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Monday Morning Case Bites for September 10, 2018

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

Edited by Amanda Kostek & Christie Dewar

HOOPP Realty Inc v Guarantee Company of North America, 2018 ABQB 634 (CanLII)
Summary Trial l Performance Bond l Limitation Period

AB v Lawson Lundell LLP, 2018 ABQB 625
Summary Judgment l Liability of a Limited Liability Partner

Altex International Heat Exchanger Ltd v Foster Wheeler Limited, 2018 ABQB 620 (CanLII)
Inordinate Delay l Explanations for Delay

Judgment Highlights

HOOPP Realty Inc v Guarantee Company of North America, 2018 ABQB 634 (CanLII)

This was a summary trial to determine whether Guarantee Company of North America (GCNA) remained liable under a performance bond and bond agreement covering warehouse construction work performed for HOOPP by Clark. HOOPP missed with limitation period for arbitration with Clark, and the issue was whether the expiry of that limitation period had a spillover effect immunizing a surety of the builder’s performance given by GCNA. GCNA argued that GCNA’s exposure under the Bond can be no greater than Clark’s obligations to HOOP under the Contract. The Court determined that GCNA remained liable under a performance bond and bond agreement with respect to warehouse construction work notwithstanding that HOOPP missed the limitation period for arbitration with Clark. The Court explained that the Limitations Act does not extinguish a claim, but instead provides immunity to a live claim, and as a result, the claim continues to exist:

Did the expiry of the limitation extinguish HOOPP’s claim against Clark?

[51] The answer is no. While some statutes of limitation extinguish the underlying claim, Alberta’s Limitations Act does not.[3] Instead, where the limitation has expired, the defendant, on pleading the Act, obtains immunity to the claim. The claim continues to exist, but the claimant is barred from seeking a remedial order to enforce the claim.

The Court clarified that HOOPP’s claims against Clark and GCNA are separate and distinct. The claim against GCNA has its own limitation period, triggered by Clark’s defaults under the contract and HOOPP learning of them. GCNA also argued that a surety can invoke any defence available to the principal (debtor). The Court found that this was too general a statement, and GCNA could not invoke the limitation defence:

Can GCNA invoke Clark’s “unenforceability” defence?

[112] The answer is no. While GCNA argues that, under general surety law, a surety can invoke any defence available to the principal (debtor), the cases it cites do not support that broad proposition. Instead, this proposition: any debtor defence that eliminates or reduces its liability to the creditor, by definition, accrues to the benefit of the guarantor.

[113] It is not that the guarantor can directly assert the principal’s defence. Clark’s limitation defence belongs to Clark alone, and nothing in the Limitations Act gives the defence a wider swath i.e. benefitting other parties. It is the connection between the debtor’s default and the guarantor’s commitment to answer for it. If the debtor can defend to reduce or eliminate its liability to the creditor, the extent of the default for which the guarantor has to answer, expressed by that liability, is reduced commensurately.

[114] In making its “can invoke any defence” argument, GCNA does not differentiate between defences reducing or eliminating the debtor’s liability, on the one hand, and defences removing remedies but leaving the liability intact, such as Clark’s unenforceability defence here.

[115] An unenforceability defence does not spill over to the guarantor, because it does not affect the liability for which the guarantor has answer. The guarantor was exposed when the principal debtor defaulted, incurring liability to the creditor. The guarantor obtains no benefit when the debtor leaves the stage, because the liability remains.

The Court commented in obiter that it appeared HOOPP did meet the limitation period in the claim against GCNA but noted that this determination was beyond the scope of the summary trial. The Court concluded that there was no spillover effect, and GCNA remained liable under the bond subject to specific defences it may have had under the agreement, despite the expiry of the limitation period between HOOPP and Clark.

AB v Lawson Lundell LLP, 2018 ABQB 625

This was a successful summary dismissal application of a managing partner of a law firm against the claim of a former associate. The issue was whether the managing partner of a law firm could be held personally liable for the dismissal of an employee. Both the firm and the managing partner were sued. The BC Partnership Act limits liability against partners, but provides exceptions for the partner’s own negligent or wrongful act or omission, or where the partner knew of an act or omission of another partner or employee and did not take the actions that a reasonable person would take to prevent it. The Court concluded that there was no merit to the claim that the managing partner did anything that was a negligent or wrongful act or omission, and as a result, was not personally liable. The claim was permitted to continue against the employer.

Altex International Heat Exchanger Ltd v Foster Wheeler Limited, 2018 ABQB 620 (CanLII)

This was a successful application for dismissal for inordinate delay. The Statement of Claim was issued in 2000, and despite applications to set the matter for Trial, those applications did not proceed. There were subsequent periods where the claim lay dormant. In 2014 a witness died. The Defendant provided a number of explanations for the delay, however, the Court determined that these did not justify the delay:

[65] The Plaintiff’s explanations for the delay include:

(a) between 2006 and 2010 there was some difficulty in locating witnesses because certain personnel were no longer working for the Plaintiff;

(b) Verville J.’s offer to hear an application for a procedural order was never pursued by either party, which indicates that the Defendant was not overly concerned with the delay in the Plaintiff’s provision of answers to undertakings;

(c) much of the most recent delay was attributable to the Defendant’s dissatisfaction with the Plaintiff’s 2010 responses to undertakings, which caused it to object to setting the matter down for trial in 2010 and 2011.

[66] None of these explanations can justify the delay. The difficulty in locating certain witnesses does not explain why the Plaintiff let the action fall into dormancy for 4 years, and certainly does not justify it. The argument that the delay is somehow excused and the prejudice obviated because the Defendant did not accept Verville J’s invitation to appear before him for a procedural order does not actually provide an excuse for the delay. More importantly, it is countered by the general principle that the Plaintiff must take the initiative to move its action forward (XS Technologies Inc v Veritas DGC Land Ltd, 2016 ABCA 165 (CanLII) at para 7).

[67] Further, this argument understates the fact that Verville J did more than just offer an opportunity for the parties to obtain a procedural order from him. He was critical of the length of time it was taking for this matter to make its way through the litigation process. He found that the almost four and a half year delay in providing the 2010 Undertaking responses was inexcusable. I find the Plaintiff’s failure to heed Verville J’s exhortation surprising to say the least. In any case, as noted in Flock, “there is no duty upon an applying party to expressly advise a responding party that it does not acquiesce to delay” (at para 24). Yet, it was the Defendant who acted after discontinuing its appeal of Verville J’s order, writing to the Plaintiff to request the provision of responses to undertakings, clearly setting out the reasons for its dissatisfaction with the 2010 responses. The Plaintiff provided further answers to undertakings almost three years later, which as will be discussed below, were still not fully responsive or complete. The Plaintiff does not provide an excuse for letting this action fall into another protracted period of dormancy.

[68] This is a commercial lawsuit. The damages crystallized close to the time that the action was commenced. This is not, for example, an injury lawsuit where the damages are not known at the time of filing, and sometimes for a considerable period of time after filing. That explanation is not available here. Nor is this a case where the Defendant engaged in acts either intended or having the effect of interfering with the ordinary advance of the action.

[69] I find that no reasonable excuse has been provided for the inordinate delay in this case between the filing of the Statement of Claim in October 2000 and the filing of the second delay application in October 2017. The delay here is both inordinate and inexcusable.

The Court dismissed the claim on the basis that the delay in getting the matter to Trial had been inordinate. The claim was also dismissed under the 3 year delay rule.