SUPREME COURT OF Nova Scotia
Citation: Northeast Equipment Limited v. High Performance Energy Systems Inc., 2020 NSSC 192
Date: 20200622
Docket: 311787
Registry: Halifax
IN THE MATTER OF the Builders’ Lien Act, R.S.N.S. 1989, c. 277
Between:
Northeast Equipment Limited, a body corporate, Palmer Refrigeration Inc., a body corporate, and Fred M. Dunphy Excavating and Construction Limited, a body corporate
Plaintiffs
v.
High Performance Energy Systems Inc., a body corporate, and Halifax Regional Municipality
Defendants
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D E C I S I O N |
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Judge: |
The Honourable Justice Glen G. McDougall
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Heard: |
November 14, 15, 2017 and January 18, 2018, in Halifax, Nova Scotia. Post hearing written submissions were filed on January 20, 2018 by counsel for High Performance Energy Systems Inc. and on January 30, 2018 by counsel for Halifax Regional Municipality.
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Counsel: |
Randolph Kinghorne, for the Defendant – Halifax Regional Municipality Jasmine Ghosn, for the Defendant – High Performance Energy Systems Inc. |
By the Court:
Introduction
[1] A Notice of Motion was filed on behalf of Halifax Regional Municipality (“HRM”) seeking:
• an order that the Statement of Crossclaim of the Defendant High Performance Energy Systems Inc. (“HPES”) against HRM be summarily dismissed or struck out, in whole or in part, as having no real chance of success or in the alternative be dismissed or struck out, in whole or in part, as being an abuse of process.
• an order that the Statement of Defence of the Defendant HPES be summarily dismissed or struck out, in whole or in part, as having no real chance of success or in the alternative be dismissed or struck out, in whole or in part, as being an abuse of process, and that issue of the quantum of liability of HPES to the plaintiffs and the defendant HRM (as plaintiff by crossclaim) be determined by the court during the course of the proceedings.
[2] The basis for the Motion is stated to be as follow:
1. That the crossclaim of HPES was commenced out of time and is statute barred by the provisions of the Limitations of Actions Act and the HRM Charter.
2. The crossclaim of HPES has no reasonable chance of success based on the law and facts contained in the HPES pleadings and undisputed facts that HRM is able to establish.
3. The crossclaim of HPES is otherwise an abuse of process.
4. The defence of HPES has no reasonable chance of success based on the law and facts contained in the HPES pleadings and undisputed facts that HRM is able to establish.
5. The defence of HPES is otherwise an abuse of process.
[3] HPES made an assignment of all rights, title and interest of HPES (in receivership), both legal and equitable, in the Action brought against it and HRM by the Plaintiffs to 3289444 Nova Scotia Limited (“3289444 N.S. Ltd.”). HPES and 3289444 N.S. Ltd. filed its own Motion (later amended) seeking the following relief:
3289444 Nova Scotia Limited (assignee of all rights, title and interest of HPES (in receivership) in this action, both legal and equitable, pursuant to the terms of an Assignment Agreement between the HPES Receiver and 3289444 Nova Scotia Limited), seeks leave of the Court permitting HPES and 3289444 Nova Scotia Limited to move for an order, disallowing Halifax Regional Municipality (HRM) any defence against HPES, based on the time limitation, pursuant to Section 3(2) of the Limitations of Actions Act, R.S.N.S. 1989, c. 258; and granting such further and other relief as this Honourable court deems just.
