Nova Scotia Court of Appeal
Citation: Fraser v. Limbo Cove Resources Inc., 2021 NSCA 41
Date: 20210430
Docket: CA 505462
Registry: Halifax
Between:
John David Fraser
Appellant
v.
Limbo Cove Resources Inc. and Matthew Moore
Respondents
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Judge: |
Beveridge, J.A. |
|
Motion Heard: |
April 30, 2021, in Halifax, Nova Scotia in Chambers |
|
Written Reasons: |
May 27, 2021 |
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Held: |
Motion dismissed |
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Counsel: |
Richard W. Norman and Michel Samson, for the appellant Nathan Sutherland and Nicola Watson, for the respondents |
Decision:
[1] John David Fraser has filed an appeal from an order that requires him to specially perform contractual terms and awards damages plus costs to Matthew Moore and his company, Limbo Cove Resources Inc.
[2] On April 30, 2021, I heard the appellant’s motion for a stay of execution. At the conclusion of the hearing, I dismissed the motion with costs. These are my reasons for doing so.
[3] Fraser and Moore used to be friends and neighbours in the same Cape Breton community.
[4] John David Fraser has fished most of his life. He had licences to fish crab and lobster. He sold them to run a whale watching business. That business failed. Bankruptcy followed in 2007.
[5] Matthew Moore, on the other hand, enjoyed better fortune. In 2006, he won approximately 15 million dollars with a lottery ticket. He decided to enter the commercial fishery. If successful, he would have another business and provide employment to people in the community. He incorporated a company, Limbo Cove Resources Inc., for that purpose.
[6] In 2007, Limbo purchased fishing equipment, a boat and licenses to fish lobster, crab and groundfish for $900,000. Moore was the beneficial owner.
[7] Moore had a problem. He was not qualified under Department of Fisheries policies to hold the fishing licences. In 2008, Fraser regained his qualification to hold licenses. Limbo, Moore and Fraser entered into a series of concurrent agreements. The net effect of the agreements would be that Fraser would become the legal owner of the licences. He would fish the licences, be employed by Limbo and turn over the net proceeds to his employer and transfer the licences back on March 2, 2016. By then, Moore hoped to be qualified to hold the licences.
[8] Differences arose. Counsel became involved. In 2015, the parties agreed Fraser could fish the licenses with the Limbo Cove vessel and the net proceeds would be placed in a lawyer’s trust account. On March 2, 2016, Fraser did not show up for the closing of the re-transfer of the licences and equipment back to Moore/Limbo Resources.
[9] Moore and Limbo Resources sued Fraser for breach of contract. They sought specific performance, damages, and other relief in the alternative. Fraser’s sole defences at trial were that the agreements were unenforceable as being either contrary to public policy or unconscionable.
[10] The litigation spanned the 2016-2020 fishing seasons. Fraser arranged to have the net proceeds earned by the licences deposited into the trust account of his counsel pending the outcome of the litigation.
[11] Lynch J. heard the trial over ten days in September and October 2020. On November 5, 2020, she released written reasons in which she found Fraser knew he had to sell the licences back to Moore in 2016; there was no other reasonable conclusion than there was to be a return of the licences to Moore. She also found that although the agreements were contrary to the letter of the DFO policies about controlling agreements, they did not contravene the spirit of those policies.
[12] The trial judge concluded that the agreements between Moore and Fraser were not unenforceable as being contrary to public policy, nor unconscionable. She ordered specific performance by directing Fraser to take all possible steps to effect the transfer of the licenses to Moore and other ancillary relief, including the transfer of the monies being held in trust to Moore. If specific performance in the form of transfer of the licenses were not possible, damages would follow in the amount of their fair market value.
[13] Initially, Fraser through counsel advised Moore there would be no appeal. Approximately 1.3 million dollars were transferred from the trust account of Fraser’s law firm to that of Moore’s. It took some months for the terms of the order to be finalized. The parties could not agree on costs or prejudgment interest.
[14] Fraser wanted prejudgment interest to be the interest earned on the $1.3 million accumulated in his law firm’s trust account ($40,127.10). Moore did not agree. The trial judge ordered Fraser to turn over to Moore the fishing gear and pay him the balance of the net fishing income Fraser received from 2016-2020 fishing seasons ($94,856.00), $134,389 in prejudgment interest, plus costs of $338.500.
