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Monday Morning Case Bites for May 25, 2020

Last Week’s Court Rulings from the Alberta Court of Queen’s Bench, Court of Appeal and SCC.

Edited by Amanda Kostek & Steven Graham

CNOOC Petroleum North America ULC v 801 Seventh Inc, 2020 ABCA 212
Service Outside of Canada | Application for Stay Pending Appeal

H2S Solutions Ltd v Tourmaline Oil Corp, 2020 ABCA 201
Formal Offer | Discretion on Costs Awards

Bowness Real Estate Corp v AXA Pacific Insurance Company, 2020 ABQB 327
Fire Loss | Excluded Peril Clause | Reasonable Expectations

Salmon v Mama Panda Ltd, 2020 ABQB 323
Cross Examination on Affidavit

CNOOC Petroleum North America ULC v 801 Seventh Inc, 2020 ABCA 212

This was an application for a stay pending appeal of a Justice decision validating service of a counterclaim purported to be served pursuant to an order for service ex juris on a corporation in Hong Kong.   The issue related to service via the Hague Convention, which often creates challenges on property loss claims.  The Court noted the challenges in this case:

[7]               Under the Hague Convention, a central authority receives requests for service from contracting states. The central authority is then to serve the document or arrange to have it served, unless the request doesn’t comply with the provisions of the Convention. If the request does not comply, the central authority is obliged to promptly inform the party requesting service and specify the nature of any non-compliance.

[8]               The central authority in this case was located in Hong Kong, as was the head office of the applicant corporation. Indeed, their offices were a stone’s throw from each other.

[9]               In June of 2019, the respondent requested service of its claim by the central authority in Hong Kong. The request was never complied with, nor was any explanation given, notwithstanding five inquiries as to the status of the service request over a six-month period from July to December of 2019.

[10]           In such cases, there is a provision in the Hague Convention which permits any state which subscribed to the Convention to give judgment against the defendant even if no certificate of service has been received from the central authority, but only if the document to be served was in fact served by one of the methods provided for in the Convention and at least six months has elapsed since the date of service and every reasonable effort has been made to have the competent authorities of the requested state effect service.

[12]           More than six months later, having received no certificate of service from the central authority in Hong Kong, the respondent applied to the Court of Queen’s Bench in Calgary pursuant to Rule 11.27 of the Rules of Court for an order validating service of its claim. Rule 11.27 permits the court to validate service if it is satisfied that the method of service used to serve the claim was likely to have brought the claim to the attention of the person sought to be served. This rule expressly provides that it may be relied upon even when the Hague Convention applies. That is, the rules appear to contemplate that service via the Hague Convention might not always be achieved.

The Court acknowledged the following test for a stay, and then delved into issues surrounding service under this test:

[16]           It has been repeatedly held that enforcement of a decision under appeal may be stayed if the applicant satisfies the court:

  1. that there is a serious issue to be determined on appeal,
  2. that the applicant will suffer irreparable harm if the stay is not granted, and
  3. that the balance of convenience favours granting the stay.

The Court declined to grant the stay on the basis that the test had not been met, and commented that delay in bringing the application contributed to the Court’s decision:

[79]           Finally, a stay is an equitable remedy. It can be denied for any number of equitable reasons. Delay and uncooperative conduct are two such reasons which impact the balance of convenience in this case. With respect to uncooperative conduct, I do no more than point to the Foundational Rules in Part 1 of the Alberta Rules of Court. And with respect to delay, had the applicant unsuccessfully challenged the jurisdiction of the Alberta courts when it first became aware of (was served with) the respondent’s claim, I would have been much more receptive to granting a stay pending an appeal. But laying in the weeds as it did and the consequential delay that caused is a consideration which supports a finding that the applicant is not deserving of a stay on equitable grounds.

H2S Solutions Ltd v Tourmaline Oil Corp, 2020 ABCA 201

The Court of Appeal declined to award double costs on a Formal Offer where the compromise in the offer was small:

[6]               Despite the mandatory wording of sub-rule 14.59(4), we conclude that Tourmaline is only entitled to tariff costs under single Column 3. First, as will be seen by the following chronology, during the entire currency of its formal offer, Tourmaline incurred no costs claimable in respect of Items 18-22, Division 2 of Schedule C’s tariff. Second, even assuming tariff costs had been incurred during the currency of its offer, nonetheless, Tourmaline’s offer did not comprise an identifiable and sufficient compromise beyond de minimus. Accordingly, the double costs rules were not triggered because Tourmaline’s offer was not a genuine offer as described by this judgment, at the time it was served and remained open for acceptance: Allen (Next Friend of) v University Hospitals Board2006 ABCA 101 at para 13 [Allen].

The Court noted that appeal costs had not been incurred during the life of the offer:

[13]           This Court has mandated that an offer must be a “genuine offer” of a sufficient compromise at the time it was served and remained open for acceptance: Allen at para 13, citing Petro-Canada Products Inc v Dresser-Rand Canada, Inc, 2004 ABCA 282 [Petro-Canada].

[14]           In this case, Tourmaline’s offer remained open for acceptance between August 9, 2018 (service) and October 9, 2018 (expiry, as stipulated in rule 14.59). The appellants did not file their factum until after Tourmaline’s offer expired, and no interlocutory proceedings preceded the oral hearing. In the result, Tourmaline incurred no claimable tariff costs during the currency of its offer; therefore, during the time Tourmaline’s offer remained open, it incurred no costs that could be doubled. Additionally, and in any event, Tourmaline’s offer did not demonstrate an identifiable and sufficient compromise or, put another way, irrespective of how long it may have been held open for acceptance, it was an offer of nothing – a point that will be amplified below.