[4] The basis for this Motion is as follows:
1. HRM currently has a motion for summary judgment against HPES, scheduled for September 18 and 19, 2017, whereby HRM relied, in part, upon the provisions of the Limitations of Actions Act;
2. 3289444 Nova Scotia Limited (as assignee) of all rights, title and interest of HPES (in receivership) in this action, and HPES must respond to that motion;
3. HPES went into Receivership on September 5, 2013 and as a matter of law, the limitation period that applies to the Receiver is not the same as the limitation period that would have applied to HPES;
4. Prior to the Receiver being appointed, HPES experienced corporate incapacity and was not able to bring a crossclaim or defend itself in the within proceeding;
5. Shareholders of HPES made previous attempts to file a lien against HRM and to defend and intervene in the within proceeding, without success due to corporate incapacity;
6. HRM has had ongoing notice since June 2009 of potential litigation against it, in matters raised in the Statement of Defence and Crossclaim filed by the Receiver of HPES;
7. HPES has been participating in the within proceeding on a limited basis since the outset;
8. Management of HPES has been under the Court’s supervisory jurisdiction since March 2009, pursuant to the Order of Justice Murphy, and HRM has been kept apprised of all matters of relevance to HPES’ defence and crossclaim recently filed by the Receiver;
9. The relief sought in the within motion must be heard together with the summary judgement motion brought by HRM, currently scheduled for September 18 and 19, 2017;
10. HRM will not be prejudiced an it is in the interests of justice that this motion be heard during HRM’s motion for summary judgment; and
11. Given the complexity of legal issues since March 2009, the filing of the statement of defence and crossclaim of the Receiver couldn’t be timelier.
Factual Background
[5] These competing motions arise out of a consolidated proceeding which was initially brought by three subcontractors hired to work on a project relating to the design and construction of a heating and cooling system (the “Project”) on lands owned by HRM situate at Alderney Drive in Dartmouth. These lands are commonly referred to as “Alderney Gate”. The claims of the three subcontractors were filed pursuant to the Builders’ Lien Act, R.S.N.S. 1989, c 277 (as amended). The claim of Palmer Refrigeration Inc., a body corporate, was eventually dismissed on a Motion for Summary Judgment.
[6] HRM and HPES entered into a contract (the “Contract”) for the Project on September 13, 2007. It required HPES to design and construct both a cooling system and a heating system. Components of the work included the design and installation of utility conservation retrofits and an underground thermal energy storage system. HRM’s obligations under the Contract required it to pay a fixed price of $1,000,000.00 plus HST towards the overall construction cost estimated at $3,600,000.00 plus HST.
[7] The directors and principals of HPES, at all materials times, were James Bardsley, David Stewart and Peter Beaini. Mr. Bardsley was the company’s president. There has already been considerable litigation between these three individuals. [See Stewart v. Bardsley, 2011 NSSC 24]
[8] It is interesting to note that the Honourable Justice Pierre L. Muise offered the following comment, at para. 77, of his decision, supra:
[77] As noted L & B Electric Ltd. v. Oickle, it is important to look at whether there is an “arguable issue” raised by the proposed derivative action or, in the case at hand, the proposed intervention to defend, to determine whether it is in the “interests of the company”. The Applicants have not provided sufficient evidence to show that they have an arguable defence to mount in relation to the claims of Northeast and Dunphy. Without a valid defence to mount, filing a defence could only result in unnecessary costs against HPES. That would not be in HPES’s interests.
[9] Justice Muise’s comments were made in the context of an interim motion. Subsequent to this, an Application involving Messrs. Stewart and Beaini along with HPES, as applicants, and Mr. Bardsley and Palmer Refrigeration Inc. and Palmer Engineering Ltd., as respondents was heard by the Honourable Justice Gerald R.P. Moir.
[10] The hearing spanned nine days beginning on February 28, 2011 and concluding on October 25, 2011. [See Stewart v. Bardsley, 2012 NSSC 191; appeal dismissed by the Nova Scotia Court of Appeal – see Bardsley v. Stewart, 2014 NSSA 106.] Justice Moir, at para. 127 of the decision, stated the following:
[127] High Performance failed to complete the contract with the municipality. No certificate of substantial completing was even delivered. Thus, no certificate of acceptance was given to High Performance. It never came close to completion.
[Emphasis added]
[11] Justice Muise and Justice Moir’s comments are particularly relevant to the abuse of process argument advanced in support of HRM’s requested relief for summary judgment.
[12] Returning now to the contract between HRM and HPES, HPES was to be paid $1,000,000.00 by the Municipality on substantial completion that, according to Justice Moir, “It never came close to….” Delivering.
[13] HRM was also prepared to pay HPES another $1,600,000.00 in capital lease payments over a 20 year period in return for HPES operating and maintaining the building retrofits and an advanced energy system. Such payments were never made due to the termination of the contract by HRM. Notice of termination was contained in correspondence from HRM’s then mayor, Mr. Peter Kelly, dated May 21, 2009.