[15] The Order issued on March 10, 2021. The next day, Fraser’s counsel advised there would be an appeal and a motion to stay enforcement of the trial judgment.
THE MOTION FOR A STAY OF EXECUTION
[16] There are virtually legions of decisions that have set out and applied the well-known criteria a judge must consider when an appellant requests a stay of execution, either absolutely or on conditions, pursuant to the equitable power to do so under the Judicature Act, R.S.N.S. 1989, c. 240 and the Nova Scotia Civil Procedure Rules. They all refer to and apply the leading cases of Purdy v. Fulton Insurance Agencies Ltd. (1990), 100 N.S.R. (2d) 341 and/or R.J.R.-MacDonald v. Canada (Attorney General), [1994] 1 S.C.R. 311.
[17] The power to grant such relief is based on equitable principles and is discretionary. The only legislative guidance comes from s. 45(e) of Judicature Act and Rule 90.41(2). Section 45(e) envisages the power to stay might be exercised “so far as necessary for the purposes of justice” and for the Court to make such order “as may be just”.
[18] Rule 90.41(1) directs that the filing of a Notice of Appeal does not operate as a stay of execution or enforcement of the judgment appealed from. However, Rule 90.41(2) provides:
(2) A judge of the Court of Appeal on application of a party to an appeal may, pending disposition of the appeal, order stayed the execution and enforcement of any judgment appealed from or grant such other relief against such a judgment or order, on such terms as may be just.
[19] Hallett J.A. canvassed the historic and emerging caselaw on this equitable power in Purdy v. Fulton Insurance Agencies Ltd. and arrived at his seminal exposition of a two-part test. To satisfy the primary test, an appellant must convince the Court on a balance of probabilities: the grounds of appeal raise at least one arguable ground of appeal; the appellant will suffer irreparable harm should the stay not be granted—assuming the appeal is ultimately successful; and, the appellant will suffer greater harm if the stay is not granted.
[20] The appellant may also obtain a stay pending an appeal, even if it cannot meet all of the criteria for the primary test, if there are exceptional circumstances that nonetheless make it fit and just to grant a stay. This is known as the secondary test.
[21] Here, the appellant argues he has met the primary test because his grounds of appeal raise arguable issues, he will suffer irreparable harm should a stay not be granted, and the balance of convenience is in his favour. The appellant also contends he meets the secondary test—that there are exceptional circumstances which make it in the interests of justice to stay the trial judge’s order.
[22] The respondents, while not conceding the appellant actually meets the low threshold of demonstrating an arguable issue, make no submissions on that prong of the primary test. However, they vigorously dispute the appellant has demonstrated irreparable harm, or the balance of convenience favours him or there are exceptional circumstances. Lastly, they suggest even if the appellant could meet the requisite tests, it should be denied because he does not come to the Court with clean hands.
Arguable issue
[23] The appellant must only demonstrate one or more of his grounds of appeal could result in the appeal being allowed. The threshold is a low one. There is no need to engage in a debate about the merits. The appellant’s grounds of appeal raise arguable issues (Amirault v. Westminer Canada Ltd. (1993), 125 N.S.R. (2d) 171 at para. 11).
Irreparable harm
[24] There is no exclusive test for irreparable harm. Generally, it is harm for which the common law remedy of damages would be inadequate or unavailable (Nova Scotia v. O’Connor, 2001 NSCA 47). A stay may also be appropriate where the appellant would suffer the penalty imposed before the appeal could be heard (Grafton Street Restaurant Ltd. v. Nova Scotia (Utility and Review Board), 2002 NSCA 97; Alementary Services Ltd. v. Nova Scotia (Alcohol and Gaming), 2009 NSCA 61; Dixon v. Nova Scotia (Public Safety), 2011 NSCA 15).
[25] Another typical example of irreparable harm is the assertion if damages are paid to the respondent and the appellant is ultimately successful on appeal, the respondent will be unable to repay (Desrosiers v. MacPhail (1998), 165 N.S.R. (2d) 32; R. v. Innocente, 2001 NSCA 97).
