granted a stay. Clearly, the Chambers judge understood the dynamics at play when decidingwhether to grant or refuse a stay of enforcement in the case before him. [58] After introducing Lau, the Chambers judge made specific mention of the one defining feature of the case before him thatmight compel the issuing of a stay: “the link between the claim on the promissory note and the alleged breach of the non-competeweighs in favour of a stay” (Chambers Decision at para 31). He then gave four reasons why he was exercising his discretion not to do so: (

a) there was no evidence as to the amount that might be awarded on the counterclaim; (

b) there was limited evidence as to the merits of the counterclaim; (

c) there was no evidence as to the Sellers’ ability to satisfy a judgment; and (

d) the Buyer first alleged a breach of the non-compete in January of 2015, but did not pursue the matter until it filed its defenceand counterclaim in March of 2017. [59] With respect to the amounts that might be awarded, the Sellers claimed $155,920 plus interest at 4%. The Buyer defended theaction seeking “indemnification from Skjerven in accordance with 7.1.2 of the Share Purchase Agreement” (statement of defence, atpara 8).

In its counterclaim, the Buyer claimed it had “suffered loss, damages and irreparable harm, including the loss of clients in theTerritory and the failure to transfer the corporate bank account, which losses will be difficult to quantify …” (notice of counterclaim, atpara 14), hence their claim for “general damages” in an unspecified amount. [60] The Sellers, however, asked for “particulars of the loss, damages and/or irreparable harm” (request for particulars, at para 4).In its reply, the Buyer stated the following: 4. … The losses suffered by the Defendant (Plaintiff by Counterclaim) is the loss of revenue from work being done by the Plaintiffs(Defendants by Counterclaim) which would otherwise be done by the Defendant (Plaintiff by Counterclaim if the Plaintiffs (Defendantsby Counterclaim)) is not in breach of the Non Competition Agreement.

Much of that information will be within the knowledge of thePlaintiffs (Defendants by Counterclaim) and subject to discovery. [61] By its nature, a claim for unliquidated damages is not quantified. As such, a failure to quantify cannot, on its own, compel therefusal of a stay but, as the evidence shows, it appears that no effort had been expended to even provide a ball-park figure.

It is, in eithercase, a factor that the Chambers judge could take into account in determining whether a stay should have been granted. [62] In Clearly Canadian Beverage, for example, Tysoe J. commented upon the importance of knowing the relative amount of thecounterclaim: [11] Defendants often put forward cross-claims as a delaying tactic. The cross-claim is frequently expressed as a defence as well as acounterclaim. Sometimes the cross-claim has little merit and, even when it does have sufficient merit to warrant a trial, the magnitude ofthe cross-claim may be much less than the amount of the plaintiff’s claim.

A defendant should not be permitted to delay the granting ofjudgment pending the trial of a cross-claim that may well not succeed or that is in an amount less than the plaintiff’s claim. A plaintiffshould be able to obtain

summary judgment and execute upon it to the extent that it exceeds the probable amount of an award on thecross-claim. (Emphasis added) [63] Further, on the question of the value of the counterclaim, Tysoe J. noted the following: [12] … It is my view that the procedure to be followed in this type of situation is as follows: … 3.

The court should assess the merits of the counterclaim and the potential amount of an award on the counterclaim, and after weighingthese considerations, the court should stay execution on the judgment in whole or in part for the period until the hearing of thecounterclaim or for such other period as may be appropriate in the circumstances. Execution on the entire judgment will not necessarilybe stayed and the amount of the judgment to be stayed will not necessarily be the maximum amount of the counterclaim.

The amountshould be a reasonable figure determined in the same fashion in which the court establishes the amount of security to be posted for aclaim (for example, security posted for the release of a lis pendens pursuant to ss. 235 and 236 of the Land Title Act). (Emphasis added)

Note that the British Columbia Court of Appeal approved this aspect of Tysoe J.’s reasoning in FA Bernard v Western Floral Craft Supplies

(1994) Ltd. , 1999 BCCA 635 at para 10 , 130 BCAC 139. [ 64 ] On the question of delay, and its importance in refusing a stay, the Chambers judge cited Peterson v 446690 B.C. Ltd ., 2016 BCSC 1318 , as authority for the proposition that a court may consider whether the counterclaim has been diligently pursued. I agree that this is a factor that can be weighed in determining whether to grant a stay of enforcement. Delay can be an important factor when considering whether to impose a stay of execution of a

summary judgment granted to the holder of a note or other bill of exchange. Indeed, the fact that time is of the essence in the payment of bills of exchange is one of the motivating factors in granting

summary judgment in the first place, notwithstanding a claim for unliquidated damages. [ 65 ] Counsel for the Buyer submitted that there had been little delay, counting only the period from the day the statement of claim was issued until the counterclaim had been filed. However, in my respectful view, the Chambers judge was not addressing his remark to the formal counterclaim but rather to the assertion that there had been a partial failure of consideration for the note.