[14] Prior to terminating the contract, HRM’s solicitor notified HPES by letter, dated March 27, 2009, that is was in default under Article 25.1 of the contract. As of the date of that letter, HPES had no project manager in place – in fact, no work at all was being performed at the site. In effect, HPES abandoned the Project. Based on the affidavit evidence of Julian Boyle, P. Eng., the Manager of Strategic Energy Policy and Initiatives for HRM, he and other HRM staff first became concerned with the lack of progress and non-performance of HPES in January of 2009. According to Mr. Boyle, work on the Project effectively stopped in early February, 2009.
[15] Mr. Boyle’s affidavit (Exhibit #1) sets out the steps he and others at HRM took to try to breathe some life back into the Project. By correspondence, dated March 27, 2009, HRM notified HPES that it was in default of its contract under Article 25.1. HPES was given ten business days to end the default as provided for in Article 25.1(a) failing which HRM would be taking steps to make the project operational as per Article 25.2. Furthermore, the letter notified the three principals of HPES that payments under the contract would be reduced by the amount of any payments to third parties that needed to be hired to remedy HPES’s default in order to make the system operational.
[16] Article 25 of the Alderney Agreement (as it was referred to in the contract) can be found under the heading “DEFAULT”. Article 25, in its entirety, reads as follows:
25. Default
25.1 HPES shall be deemed to be in default under this Agreement if:
(a) HPES has substantially delayed the commencement or the execution of the Work or any portion thereof (except for reasons that are permitted under this Agreement) or fails to comply with any reasonable direction of the Municipal Representative (where such direction is consistent with the terms of this Agreement) or is in default in any other material manner under this Agreement, and the Municipal Representative has given written notice to HPES requiring it to end the default or delay, and the default or delay continues for more than ten (10) Business Days after HPES’s receipt of the notice and is not a result of a Force Majeure Event;
(b) HPES has not completed the Work, or any portion within the established time limit for such completion, and the failure to meet the established time limit is not a result of Force Majeure;
(c) HPES has become insolvent;
(d) HPES had made a proposal to its creditors;
(e) HPES has committed an act of bankruptcy;
(f) HPES has abandoned the Work, or
(g) HPES has made an assignment of this Agreement without the prior written consent of the Municipality.
25.2 The Municipal Representative may take all reasonable action necessary to remedy HPES’ default under section 25.1 and may take all or any portion of the Work out of HPES’ hands and may employ such means as it may see fit to complete the Work.
25.3 If the Work or any portion thereof is taken out of HPES’ hands under section 25.2,
(a) payments to HPES will be reduced by an amount equal to all Claims incurred or sustained by the Municipality acting reasonably, as a result of HPES’ default.
(b) HPES shall not be relieved of any legal or contractual obligations other than the completion of that portion of the Work that has been taken out of HPES’ hands.
25.4 In the event of a default by HPES under section 25.1, HPES shall ensure that the Municipality is furnished immediately with all drawings, designs, reports, schematics, specifications and other technical and operational documentation and information useful or necessary for the safe and efficient operation of the Central Heating Plant and Cooling System on a go-forward basis by the Municipality, an Affiliate of the Municipality, or a third party operator.
25.5 The Municipality shall be deemed to be in default under this Agreement if:
(a) the Municipality has failed to make a payment to HPES as required by the terms of this Agreement or is in default in any other material manner under this Agreement, and HPES has given written notice to HPES requiring it to end the default, and the default continues for more than ten (10) Business Days after the Municipality’s receipt of the notice an is not a result of a Force Majeure Event;
(b) the Municipality has become insolvent;
(c) the Municipality has committed an act of bankruptcy; or
(d) the Municipality has made an assignment of this Agreement without the consent of HPES.
[17] Mr. Boyle sent an email to the three directors of HPES on April 8, 2009, in which he asked for “letters confirming payment on arrangements with all suppliers owed money.” As a result of a Builders’ Lien being registered against the Project, a meeting was held on April 23, 2009 with HRM and the directors of HPES. According to Mr. Boyle’s affidavit, HRM was advised by HPES director, Peter Beaini, “that there were no further invoices coming from subcontractors who had worked on the Project and that HPES was working with all the subcontractors to make sure that no more liens would be filed.” [See para. 19 of Julian Boyle’s Affidavit, marked Exhibit #1.]