[26] The appellant makes two suggestions of irreparable harm: first, if the order is not stayed and his best efforts result in the transfer of licences to the respondents, the appellant would never see them again; second, without the licences, he will lose the livelihood that comes with them and this will effectively prevent him from being able to pursue his appeal.
[27] Both of these suggestions are without merit. The first is not only speculative, it does not demonstrate irreparable harm. The parties accept it is up to DFO whether the licences are in fact transferred to the respondents, but assuming they are, DFO will not permit another transfer within 12 months. Hence, if DFO transfers the licenses to the respondents, they cannot dispose of them for at least a year. It is speculative to suggest DFO would not be prepared to transfer the licences back should the appellant be successful in this Court demonstrating his entitlement to them.
[28] Further, even if the licences were not, for any reason, transferred back, then an award of damages equal to the value of those licences would be an adequate remedy. Expert evidence at trial demonstrated their value. There is no submission that the respondents would be unable to pay damages to the appellant should he ultimately be successful.
[29] The second suggestion is Kafkaesque-like. It is this: exercise your discretion to deny the respondents the fruits of their litigation in order for the appellant to keep the assets, admittedly paid for entirely by the respondents, in order for the appellant to fund an appeal.
[30] The appellant says he has no money and no property of any value. If the Court orders a stay, he would keep the licences, earn money from fishing them to pay down the excess of $550,000 money judgment he owes the respondents, avoid bankruptcy and pursue his appeal. In other words, let me keep property that a trial judge has found belongs to the respondents so I can pay some of the money I owe them, and use the rest of the income from those assets to fund an appeal to overturn the trial judgment. This is how the appellant puts it:
Mr. Fraser is entirely unable to pay any damages amounts or the costs or prejudgement interest at this point in time. Mr. Fraser could potentially eventually raise the funds to pay the judgment if he is able to continue using the licences. The net income for the licenses is approximately $400,000 [per] year. While it would take time, the Licences could generate income to pay the Respondents. If the order is not stayed, and if Mr. Fraser does not have the additional time [to] earn the funds through his fishing income, he may be forced into bankruptcy. The harm from the monetary judgment will certainly inflict irreparable harm. Bankruptcy would likely be an end [to] Mr. Fraser’s fishing enterprise, his livelihood, and this appeal.
[31] This suggestion of irreparable harm is factually and legally without merit. Factually, because the appellant has been able to litigate for the last five years despite the payment of the net income from the licenses into trust for the previous six fishing seasons. While there is no doubt the appellant would prefer to fish the licenses, he had employment before 2008, and there is no evidence he could not obtain alternate employment in the industry.
[32] Legally, because bald assertions of impecuniosity and consequent inability to prosecute an appeal, without more, fall short (Leddicote v. Nova Scotia (Attorney General), 2001 NSCA 152). Such claims were similarly rejected in fishing license disputes (Widrig v. R. Baker Fisheries Ltd., 1998 NSCA 20; Dugas v. Gaudet, [2015] N.B.J. No. 82).
[33] Having failed to establish irreparable harm, I need not consider the balance of convenience.
Exceptional circumstances
[34] Success on the secondary test of exceptional circumstances is rare. A stay based on exceptional circumstances is available in order to avoid an injustice in circumstances not captured by the primary test. In Purdy v. Fulton Insurance, Hallett J.A. granted a stay on the secondary test. He reasoned:
[29] While I have reservations on the issue, I am persuaded that notwithstanding the applicant cannot meet the primary test as it would appear that the respondent could pay a damage award in favour of the appellant if the summary judgment was set aside on appeal but after the respondent had executed on the appellant’s property, there are exceptional circumstances in this case that warrant the granting of the stay. The exceptional circumstances consist of three factors. First, the judgment was obtained in a summary proceeding rather than after trial. Second, on the face of the pleadings, the appellant raises what appears to be an arguable issue and thus may be successful on the appeal from the granting of the summary judgment. Third, the appellant’s counterclaim and the claim to a setoff have not yet been adjudicated upon by the Trial Division. Therefore, the proceedings (as in the Associated Freezers case) have not been completed and it is premature to execute on the summary judgment. The combined effect of these factors creates an exceptional circumstance that makes it just that the application for a stay of execution of the summary judgment pending the disposition of the appeal from that judgment be granted but on terms.