As an example, the Court commented that an offer of $1.00 without more is de minimus, and would not attract double costs:

[34]           An identifiable offer is one that is beyond de minimus. For example, an offer to pay $1.00, without more, is de minimus. But, an offer to forego a previous award of costs, or to agree to settle part of the outstanding litigation, or to discount an extant judgment, would be identifiable and sufficient compromises. The content of offers that would trigger the double costs rules is limited only by the imagination of litigants.

Bowness Real Estate Corp v AXA Pacific Insurance Company, 2020 ABQB 327

This was a claim on policy related to two fires that occurred at a crouton manufacturing plant.  At issue was whether the insurer could rely on the following exclusion in the policy:


This Rider does not insure against loss or damage caused directly or indirectly:

(k) by wear and tear, gradual deterioration or latent defect, inherent vice or the cost of making good faulty or improper material, faulty or improper workmanship, faulty or improper design, provided however, to the extent otherwise insured and not otherwise excluded under this Rider, resultant damage to the property is insured; …

The Court accepted that the design of the crouton dryer were faulty, or improper, and that this was the cause of both fires:

[73]           The crouton dryer’s faulty design and improper materials were the proximate causes of both the June Fire and August Fire, as the temporary repairs did nothing to prevent the second fire in the Crumbz facility. Notably, both Mr. Panlilio and Mr. Jamaluddin were critical of the temporary repairs, describing them as “inappropriate” and “ill-advised” respectively.

As a result, the insurer could rely on exclusion 5 A (k):

[76]           Having considered the opinion evidence of Mr. Panlilio, Mr. Bodnar and Mr. Jamaluddin, I conclude that the Insurer has met its burden of proving that, while coverage under the Property Policy was available for losses resulting from the June Fire and August Fire, the exclusion outlined at section 5A(k) of the Property Policy applied. Specifically, I conclude that the Insurer was entitled to rely upon the faulty or improper design and improper materials exclusions. Therefore, Crumbz was limited to claiming resultant damages under all aspects of the Property Policy.

The Court then considered whether there was coverage under the Equipment Breakdown Policy.   The Insurer argued that there was no coverage on the following basis:

[81]           The Insurer argued that the Equipment Breakdown Policy did not apply for several reasons: (1) fire damage was covered by the Property Policy and not the Equipment Breakdown Policy; (2) the circumstances here did not fall within the definition of “Accident” under the Equipment Breakdown Policy because of the “wear and tear” exclusion; and (3) the crouton dryer machine was excluded because it constituted an “oven” under the definition of “Object”. The Insurer also argued that the crouton dryer did not fall within the extension of coverage contemplated by section 13 of the Equipment Breakdown Policy, and in any event, coverage was barred by the “Other Insurance” provision.

The court rejected these arguments and commented on the reasonable expectations of the parties:

[102]      With respect to the parties’ reasonable expectations, in Ledcor, the Supreme Court of Canada stated at para 65 that the “parties’ reasonable expectations with respect to the meaning of a contractual provision can often be gleaned from the circumstances surrounding the contract’s formation: Sattva at paras. 46-47.” In my view, my conclusion regarding coverage is consistent with Mr. Habib’s reasonable expectation that he would have coverage under the Equipment Breakdown Policy. Mr. Habib described to Mr. Krywolt his efforts to put in place a new production line, including a new crouton dryer, when he met to discuss the type of insurance coverage he wanted. Mr. Habib wished to have coverage for his production equipment, which was reasonable given the nature of his business. His business was centred around the operation of his production line and the crouton dryer. In my view, this reasoning is consistent with the view recently expressed by the Alberta Court of Appeal in Intact Insurance Company v Clauson Cold & Cooler Ltd, 2020 ABCA 161 at para 32, where the Court considered the commercial reality of the insured’s business.

[103]      Having addressed the steps outlined by the Supreme Court of Canada in Ledcor, I conclude that the crouton dryer was covered by the Equipment Breakdown Policy.

The Plaintiff argued that the insurer acted in bad faith, and put it out of business.  The Court rejected this argument.

Salmon v Mama Panda Ltd, 2020 ABQB 323

At issue was the scope of questions on cross examination on Affidavit.  The court affirmed the following test:

[18]           It is clear that where the application is for summary judgment, the deponent can be cross-examined on any outstanding issue in the litigation Dow Chemical Canada Inc v Shell Chemicals Canada Ltd, 2008 ABQB 671 para 7. That case also held that undertakings in a cross-examination may be more difficult in a cross examination than at questioning, but if undertakings relate to an important issue in the application and the provision of the information is not overly onerous and would significantly help the court in the determination of the application, it will be allowed (meaning relevance, proportionality and materiality) Dow para 5, see also Alberta (Attorney General) v Alberta Power (2000 Ltd), 2018 ABQB 100 para 26. Questions must be relevant and material, in the context of the specifics of the application. In a summary dismissal application, relevance and materiality has to be viewed in the context that the application is to dismiss the entire action.

[19]           The Alberta Rules of Court, Alta Reg 124/2010 in Rule 5.2 (1) states:

For the purposes of this Part, a question, record or information is relevant and material only if the answer to the question, or the record or information, could reasonably be expected

(a)   To significantly help determine one or more of the issues raised in the pleadings, or

(b)   To ascertain evidence that could reasonably be expected to significantly help determine one or more of the issues raised in the pleadings.