[18] A solicitor for HRM sent a letter to a lawyer who was apparently representing David Stewart and Peter Beaini, two of the three directors of HPES, regarding a proposal they made to Mr. Boyle and Mary Ellen Donovan, a staff lawyer at HRM. The letter made it very clear that “HRM will consider HPES to no longer be in default and will allow HPES to resume the role of lead/general contractor at the Alderney 5 site, if the following occurs:
1. HPES takes immediate steps to cause the lien filed by Northeast Equipment Ltd. to be vacated, with an Order of a court of competent jurisdiction being filed at the Registry of Deeds. HPES should also secure an undertaking from Northeast Equipment Ltd. (represented by Michael J. O’Hara) to the benefit of HRM to the effect that Northeast Equipent Ltd. will not require HRM to file a Defence to the lawsuit filed on April 22, 2009, but will rather discontinue its action against HRM. A Dismissal Order discharging the lien will issue once there is final disposition of the matter (by agreement of HPES and Northeast Equipment Ltd. or as a result of a court order).
[See Affidavit of Julian Boyle, Exhibit #1 (Tab D)]
[19] This was but one of a number of conditions HRM insisted that HPES comply with. A series of performance milestones was established to attempt to have HPES fulfil the terms of the contract.
[20] After being reassured by HPES’s director – Mr. Beaini – during the April 23rd meeting, that there was no further invoices from subcontractors, HRM was then advised by another HPES director – James Bardsley – that the company was insolvent. This revelation came during a meeting held on April 29, 2009. This then prompted HRM’s solicitor, David R. Greener, to send a letter to all three of HPES’s directors. The letter dated May 11, 2009, included the following two paragraphs:
“As a result, HPES remains in default and HRM will be taking sufficient work out of HPES’ hands necessary to complete the project as per Article 25.2. Any payments that are, or may become, payable by HRM to HPES will be reduced by the amount of payments made by HRM to third parties in order to complete the project, as is provided for in Article 25.3(a).
Any work on the Alderney 5 Project that HRM may cause to be completed by third parties as a result of HPES’ default does not relieve HPES of its obligation to complete the project or fulfill the operating terms under the contract. In this regard, HRM relies on Article 25.3(b) on the Contract.”
[21] Despite HRM’s efforts to get the Project back on the rails, HPES failed to take any meaningful steps to continue the work it had contractually agreed to do.
[22] HRM was left with little alternative but to terminate its contract with HPES. The notice came in the form of a letter, dated May 21, 2009, which was signed by the Regional Municipality’s then mayor – Mr. Peter Kelly. The letter was hand-delivered to each of HPES’s three directors – Messrs. Beaini, Stewart and Bardsley. It clearly and succinctly spelled out the ways HPES was in default. A copy of this correspondence was also sent to the lawyer acting for Mr. Stewart and Mr. Beaini as well as legal counsel for Mr. Bardsley.
[23] Subsequent to the termination of the contract, Mr. Beaini and Mr. Stewart, using HPES letterhead, wrote to Julian Boyle on June 10, 2009 enclosing three separate invoices totalling in excess of $3.6 million. The invoices included:
• One for $751,620.91 for alleged additional work associated with changes to the system;
• Another for $1,300,00 relating to the cooling system; and,
• A final invoice for $1,808,000 relating to the heating system.
[24] In his affidavit, Mr. Boyle pointed out that none of the purported extras claimed by HPES were authorized. He also refuted the other amounts claimed by HPES. As a result, HRM refused to pay them. A Claim Of Lien For Registration, dated July 20, 2009 was registered against HRM’s property at 40 and 60 Alderney Drive on behalf of HPES. A Certificate of Lis Pendens was never filed and so the lien claim ceased to exist under the provisions of the Builders’ Lien Act, R.S.N.S. 1989, c. 277 (as amended).