[35] The stay was conditional on the appellant’s execution of an undertaking under seal not to dispose or encumber his assets and an affidavit itemizing those assets.
[36] What might constitute exceptional circumstances was thoroughly discussed by Fichaud J.A. in Brett v. Amica Mature Lifestyles Inc., 2004 NSCA 93, a case of a summary judgment under appeal. He made clear—Fulton does not stand for the principle that every summary judgment is “exceptional” under the secondary test (para. 22). In general terms, if the primary test addresses the circumstances, it is inappropriate to have resort to the secondary test:
[24] Since Fulton, there have been exceptions where, in the interests of justice, a monetary judgment has been stayed. In Hiltz and Seamone, the Court stayed execution of punitive damages, although Justice Cromwell was careful to state that the stay was based on all of the circumstances in that case, and that punitive damages will not automatically attract a stay. In Coughlan, at p. 175, Justice Freeman stated that if the judgment under appeal “contains an error so egregious that it is clearly wrong on its face” this would be an exceptional circumstance justifying a stay under Fulton’s secondary test.
[25] Applying these principles to the present case: (1) the primary test addresses the circumstances of these parties and it is inappropriate to resort to the secondary test; (2) in any case, a stay is not “required in the interests of justice”.
[37] The appellant here repeats his assertions about the regulatory uncertainty surrounding license transfer and his financial jeopardy if a stay is not granted as meeting the test of exceptional circumstances. I entirely fail to see how the order which requires the appellant to do what he can to effect a license transfer amounts to an exceptional circumstance that would require a stay in order to “avoid an injustice”. Nor does the recycling of the same argument, without more, about the financial consequences if he cannot fish the licenses.
Clean hands
[38] In the course of defending the stay motion, the respondents put forward a draft order that would grant a stay on conditions. The terms of the proposed conditional stay are important to understand one aspect of the respondents’ clean hands argument.
[39] The draft conditional stay sought to maintain what had been the status quo for at least the previous five years. It would: preclude the respondents from enforcing the specific performance of the licenses transfer pending the outcome of DFO’s investigation into the respondents’ eligibility; the respondents would not enforce any aspect of the money judgment of $567,000; if the licenses were transferred to the respondents, they would not sell, transfer or encumber those licenses; the appellant would fish the licenses with the fishing gear, but pay the net proceeds into trust, less his salary; the appellant would itemize his assets and undertake not to dispose or encumber them; the appellant would direct his counsel’s firm to pay to the respondents $40,127.10, less any fees already billed.
[40] The appellant does not dispute the principle that a stay is an equitable remedy and a court can refuse a stay even if the applicant met either of the Fulton v. Purdy tests.
[41] The respondents rely on Bonitto v. Halifax Regional School Board, 2015 NSCA 3. A school principal directed the appellant, a part-time pastor, not to distribute religious pamphlets on school grounds. A trial judge dismissed the appellant’s request for a declaration the prohibition was a violation of his Charter rights. He appealed and sought a stay pending appeal.
[42] Farrar J.A. heard the stay motion. During the hearing, the appellant disclosed he was continuing to disseminate religious maters at the school and intended to keep doing so. He took the view that the trial judge’s decision did not prevent him from distributing his materials, as it had just dismissed his action.
[43] The appellant’s defiance of the substance of the trial judge’s decision disentitled him to a stay, even if he were otherwise to meet either of the tests. Farrar J.A. reasoned:
[46] Earlier I commented about Mr. Bonitto admitting that he was continuing to distribute religious materials at Park West and that he intended to continue to do so in the future. In my view, this clearly contravenes the trial decision.
[47] In White v. E.B.F. Manufacturing Ltd., 2005 NSCA 103, Saunders, J.A. held:
25 Notwithstanding the powerful arguments advanced by Mr. McLellan for the appellant, I am not persuaded that I ought to exercise my discretion by granting a stay pending the appeal.
26 The remedy sought by the appellant is an equitable one. To be accorded such equitable relief, the applicant must come to the court with clean hands. In my opinion it has not.
[48] Similarly, I am not satisfied that Mr. Bonitto comes to this Court with clean hands.
