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Monday Morning Case Bites for September 17, 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

McDonald v Sproule Management GP Limited, 2018 ABCA 295
Summary Judgment l Questioning

Bruen v University of Calgary, 2018 ABQB 650
Formal Offer l Dismissal without Costs l Genuine l Cost Consequences

Mudrick Capital Management v Wright, 2018 ABQB 648
Security for Costs l Factors to Consider

Judgment Highlights

McDonald v Sproule Management GP Limited, 2018 ABCA 295

This was an Alberta Court of Appeal decision dismissing an application to conduct Questioning before a Summary Dismissal Application was heard. The Court noted that such decisions were discretionary, and the Court was not prepared to interfere with the lower Court decision where questioning would simply increase costs:

[2] Whether document production and questioning should proceed prior to the hearing of a summary judgment application is a discretionary decision under the rules. That discretion must be exercised giving due consideration to the purposes of Part 5, which include facilitating resolution of issues and discouraging “conduct that unnecessarily or improperly delays proceedings or unnecessarily increases their costs”: r. 5.1(1): P. Burns Resources Limited v Honourable Patrick Burns Memorial Trust, 2015 ABCA 390 (CanLII) at para 9. There is no rule suspending the usual proceedings relating to Part 5 questioning once a party files an application for summary judgment.

[3] The application to set aside the appointment to conduct Part 5 questioning was brought pursuant to r 5.19.The rule permits a court to cancel an appointment if the court considers it “unnecessary, improper or vexatious”. Rule 5.3(1)(b) permits the court to “modify …any right or power under a rule … or make any order warranted in the circumstances if … the expense, delay, danger or difficulty in complying with a rule would be grossly disproportionate to the likely benefit”.

[4] It is implicit from the reasons given by the chambers judge that he, like the master, concluded that Part 5 questioning would add a disproportionate expense to the proceedings in circumstances where any justification for the respondent’s dismissal was in the appellant’s possession and, in those circumstances, it would have been improper to have insisted on Part 5 questioning before responding to the application for summary judgment.

Bruen v University of Calgary, 2018 ABQB 650

Prior to Trial the Defendants issued two formal offers for a nominal amount. The claim was dismissed at Trial, and the Defendants sought costs. In the decision, the Court addressed the law on a number of issues related to costs. The Court directed that for costs consequences to follow from the offers, they must be genuine when tabled. With respect to whether the offers were genuine, the Court said:

[41] A defendant’s settlement offer may be genuine when made on the basis that the defendant will waive its claim to legal costs that it has already incurred or expects to incur, in return for a discontinuance. Courts are more likely to find that such an offer is genuine where, at the time the offer was made, the offeror had already incurred substantial legal costs. The offer will also more likely qualify as genuine where the action has no obvious merit, such as one that attracts a successful application for summary judgment. A settlement offer including little more than a waiver of costs does not reflect the relative merit of the parties’ positions when the outcome of the case remains unpredictable and dependent entirely on evidence, credibility of witnesses, and fact-finding at trial. An offer to settle on the basis of a costs waiver is not likely genuine when it is made at an early stage of the litigation where there has been minimal disclosure and questioning.

[42] Once the Court finds that a settlement offer is genuine, the Court must then determine whether there is a special reason to depart from the double costs rule. For example, the Court may depart from the double costs rule where the losing party’s action was a test case. However, that special circumstance does not arise where the Court decides the action by applying established jurisprudence to a specific set of facts.

The Court concluded that the first offer was not genuine, because it was too early in the litigation. The second offer was genuine, because by then the merits of the case were clear:

[43] I have concluded that the 2010 Offer was not a genuine offer of compromise. While the action was commenced five years earlier, the litigation remained in its early stages. There had been minimal testing of the factual matrix of the case and the outcome remained relatively unpredictable. The Defendants would have incurred little in the way of costs relative to the damages sought and the litigation had to proceed further to reveal the merits, or lack thereof, of Dr. Bruen’s action. As such, the 2010 Offer did not contain an element of compromise and did not realistically reflect the relative merit of the parties’ positions at the time it was made.

[44] However, I find that the 2017 Offer was a genuine offer of compromise. By that point, the Defendants would have incurred substantial legal costs. The parties’ positions and the relevant facts were clearer and more thoroughly tested. The Defendants and Dr. Bruen were better positioned to determine that the action held little merit, as was eventually shown by the successful non-suit application. The 2017 Offer realistically reflected the relative merit of the parties’ positions at the time it was made.

The Court also outlined the test for recovery of second counsel fees, and concluded that in this case second counsel fees were recoverable:

[52] Courts have used the following factors to determine the appropriateness of second counsel fees: (i) the general importance of the issue(s) to the parties or to others; (ii) the value of the case; (iii) the complexity and scope of the issues; (iv) the size of the trial record; (v) the manner in which opposing counsel conducts the case; and (vi) whether second counsel addressed the court. While the Court in Clancy expressed a reluctance to award second counsel costs outside of cases involving complex issues or law, courts in other instances have suggested that they should err, if at all, on the side of generosity by allowing second counsel fees. Courts will generally award second counsel fees where the issues at trial were complex, the damages sought were substantial, the second counsel actively participated at trial, and the party was not merely splitting work between counsel that could reasonably have been completed by one counsel alone.