[25] Justice Moir referred to these same claims at para. 36 of his decision in Stewart v. Bardsley, supra:
[136] On High Performance letterhead, Mr. Beaini and Mr. Stewart wrote to Mr. Boyle shortly after termination. They showed their titles as “Managing Director”. They submitted invoices claiming an astonishing $3,681,620. The first $2,930,000 concerns title transfers, as if the contract has been completed by High Performance. The balance is for purported extras, not one of which had been authorized.
[26] One would think that if there was any merit to HPES’s claims under the contract, then it would not have allowed the Builders’ Lien Act action to slip away. Or, failing that, why then was an action for breach of contract not pursued.
[27] After terminating the contract, HRM took steps to try to limit the financial exposure it faced as a result of HPES’s failure to perform its part of the contract. HPES had left the Alderney Gate parking lot virtually unusable. The parking lost is used each Summer to host a series of Municipal events. A total of $130,000 was spent by HRM on work required to compact the gravel sub-base and restore the original asphalt and concrete aggregate surface to make it suitable for its intended purpose.
[28] The additional triage work undertaken by HRM revealed a significant number of deficiencies in HPES’s work. In order to try to fix these problems and attempt to make the system functional, HRM incurred expenses of approximately $700,000 (including the cost to reinstate the parking lot). All of this work was supposed to be HPES’s responsibility. And, despite the extra expenses incurred by HRM, the heating/cooling system is still not functioning to capacity.
[29] As a result of deficiencies in the cooling system, HRM has had to continue using traditional cooling equipment along with the cost of maintaining it.
[30] Due to HPES’s failure to complete the Project, the Capital Lease that would have significantly mitigated HRM’s operation and maintenance risks for 20 years did not materialize. Under the Capital Lease Agreement, HPES was to be responsible for operating and maintaining all of the cooling infrastructure for a period of up to 20 years. HRM has had to assume all operational risks associated with the cooling system.
[31] HRM has also had to contend with the Builder’ Liens of Fred M. Dunphy Excavating and Construction Limited (“Dunphy”) and Northeast Equipment Limited (“Northeast”) Each of these subcontractors also advanced alternative claims in contract against HPES. Northeast filed its Statement of Claim (Hfx # 310085) based on its Claim of Lien for Registration registered on April 20, 2009. The Statement of Claim seeks payment of outstanding accounts of $78,738.88 issued to HPES as of February 11, 2009, for the supply of materials and for work and improvements made to lands of HRM. James Bardsley, on behalf of HPES, was served with a copy of the Statement of Claim on June 11, 2009.
[32] On July 31, 2009, Dunphy filed an Amended Statement of Claim (Hfx # 314811) further to a Claim of Lien for Registration registered on June 5, 2009. The Amended Statement of Claim seeks payment of outstanding accounts totalling $122,661.46 issued to HPES for the supply of equipment, materials and services relating to excavation and resurfacing work on the cooling system. The last supply date is alleged to have been April 23, 2009.
[33] These two matters were consolidated by Order of this Court dated April 22, 2010. HRM caused to be filed a Defence to the action brought against it by Northeast and Dunphy. The Regional Municipality also filed a crossclaim against HPES. Service of the crossclaim was served personally on each of HPES’s three directors – Messrs. Stewart, Beaini and Bardsley – by Civil Constable Bruce P. Mosher on March 31, 2010.
[34] HRM in its Statements of Defence and Crossclaim initially alleged deficiencies in the materials and services provided by Northeast and Dunphy. Upon further review, HRM determined that the materials and services provided were not deficient. Accordingly, HRM is no longer alleging any such deficiencies and does not dispute the entitlement of the two subcontractors to the lien holdbacks as provided for in the Builders’ Lien Act subject to the Court’s determination as to the amount and distribution amongst them. HRM maintains the position that the materials supplied and the services provided by the subcontractors was done pursuant to their contracts with HPES and consequently HRM should not be liable for payment.
