Citation: C & R Sterling Farm Ltd. v. Sierra Forestry Inc., 2010 NSSC 154
Date: 20100419
Docket: Hfx. No. 284601
Registry: Halifax
Between:
C & R Sterling Farm Limited, Richard Scott Sterling
Applicant/Defendant
v.
Sierra Forestry Inc.
Respondent/Plaintiff
Judge: The Honourable Justice Arthur J. LeBlanc.
Heard: November 26, 2009, in Halifax, Nova Scotia
Counsel: Beth Newton, for the Applicant/Defendant
Allen Fownes, for the Respondent/Plaintiff
By the Court:
[1] C & R Sterling Farm, one of the defendants in the main proceeding, moves for an order terminating an attachment order against it, pursuant to Rule 44.10. Sterling farm also seeks a change of the place of the proceeding, from Halifax to Windsor NS.
Background
[2] The main proceeding involves a dispute between the plaintiff, Sierra Forestry, and the defendants, with respect to a contract by which Sierra agreed to harvest timber and wood fibre from about 275 acres of land owned by the defendant Sterling Farm. The other defendant, Mr. Sterling, is (according to the statement of claim) beneficial owner of “all the shares, assets and undertaking” of Sterling Farm, and was (it is alleged) party to the harvesting contract, along with Sierra and Sterling Farm.
[3] According to the statement of claim, after harvesting began, the plaintiffs entered “a formal Timber Cutting Agreement and Lease” relating to the same property. This agreement was dated October 18, 2006. The plaintiff claims that the October 2006 agreement referred to the wrong parcel of land, and seeks rectification, on the basis of mutual mistake, in the main proceeding. The agreement included a time limit of one year, from September 16, 2006, until September 16, 2007. Sierra alleges that Mr. Sterling interfered with the timber harvesting “by threatening violence, making gestures and otherwise substantially interfering with the workers conducting the harvest operation,” so that the harvesting work had to be stopped. Sierra says the contract was frustrated and seeks damages. Sterling Farm disputes the claim.
[4] Sierra obtained an attachment order, dated November 21, 2007, against the defendants, Sterling Farm and Richard Scott Sterling. This is a motion by Sterling Farm to terminate the attachment order pursuant to Civil Procedure Rule 44.10 and to change the venue from Halifax to Windsor, pursuant to Rule 32.02(3). In the Notice of Motion, Sterling Farm also seeks discovery of Sierra’s director, Christopher Gourley. The parties informed me at the outset of the hearing that this issue was no longer a matter of dispute.
Change of the place of the proceeding
[5] Civil Procedure Rule 32.02(3) provides that “[a] party may make a motion to change the place of a proceeding.” Sterling Farm submits that the proceeding concerns property in Hants County, near Windsor. Sierra operates from Stewiacke. Sterling Farm says neither party has a connection with Halifax, and argues that the matter should be heard in Windsor, in the area in which the dispute arose. It appears that Sierra does not oppose a change to Hants County. In the hearing, I directed that applications would continue to be heard in Halifax, and the main action – i.e. the trial – would be held in Windsor.
The motion to terminate the attachment order
[6] The 2007 attachment order was obtained under Rules 49.01 and 49.02 of the Civil Procedure Rules (1972). Those rules provided, in part:
Grounds of application for attachment order
49.01. (1) Where a defendant,
(a) resides out of the jurisdiction, or is a corporation that is not registered under the Corporations Registration Act;
(b) conceals himself or absconds within the jurisdiction with intent to avoid service on him of any document;
(c) is about to leave or has left the jurisdiction with intent to change his domicile, defraud his creditors, or avoid service of a document;
(d) is about to remove or has removed his property or any part thereof permanently out of the jurisdiction;
(e) has concealed, removed, assigned, transferred, conveyed, converted or otherwise disposed of all or any part of his property with intent to hinder or delay his creditors, or is about to do so;
(f) has fraudulently incurred a debt or liability in issue in a proceeding;
a plaintiff may, at or after the commencement of the proceeding and before judgment and as an incident of the relief claimed, make application for an attachment order in Form 49.04A.
(2) When a plaintiff files an affidavit which complies with rule 49.02 and a bond that complies with rule 49.03, a prothonotary on an ex parte application shall, unless the court otherwise orders, grant and issue an attachment order in Form 49.04A.