In that regard, the Chambers judge wrote, “The defendant first alleged a breach of the non-compete in January 2015, but did not pursue the matter until it filed the counterclaim March 15, 2017” (at para 31). In the scheme of bills of exchange law, this is not an inconsiderable period. [ 66 ] In the case before us, the Chambers judge did not grant

summary judgment dismissing the counterclaim. In another case, such a dismissal might constitute support to grant a stay – as being persuasive evidence as to the merits of the claim – but, in this case, the Chambers judge refused to grant

summary judgment on the counterclaim, not so much because of the strength of that claim, but because the Seller had failed to discredit it. In that regard, the Chambers judge stated, “[t]here is limited evidence as to the merits …” ( Chambers Decision at para 31). The Chambers judge does not say that he has assessed the merits of the counterclaim, but rather that the Sellers had not disproved its merits: [16] … I am not satisfied, on a balance of probabilities, that the counterclaim is without merit . I will note two examples of issues that lead to that conclusion. First, Mr.

Skjerven deposed that Sedona carried on the business of commercial hauling of third-party owned equipment. He also deposed that Helix does not haul equipment for third parties, despite having confirmed that Helix transports swamp mats owned by third parties when carrying on its swamp mat installation business.

The claim that Helix does not haul equipment is based on the assumption that s. 2(a) [of the Non-Competition Agreement], properly interpreted, precludes the plaintiffs, through Helix, from hauling only certain types of equipment, and that swamp mats are either not equipment at all, or not equipment of the appropriate kind. [17] This question of

interpretation calls for consideration of the surrounding circumstances. There is, in my view, insufficient evidence of those circumstances. Differently put, I am not confident, based on the bald statement that Sedona hauled equipment, that I can find the facts and apply the relevant legal principles so as to fairly determine what sort of third-party hauling is caught by the ambiguous language of ss. 1(

a) and 2(a). I am of the same mind in relation to the question of whether hauling swamp mats in this fashion constitutes indirect competition with the business, particularly given the broad definition of “Business”. These appear to be genuine issues for trial . [18] Second, it is also my view that there appears to be a genuine issue for trial in relation to garbage disposal services. There is evidence that Helix rents roll-off disposal bins and front-load garbage bins. There is evidence that the [Buyer] does not offer garbage bins of this kind for rent, and indeed, that it rents garbage bins from Helix.

However, Mr. Fauser deposed that items offered for rent by Sedona, including skid steers and dump trailers, are commonly used in the collection and removal of garbage from worksites, and that Sedona was engaged in the rental of equipment used for garbage disposal. If that is so, and at a minimum, I am not satisfied on a balance of probabilities that Helix’s garbage disposal business is not directly or indirectly competitive with a service formerly offered by Sedona . There is insufficient evidence as to what was done by Sedona, and how it relates to what is now done by Helix. The conclusory statement by Mr.

Skjerven that there is no competition is not enough. … [21] For these reasons, it is my opinion there is a genuine issue for trial in relation to the alleged breach of s. 2(

a) of the non-compete . That being so, it is not necessary to decide whether the claim based on the alleged breach of the non-compete through the use of confidential information is without merit. There will be a trial in any event, and the evidence of surrounding circumstances that will be led at trial may also be relevant to the

interpretation of this provision. (Emphasis added) [ 67 ] Thus, his dismissal of the

summary judgment application in relation to the counterclaim responded, first, to this jurisdiction’s current test to refuse

summary judgment, which is whether there is a genuine issue for trial derived from the evidence and, second, to the conflict in the evidence (see Rule 7-5 of The Queen’s Bench Rules , previously cited), rather than to a direct assessment of the merits of the claim. He was thus entitled to comment on the lack of evidence regarding the merits when he refused the stay on the counterclaim. [ 68 ] Finally, the Chambers judge mentioned there was “no evidence as to the ability of the plaintiffs to satisfy a judgment” (at para 31).

Inability to pay is also an appropriate factor to consider when weighing the equities between a holder of a note and the maker of the note, who is now claiming unliquidated damages. Here, however, it was not a factor upon which the Chambers judge could rely because the evidence appeared to point in the other direction.

The Sellers, who had sold their business for $1.2 million, continued to carry on business in the community – and that was, of course, the thrust of the Buyer’s claim. [ 69 ] Taken altogether, the Chambers judge’s reasons, i.e., a claim for an unliquidated amount of uncertain dimensions with limited evidence as to the merits or an inability to pay, coupled with delay, reasonably supports his exercise of discretion not to grant a stay. Appellate intervention in the face of these reasons cannot be justified.

IV. Conclusion [70] The appeal is dismissed. Costs are granted in the usual way. “Jackson J.A.” Jackson J.A.I concur. “Richards C.J.S.” Richards C.J.S.I concur. “Caldwell J.A.” Caldwell J.A. [1] In that regard, the Ontario Court of Appeal must be taken to have disregarded an obiter statement in Williams and Glyn’s Bank Ltd. vBelkin Packaging Ltd., (SCC), [1983] 1 SCR 661 at 681, where the court referred to Falconbridge as it existed at thetime.