[35] Much of this background information is gleaned from the affidavit of Julian Boyle, P. Eng., filed in support of HRM’s motion for summary judgment. Additional information was found in the affidavit of Dr. Allan Abbass, a major creditor of HPES and a member of an HPES creditor group (3289444 Nova Scotia Limited) which was assigned all of HPES’s rights and interests in this consolidated action by PRICEWATERHOUSE COOPERS Inc., the Receiver appointed by order of the Nova Scotia Supreme Court dated September 5, 2013. Along with Dr. Abbass’ affidavit, counsel for the assignee also filed a two-volume affidavit of David C. Stewart, a professional engineer and a Director of HPES, who has been involved with the development of renewable energy projects since the mid – 1990’s. Mr. Stewart’s affidavit states that he became a partner in HPES in May, 2006.
[36] When HPES was incorporated in August 2006, he together with Peter Beaini and James Bardsley were appointed corporate directors. All three remained actively involved with the company from the time of its creation and throughout the period after the contract for the Project was signed with HRM on September 13, 2007, up to the date of termination on May 21, 2009, and beyond.
[37] What one learns from reading the contents of these various affidavits is that the initial potential for the practical application of underground thermal energy storage (“UTES”) in the development of heating and cooling systems at Alderney Gate was never achieved. The limited success of the Project occurred because of HRM’s decision to try to salvage whatever it could after HPES abandoned the Project in and around February, 2009. HRM had a choice to either cut its’ losses and move on or to take over the project and invest additional taxpayer dollars to try and make the heating and cooking systems work. HRM chose the latter option and has achieved, at least, some of the benefits it hoped to gain despite HPES’s failures. Failures that were likely caused by internal squabbling amongst HPES’s three directors and a lack of proper management all of which eventually led to HPES being put into Receivership.
[38] The affidavit of Dr. Abbass and Mr. Stewart along with the affidavits of Mr. Duane V. Dauphinee, a certified commercial diver who provided services to both HPES and HRM at varying times, and one from Mr. David Boyd, Senior Vice-President at Pricewaterhouse Coopers Inc. (which affidavit was filed in another court matter involving 3289444 Nova Scotia Limited against two other legal entities) together provide context. Both Dr. Abbass and Mr. Stewart dispute some of the assertions contained in Julian Boyle’s affidavit particularly in regard to what was discussed in some of the meetings that occurred both before HPES defaulted on its contract and subsequently after HRM terminated it. A motion for summary judgment is not the time to resolve factual disputes.
[39] But, if the facts that appear to be in dispute have no bearing on the merits of the motion, the Court can, and should, apply the rules relating to summary judgment.
[40] I will return to this later in my decision but I will first consider HPES and 328944 Nova Scotia Limited’s motion to disallow HRM’s defence based on time limitation provisions in the Limitation of Actions Act (“LAA”), R.S.N.S. 1989, c. 258 (as amended), and the HRM Charter.
Issue #1 - Should HPES and 3289444 Nova Scotia Limited’s motion to disallow HRM’s time limitation defence, pursuant to Section 3, subsection (2) of the LAA be granted?
[41] Since January 13, 2009, HRM has been governed by the provisions of An Act Respecting the Halifax Regional Municipality, S.N.S. 2008, c. 39 (as amended). The Act may be cited as the Halifax Regional Municipality Charter (“HRM Charter”).
[42] Section 376(1) of the HRM Charter states:
376(1) For the purpose of the Limitation of Actions Act, the limitation period for an action or proceeding against the Municipality, the Counsel, a Counsel member, an officer or employee of the Municipality or against any person acting under the authority of any of them, is twelve months.
[43] Subsection (3) requires one month advance notice of intended action. The notice must be served on the intended defendant “stating the cause of action, the name and address of the person intending to sue and the name and address of that person’s solicitor or agent, if any.” Advance notice is generally required prior to commencing an action against a government body such as HRM.
[44] There is a discretion under the Limitation of Actions Act, R.S.N.S. 1989, c. 258 (as amended) (“LAA’) to disallow a defence based on a time limitation and allow an action to proceed if it appears to be equitable. The Court, according to Section 3, subsection (6) “…shall not exercise the jurisdiction conferred by this Section where the action is commenced or notice given more than four years after the time limitation therefor expired.
[45] It is interesting to note that this Section does not apply to the time limitation provisions of the Builders’ Lien Act (“BLA”). The BLA has very specific deadlines for filing claims and commencing action. Those filing deadlines are always strictly enforced.