...
Affidavit in support of attachment order
49.02. The affidavit of a plaintiff or his agent in support of an attachment order shall,
(a) set out facts showing
(i) the plaintiff has a good cause of action against a defendant whose property is to be attached, and
(ii) the existence of one or more grounds of attachment as set out in rule 49.01(1)...
[7] For the purpose of comparison, the current Rule 44.02 provides:
44.02 Motion for attachment
(1) A party who claims for damages against another party, and has evidence establishing one of the following grounds against the other party, may make an ex parte motion to the prothonotary for an attachment order:
(a) the other party resides out of Nova Scotia and does not appear to have assets in Nova Scotia, or assets that can be obtained by order or request of the court, sufficient to satisfy a judgment for the amount of the claim;
(b) the other party is a corporation not registered under the Corporations Registration Act;
(c) the other party evades delivery of the document originating the proceeding;
(d) the other party leaves, or is about to leave, Nova Scotia with intent to defraud a creditor or to avoid delivery of the document originating the proceeding;
(e) the other party does anything to put an asset out of the reach of a creditor, or is about to do so;
(f) the other party fraudulently incurred a debt or other liability at issue in the proceeding.
(2) The motion must be supported by an affidavit and either the bond of a recognized surety company or, unless the prothonotary permits otherwise, the party’s own bond with two or more sureties.
[8] Civil Procedure Rule 44.10 permits a motion to terminate an attachment order. It says, in part:
Motion to judge
44.10 A party, or sheriff, may make a motion to a judge to do any of the following about an attachment order:
(a) terminate the attachment order, if the party who obtained it does not make sufficient efforts to bring the claim to a final determination;
(b) terminate the order, if the judge is satisfied the order is not required to secure the party who obtained it, there were not grounds for the order, or there are other good reasons for termination;
(c) vary the order...
[9] The significance of an attachment order was described in Nova Scotia Power Corp. v. AMCI Export Corp., 2005 NSCA 152, [2005] N.S.J. No. 478, where Freeman, J.A. said, for the court:
40 In a dissenting judgment in Acan Windows Inc. v. Stanley, [1995] N.J. No. 323, in which the majority of the Newfoundland Court of Appeal upheld an attachment order under rules similar to those in Nova Scotia, Justice Marshall viewed attachment orders as intrusive incursions into the defendant's rights that should be strictly linked to the rationale requiring them and be limited by conditions restricting their accessibility. Residence was not an issue in that case. Justice Marshall stated:
... The justification and purposes, then, are to foil perceived attempts to frustrate the course of justice; or, in certain circumstances, to prevent its being impeded because of normal residency of the defendant outside of the jurisdiction.
41 While this statement is obiter, I agree with this characterization of the purpose of the Rule making attachment orders available in certain circumstances against defendants living outside the jurisdiction. Such orders are not available against defendants who reside within the jurisdiction in the absence of perceived attempts to frustrate the course of justice...
[10] Sterling Farm says Sierra did not establish that it attempted to frustrate the course of justice (as discussed by Freeman, J.A. in AMCI), noting, for instance, that it accepted service and filed a defence.
(1) Termination due to delay: Rule 44.10(a)
[11] On the issue of delay, under Rule 44. 10(a), Sterling Farm claims that Sierra has not made “sufficient efforts to bring the claim to a final determination” in the two years between obtaining the order and the hearing of this motion. In the Bond on Attachment, Sierra committed itself to “prosecute the proceeding herein without delay to judgment.” Sterling Farm says it has been inactive during that time on account of the attachment order. According to Sterling Farm, Sierra’s failure to proceed without delay is “prejudicial to the point of being oppressive.” Moreover, Sterling Farm says that Christopher Gourley, Sierra’s director and majority shareholder, is bankrupt, and that if the bankruptcy affects the control of Sierra, this could further slow the litigation. Mr. Gourley states that his assignment in bankruptcy led to him vacating the office of director, but that he remains president. He adds that Sierra has not made an assignment in bankruptcy, although it is not operational.