[49] It seems to me to be somewhat incongruent to order a stay on the costs decision of Justice Muise while Mr. Bonitto openly defies the substance of the original decision. His suggestion that he is not acting contrary to the decision of Justice Muise -- because the decision simply dismissed his action and did not prevent him from disseminating religious materials -- is a distinction without a difference. Clearly the issue that was front and center before the trial judge, and which is addressed in his decision, was Mr. Bonitto’s ability to disseminate religious information on the school grounds.
[50] Mr. Bonitto’s actions in continuing to disseminate religious material in the face of the trial decision would result in my refusing his motion even if he were otherwise entitled.
[44] The respondents point to two aspects of the appellant’s conduct they say demonstrate a lack of clean hands. First, since November 5, 2020, the appellant knew of the requirement that he cooperate and takes all necessary steps to ensure license transfers. However, the respondent Moore deposed that in early February 2021 the appellant had been asking fishers in the community to send or endorse letters to DFO questioning Moore’s status as a commercial fisher. If his status were to be under review, there could be no transfer.
[45] The appellant’s brief to the trial judge on the hearing to settle the Order’s terms advised that Fraser had explained to community members the Court had found Moore to have been a commercial fisher, contrary to his testimony, and “that they may contact the DFO about the matter if they were so inclined”.
[46] At the hearing, the trial judge expressed her disapproval of Fraser’s actions and found they were contrary to her decision:
So far as I am concerned, Mr. Atkinson, that’s contrary to my decision, it’s contrary to my order, it’s contrary to my finding that Mr. Fraser was to cooperate and do all steps necessary to ensure that the license was transferred…
[47] Perhaps more startling is the appellant’s use of the $40,127. This was the interest earned on the net income from the fishing of the licenses from 2016 to 2020. This was the amount the appellant proposed to be the total award for prejudgement interest. The respondents declined his offer. As noted earlier, the trial judge awarded the respondents $134,389 for prejudgement interest.
[48] The trial judge’s formal order refers to the net proceeds from 2015 fishing season ($52,290) to be transferred to the respondents along with funds in trust from the interest earned on that amount. It appears to be entirely by oversight the term of the order that reflected the proceeds of the 2016-2020 fishing seasons of $1,348,727.39 had already been transferred did not mention the interest earned on those funds.
[49] But the trial judge’s decision made it clear what was to happen to the monies in trust:
Monies Held in Trust:
[107] Since I find that the agreements are enforceable, all of the monies held in trust by the lawyers for the years 2015, 2016, 2017, 2018, 2019 and 2020 should be released to Limbo Cove/Matthew Moore, minus any wages that should be paid to John David Fraser, (if he was not compensated in the years 2016 to 2020). John David Fraser cannot profit from his unilateral decision to continue fishing the licences.
[Emphasis added]
[50] I have no information about the thought process surrounding the transfer of the $40,127.10 nor the exact date it occurred. What is clear is that: it was money earned from the use of assets belonging to the respondents, it was being held in trust; and, the transfer was long after the trial judge’s decision for the purpose of funding the appeal. Mr. Fraser’s affidavit deposed:
44. Mr. Atkinson, my previous lawyer, held approximately $40,127.10 in trust for me, this amount being interest earned on the net income from the fishing business held in trust. These funds were paid as a retainer for counsel to pursue this appeal. They are held in trust by Cox & Palmer less any amounts I have incurred as legal fees to date for this appeal which I filed on April 9, 2021.
[51] In light of the trial judge’s reasons, I cannot fathom how Mr. Fraser could have asserted a bona fide claim to these funds. I asked counsel for some explanation. None were offered. The use of funds in contravention of the trial judge’s decision demonstrates a lack of clean hands.
[52] I find the appellant had no genuine interest in obtaining a stay in order to “maintain the status quo”. At the conclusion of argument, I reserved. On my return, I indicated I was not convinced of irreparable harm nor exceptional circumstances. Nonetheless, I gave to the appellant the option: dismissal of the motion or I would grant the draft order proposed by the respondents that would permit the appellant to fish the licenses, stop execution of the money judgment, conditional only on return of the balance of the $40,127.10 and an undertaking not to dispose or encumber assets.
[53] Counsel sought instructions. The appellant declined the option for a conditional stay.
[54] I dismissed the motion with the requested costs in the amount of $1,000.00, payable forthwith.
Beveridge, J.A.