[46] HPES’s claims for breach of contract, unjust enrichment and quantum meruit against HRM were discoverable when HRM terminated the Contract on May 21, 2009. Notice of termination was provided to each of HPES’s three directors in a letter signed by HRM’s then mayor, Peter Kelly.
[47] Counsel for HRM pointed out that even the most generous application of the LAA would mean the expiration of the time period for commencing an action would have been June of 2014. This is a total of five years after the Dunphy claim of lien under the BLA was registered on June 5, 2009, and four years after the one year limitation period expiration under the HRM Charter.
[48] HRM’s filed an amended defence to the claims brought on Dunphy’s behalf and added a crossclaim against HPES on March 26, 2010.
[49] HRM also filed an amended defence to the Northeast claim and added a crossclaim against HPES on August 21, 2010. HPES did not defend itself against the claims of Dunphy and Northeast or the crossclaims of HRM until a Notice of Defence with Crossclaim was filed with the Court on January 6, 2015. As part of its defence, HPES pleaded, in the alternative, that if it was found to be responsible for any outstanding payments to Northeast or Dunphy then HRM should have to contribute and indemnify HPES for any amounts found to be owed.
[50] HPES was put into receivership by an Order of this Court dated September 5, 2013. Discussions between the Receiver and its legal counsel and HRM representatives and their legal counsel took place in early 2014. In early May, 2014 HRM’s legal services advised that Receiver by correspondence that HRM did not accept the Receiver’s claim for the value of certain capital assets. It still took approximately eight more months for the Defence and Crossclaim of HPES to be filed.
[51] In regard to the circumstances of this case and upon considering the various factors set out in subsection (4) of Section 3 of the LAA, I am not prepared to disallow the limitation defence advanced by HRM. The inability of HPES’s directors to set aside their personal animosity towards one another helped to create the predicament the company now finds itself in. To disallow HRM’s limitation defence would create an unjust result. To echo the words that HPES’s counsel used in her eloquent and rather passionate plea on behalf of her client during closing argument- “It is just not fair.” It might not seem fair to the party she represents to deny the remedy but it would be a lot more unfair to deny HRM a valid defence to HPES’s crossclaim.
Issue #2
[52] I will now turn my attention to the relief sought by HRM for:
• An order that the Statement of Crossclaim of the Defendant High Performance Energy Systems Inc. (“HPES”) against HRM be summarily dismissed or struck out, in whole or in part, as having no real chance of success or in the alternative be dismissed or struck out, in whole or in part, as being an abuse of process.
• An order that the Statement of Defence of the Defendant HPES be summarily dismissed or struck out, in whole or in part, as having no real chance of success or in the alternative be dismissed or struck out, in whole or in part, as being an abuse of process, and that issue of the quantum of liability of HPES to the plaintiffs and the defendant HRM (as plaintiff by crossclaim) be determined by the court during the course of the proceedings.
[53] My ruling on the limitation defence in favour of HRM, in effect, precludes HPES from defending against HRM’s crossclaim and also its efforts to seek contribution and indemnification from HRM for any amounts found owing to either Dunphy or Northeast. It also determines any crossclaim HPES asserts against HRM.
[54] Nonetheless, I will consider HRM’s motion for summary judgment that asks the Court to dismiss or strike out, in whole or in part, the Statement of Crossclaim of HPES along with its defence to HRM’s crossclaim. If granted, HPES would still be able to defend itself against the claims of Dunphy and Northeast.
[55] Civil Procedure Rule 13.4 sets out the analytical framework that applies to a Motion of this nature. It states:
13.04 Summary judgment on evidence in an action
(1) A judge who is satisfied on both of the following must grant summary judgment on a claim or a defence in an action:
(a) there is no genuine issue of material fact, whether on its own or mixed with a question of law, for trial of the claim or defence;
(b) the claim or defence does not require determination of a question of law, whether on its own or mixed with a question of fact, or the claim or defence requires determination only of a question of law and the judge exercises the discretion provided in this Rule 13.04 to determine the question.
(2) When the absence of a genuine issue of material fact for trial and the absence of a question of law requiring determination are established, summary judgment must be granted without distinction between a claim and a defence and without further inquiry into chances of success.