[12] Sierra replies that the delay in scheduling discoveries resulted from requests by Sterling Farm’s counsel; that there have been a demand for particulars, interrogatories and a notice to admit; and “several exchanges of email and telephone calls between [counsel for Sterling Farms] and myself over the past two years, none of which culminated in production of documents until the late summer of 2009.” Sierra accuses Sterling Farm of inordinate delay in providing a list of documents, which “was received by my office only on September 25, 2009,” despite Sierra having provided its documents “many months prior.” Sterling Farm notes that Sierra’s documents were provided in May 2009, and queries whether this can be considered a gap of “many months”.
[13] Sierra says there was never a suggestion in previous communications that the matter was moving too slowly, and adds that despite requests from Sierra’s counsel, counsel for Sterling Farm had not provided a list of available dates for discovery. In the circumstances, Sierra says, Sterling Farm cannot attribute the delay to recalcitrance on Sierra’s part.
(2) Termination for other reasons: Rule 44.10(b)
[14] Pursuant to Rule 44.10(b), the court may terminate an attachment order because “the order is not required to secure the party who obtained it, there were not grounds for the order, or there are other good reasons for termination.”
(a) The order was not required as security
[15] Sterling Farm goes on to argue that the attachment order, which was obtained pursuant to Rules 49.01 and 49.02 of the Civil Procedure Rules (1972), was not justified on the basis of any of the criteria set out in those rules. Rules 49.01 and 49.02 provided:
Grounds of application for attachment order
49.01. (1) Where a defendant,
(a) resides out of the jurisdiction, or is a corporation that is not registered under the Corporations Registration Act;
(b) conceals himself or absconds within the jurisdiction with intent to avoid service on him of any document;
(c) is about to leave or has left the jurisdiction with intent to change his domicile, defraud his creditors, or avoid service of a document;
(d) is about to remove or has removed his property or any part thereof permanently out of the jurisdiction;
(e) has concealed, removed, assigned, transferred, conveyed, converted or otherwise disposed of all or any part of his property with intent to hinder or delay his creditors, or is about to do so;
(f) has fraudulently incurred a debt or liability in issue in a proceeding;
a plaintiff may, at or after the commencement of the proceeding and before judgment and as an incident of the relief claimed, make application for an attachment order in Form 49.04A.
(2) When a plaintiff files an affidavit which complies with rule 49.02 and a bond that complies with rule 49.03, a prothonotary on an ex parte application shall, unless the court otherwise orders, grant and issue an attachment order in Form 49.04A.
...
Affidavit in support of attachment order
49.02. The affidavit of a plaintiff or his agent in support of an attachment order shall,
(a) set out facts showing
(i) the plaintiff has a good cause of action against a defendant whose property is to be attached, and
(ii) the existence of one or more grounds of attachment as set out in rule 49.01(1)...
[16] Sterling Farm says it has “not acted in any way that necessitates security for Sierra”.
[17] Sierra says the two defendants – Sterling Farm and Richard Sterling – “are or were intertwined,” and that Mr. Sterling purported to have authority to bind Sterling Farms, to take receipt of money under the contract and to authorize the construction of a wood road and installation of culverts on the property. According to Sierra, the “taking of money” by Mr. Sterling, and the statement in its defence that Sterling Farm “had nothing to do with the timber harvest contract,” indicate fraud. The land is in the name of Sterling Farm, and Richard Scott Sterling purported to sign on behalf of Sterling Farm; as such, Sierra says, it is “within its rights to suppose [Mr. Sterling] would take steps to have the company put the land beyond the reach of Sierra as a creditor.” According to Sierra, the appearance in the online property registry of the words “parcel changes underway” was an indication that the parcel affected by the dispute was being submitted for “migration and/or registration of documentation of some sort against the property, and which was done apparently as authorized by the owner of such parcel.” Sterling Farm submits that there is no evidence that the property noted to be undergoing “parcel changes” was being sold.
[18] Sierra refers to other “background facts” that caused it to fear that Mr. Sterling “or those parties near to him, including James Dillman, seemed likely to be taking steps to put the assets of [Sterling Farm] beyond the reach of [Sierra] and to ‘frustrate the course of justice’ by their actions.” These “background facts” include a notice of a tax sale for “the property in which Richard Scott Sterling had an interest and certain buildings on which property, Mr. Gourley knew certain assets and equipment of [Sterling Farm] were stored.” Sierra also suggests that there had been a fire in a house on that property, allegedly set by Mr. Sterling; that Mr. Sterling “ended up in [Provincial Court] about the same”; that Sterling Farm had not operated since the death of Mr. Sterling’s father, and that Mr. Sterling “had set about logging the woodland property of the company, of which he alleged to have had control and management” under his grandmother’s will. Further, Sierra submits, the fact that James Dillman is now president of Sterling Farm suggests that Mr. Sterling is not a disinterested party, despite statements in Sterling Farm’s defence. Sterling Farm says it has no relation to the property put up for tax sale.