[53] I have concluded that the Defendants should receive their second counsel costs. While the case was only moderately complex and the trial record was relatively small, the case was an important one for both parties, given the substantial value of damages sought and the potential consequences of recognizing a novel duty of care. Moreover, the Defendants’ second counsel participated at trial and it was reasonable for trial work to be allocated to second counsel, as evidenced by Dr. Bruen having two counsel present at trial, and the necessity of preparing six defence witnesses, cross examining multiple witnesses, and completing both a voir dire and an application for a non-suit. These factors establish that second counsel costs are appropriate in this case.

The Court also outlined the test for recovery of expert fees where experts do not testify. In this case the Court concluded that those fees were recoverable:

[54] The main factor that will determine whether a party should recover expert witness fees is whether those fees were reasonable at the time that they were incurred. Courts may allow a defendant to recover expert witness fees in some instances even when they retain an expert for the purpose of defending a claim and then do not call on the witness to testify at trial. In such cases, the Court will award expert witness costs if the expert was necessary and fulfilled the purpose for which they were retained, the defendant reasonably determined that they no longer needed the expert to testify, and the expert’s evidence was prepared in good faith.

[55] I find that the Defendants ought to receive costs associated with the two expert reports that they obtained to defend this claim. It was reasonable to retain experts to respond to Dr. Bruen on issues of damages and standard of care where Dr. Bruen argued for the recognition of a novel duty of care. Further, the fact that the Defendants’ expert witnesses did not testify at trial does not bar the Defendants from recovering fees associated with those witnesses. It was reasonable for the Defendants not to call the experts to testify at trial after Dr. Bruen’s proposed expert witnesses were not qualified as experts and the Defendants succeeded in their non-suit application.

The Plaintiff’s also disputed which column could be claimed for costs. The Court directed that the column claimed in the Statement of Claim could be relied on by Defendants on such an application:

[56] As mentioned above, when determining the appropriate column to use under Schedule C, Justice Côté noted in Amoco Canada Resources that a defendant is entitled to take seriously the plaintiff’s pleadings and to think that it is for the larger sum until he is told that the plaintiff proposes to abandon part of the claim or to amend the prayer for relief. In this case, Dr. Bruen sought damages of over $1.5 million and did not amend his claim to less than $1.5 million at any time. As such, Column 5 is the appropriate column upon which to award costs.

Mudrick Capital Management v Wright, 2018 ABQB 648

This case concerned whether security for costs was warranted. The Court explained the competing parties’ onus of proof as follows:

[9] In the case at bar, the applicant Defendants bear the initial onus. If the evidentiary burden shifts, the respondent Plaintiffs must establish why this Court should not exercise its discretion to make an order for security for costs, in the case of ABCAs 254 or whether it would be just and reasonable for this Court to grant an order for security for costs, in the case of Rules r 4.22. In either case, the decision of whether to require the respondent to pay security for costs is discretionary:Amex Electrical Ltd v 726934 Alberta Ltd, 2014 ABQB 66 (CanLII) at paras 71-72,582 AR 304, 99 Alta LR (5th) 1.

The following non exhaustive list of factors were considered:

[11] In Amex, Wakeling J, as he then was, provided a list of non-exhaustive factors when a court is considering whether it will require a respondent to post security for costs. He said, “[t]he likelihood a court will exercise its discretion in favour of an applicant for security for costs and grant a security-for-costs order goes up if one or more of the following conditions exists”:Amex at para 74. He then continued with the list, which included the following:

a) the respondent is a corporation and has no assets in Alberta;

b) the respondent is a corporation and the assets it has in Alberta are of a nature or value that there is a substantial risk that the applicant may not be able to recover any costs award likely to be granted to it;

c) the likelihood the respondent will receive judgment against the applicant is low;

d) a security for costs order will not prevent the respondent from prosecuting its action;

e) the applicant is not seeking security for steps already taken;

f) if the applicant has counterclaimed, and the issues raised by the counterclaim and the claim are different, this will not deter a court from granting security for costs;

g) the applicant has applied for a security for costs order at the earliest opportunity; and

h) the resolution of the issues presented by the respondent’s action is not important to the greater community.

Amex at para 74.

[12] As this Court mentioned in Provalcid Inc v Graff, 2014 ABQB 453 (CanLII) at paras 88-89, there are similarities between the factors outlined in Rules r 4.22 and the factors that Wakeling J articulated in Amex. Of course, the ultimate result involves the application of different standards, but it would be useful to use theRulesr 4.22 factors as a starting point.

In this case the Court awarded security for costs in stages. Further, since the claim was for $150 million dollars, triple column 5 costs were awarded.