(b) No grounds for an attachment order
[19] Sterling Farm says Sierra has not established grounds for an attachment order pursuant to Rule 44.10(1). Sterling Farm submits that it “does not operate nor does it plan to operate out of the jurisdiction.” It did not avoid service, and has not dealt with its property with intent to hinder or delay its creditors. While Mr. Gourley’s affidavit alleged that action was being taken to migrate the title of several properties owned by Sterling Farm, “perhaps preparatory to selling or otherwise encumbering said properties to put the same beyond the reach of a creditor such as my company.” Sterling Farm says there must be evidence of such conduct, not mere suspicion, in order to justify an attachment order. Further, it is necessary to establish both that there is an attempt to transfer property, and that there is an intent to frustrate justice.
[20] Sterling Farm refers to Newfoundland (Attorney General) v. Nalcap Holdings Inc., [1994] N.J. No. 334 (Nfld. C.A.), where an attachment order was vacated. While it was established that the defendant had transferred assets, the Court of Appeal concluded that the plaintiff had not established the necessary intent. O’Neill, J.A. said, for the court:
23 In the application for the attachment order, the respondent had relied upon the assignment agreement, simpliciter, as supporting the existence of the ground of attachment set out in rule 28.02(1)(e). The trial judge accepted that position, noting that what was transferred by the agreement between the appellant and Cancapital was "the only asset which the [appellant] had within this province."
24 In his decision, the trial judge, having stated that the "assignor's intention must be determined objectively", concluded: "If the effect of the assignment is to hinder or delay creditors, an intention to hinder or delay is apparent and will be presumed". With the greatest respect for the trial judge, I am unable to agree.
25 The whole principle of the attachment of a defendant's assets before judgment is contrary to the ordinary sequence of instituting action, obtaining judgment and then executing on the judgment.
26 In my view, the rules under which a pre‑judgment attachment order may be obtained must be strictly construed. There is no irrebuttable presumption that, because the effect of an assignment may hinder or delay creditors, the assignment was made with that intent.
[21] Based on this reasoning, Sterling Farm submits, even if it was established that it intended to sell property, this would not lead inevitably to the conclusion that this was being done with intent to hinder or delay a potential judgment creditor.
[22] Sterling Farm goes on to add that Mr. Gourley’s affidavit relied on statements from Sterling Farm’s defence, without attaching the defence to the affidavit. As such, it submits, those statements should not have been relied upon. The authority for this conclusion is McNeil's Transport Ltd. v. Caribou Leasing Ltd. (1991), 96 Nfld. & P.E.I.R. 288, [1991] N.J. No. 255 (Nfld. S.C.T.D.), where the court said:
The decision of Steele, J. in [Seaward Seafoods Company Limited v. Resource Developers Limited (1988), 70 Nfld. & P.E.I.R. 242] makes it clear that the facts grounding the application must be set out in the affidavit. Though there is authority otherwise in other jurisdictions (eg. Shwery v. Warstar Resources Inc. (1984), 51 B.C.L.R. 166) I see no objection in principle to attaching the statement of claim to the affidavit nor do I read the Seaward Seafoods case as prohibiting the necessary information being provided in the statement of claim if it were attached as an exhibit to the affidavit. By rule 48.03 an exhibit annexed or otherwise attached is to be identified by the person before whom it was sworn and contain a certificate. If the exhibit is not stated to be attached or annexed it must still contain a certificate and be left with the Registrar. A mere reference to other documents does not comply with the rule...
[23] I conclude the affidavit of February 28, 1991 does not properly incorporate the contents of the statement of claim. I also note the deponent does not say the contents of the statement of claim are true.
[24] The court refused to permit the plaintiffs to file a supplementary affidavit to correct this omission, stating:
[s]ome might argue that I am being too technical in my interpretation of rule 28. But the plaintiffs are seeking a remedy before the Court has adjudicated on the issues between the parties. Prejudgment attachment is an extraordinary remedy. For that reason courts have required strict (some have said meticulous) compliance with the requirements of the enabling legislation.
[25] Sierra maintains that it is not necessary to attach a “publicly-filed Court document” such as the defence, arguing that “[a] reference to another document is not the same as a reference to a Defence filed in an action.” Sierra’s position appears to be that McNeil’s Transport should be distinguished on the basis that the document involved in that case was a statement of claim, while in this case it is a defence. I do not see how this is a relevant distinction.
[26] Sierra denies that the attachment order caused Sterling Farm to shut down, asserting that there is no “financial evidence of operations being interrupted...,” while it is Mr. Gourley’s evidence that Sterling farm “had been out of operation for several years prior to Sierra entering into the timber harvesting contract with [Mr. Sterling] and [Sterling Farm].” Sterling Farm disputes this, submitting that the attachment order has hindered or prevented it from resuming operations. The parties agreed that the Court could take judicial notice that the existence of an attachment order could be of concern to banks in considering whether to advance financing to the company.
[27] Sierra’s position appears to be that Sterling farm’s defence was filed by its “then president,” Ruby Sterling, who was “located in Montreal, Quebec, according to the face of that Defence” and was about to “assign, transfer, convey, convert or otherwise dispose of all or any part of his property with intent to hinder or delay his creditors.” Sierra goes on to submit that there is no proof that Mr. Sterling and Sterling Farm were “of one mind” when they entered the timber harvest contract with Sierra, there is “at least a seriously arguable issue” that Mr. Sterling had the authority to bind Sterling Farm. Of which he was shareholder and manager. According to Sierra, the court can infer from the circumstances that the Property Online notation that “parcel changes are underway” would have caused Mr. Gourley “to have a reasonable fear..., given the tax sale of lands of [Mr. Sterling], that a movement was afoot to sell property of [Sterling Farm] so as to produce enough cash to be able to pay those taxes.” I note Sterling Farm’s position, set out above, with respect to the significance of the alleged parcel changes and tax sale.
(c) other good reasons for an attachment order
[28] Sterling Farm submits that the attachment order is a serious intrusion, to the point that the company is not operating and will soon cease operation for good. Such an oppressive measure, it submits, demands a high threshold of proof that the party involved has attempted to foil or frustrate the course of justice. As an example, Sterling Farm cites Avedis Agencies Ltd. v. Swapper's Furniture Annex Ltd. (1991), 115 N.S.R. (2d) 30, [1991] N.S.J. No. 600 (S.C.T.D.), where the court maintained an attachment order despite expressing a concern with the “drastic result” that “the respondents' business was closed down as a result of the execution of the attachment order.” It was established that the defendant had been transferring assets in an attempt to hinder or delay payment to the manufacturer. Noting that “the extent of the seizure may have rendered impractical the continued operation of the respondents' business,” Tidman, J. added, “[i]f that is not the case and the respondents' business may be carried on without affecting the plaintiffs security I would be prepared, upon application, to consider modifying the writ to such an extent which would permit the applicant to continue in business.”
Conclusion
[29] I am not satisfied that Sierra has established conduct on the part of Sterling Farm to justify the maintenance of the attachment order. An attachment order is an intrusive pre-trial remedy, and I am satisfied that its existence will hinder any attempt by Sterling Farm to resume or expand its operations. While Sierra has asked the court to pierce the corporate veil and regard Mr. Sterling and Sterling Farm as being intertwined, I am not satisfied that it has shown any principled basis to do so. The mere allegation of a connection between the individual and corporate defendants is not sufficient reason to dispose of the corporate veil.
[30] Ultimately, I do not believe that the plaintiff has established any of the grounds available under the rules governing attachment orders. An attachment order should not be maintained on the basis of suspicion and supposition, which is the essence of the plaintiff’s position in support (for instance, the supposition relating to the significance of the property online entry). Both the former Rule 49.01 and the current Rule 44.02 are clear in requiring the applicant to establish facts, not allegations or suspicions. On that basis, I am satisfied the attachment order must be terminated.
[31] I award costs to the applicant of $1,000 payable in any event in the cause.
J.