(3) The judge may grant judgment, dismiss the proceeding, allow a claim, dismiss a claim, or dismiss a defence.
(4) On a motion for summary judgment on evidence, the pleadings serve only to indicate the issues, and the subjects of a genuine issue of material fact and a question of law depend on the evidence presented.
(5) A party who wishes to contest the motion must provide evidence in favour of the party’s claim or defence by affidavit filed by the contesting party, affidavit filed by another party, cross-examination, or other means permitted by a judge.
(6) A judge who hears a motion for summary judgment on evidence has discretion to do either of the following:
(a) determine a question of law, if there is no genuine issue of material fact for trial;
(b) adjourn the hearing of the motion for any just purpose including to permit necessary disclosure, production, discovery, presentation of expert evidence, or collection of other evidence.
[56] The leading case for summary judgment on evidence is Shannex Inc. v. Dora Construction Ltd., 2016 NSCA 89 (“Shannex”). This decision from the Nova Scotia Court of Appeal was written by the Honourable Justice Joel Fichaud with the concurrence of Farrar, J.A. and Bourgeois, J.A.
[57] Beginning at para. [31], Justice Fichaud laid out the approach that should be followed in deciding the merits of a summary judgment motion on evidence.
[58] In para. [31], the Learned Appellate Court Justice stated, verbatim, the rule. Since I have already done that, I will not repeat it.
[59] I believe, however, that paras. [32] to [42], inclusive, of the Court of Appeals’ decision should be quoted in their entirety. The decision reads as follows:
[32] The former Rule 13.04(1) said, if the evidence on the motion satisfies the judge that the challenged statement of claim or defence “fails to raise a genuine issue for trial”, the judge “must grant summary judgment”. The former Rule 13.04(2) said the judge “may grant judgement for the plaintiff, dismiss the proceeding, allow a claim, dismiss a claim, or dismiss a defence”. This wording generated a twofold test. In Burton, Justice Saunders explained:
[42] At this point a summary of the analytical framework may be helpful. In the first stage the judge’s focus is concerned only with the important factual matters that anchor the cause of action or defence. At this stage the relative merits of either party’s position are irrelevant. It is only if the judge is satisfied that the moving party has met its evidentiary burden of showing there are no material factual matters in dispute that the judge will then enter into the second stage of the inquiry. The focus of that stage is not - as the judge put it here - to see if the “undisputed facts” … give rise to a genuine issue for trial” That is a misstatement of the test established in Guarantee [Guarantee Co. of North America v. Gordon Capital Corp., 1999 CanLII 664 (SCC), [1999] 3 S.C.R. 423]. Instead, the judge’s task is to decide whether the responding party has demonstrated on the evidence (from whatever source) whether the claim (or defence) has a real chance of success. This assessment, in the second stage, will necessarily involve a consideration of the relative merits of both parties’ positions. …
[43] In the context of summary judgment motions the words “real chance” do not mean proof to a civil standard. That is the burden to be met when the case is ultimately tried on its merits. If that were to be the approach on a summary judgment motion, one would never need a trial.
[44] The phrase “real chance’ should be given its ordinary meaning – that is, a chance, a possibility that is reasonable in the sense that it is an arguable and realistic position that finds support in the record. In other words, it is a prospect that is rooted in the evidence, and not based on a hunch, hope or speculation. A claim or defence with a “real chance of success” is the kind of prospect that if the judge were to ask himself/herself the question:
Is there a reasonable prospect of success on the undisputed facts?
The answer would be yes.
See also the expanded summary of the principles in Burton, para. 87.
[33] The amended Rule 13.04 frames, but does not materially change Burton’s tests. On the first test, instead of the former Rule’s “genuine issue for trial”, the new Rule 13.04(1) speaks of a “genuine issue of material fact, whether on its own or mixed with a question of law”. On the second, the amended Rule 13.04(3) repeats the former Rule 13.04(2), that the judge may grant judgment, dismiss a proceeding, and allow or dismiss a claim or defence. These provisions remain consistent with Justice Saunders’ formulation in Burton.
[34] I interpret the amended Rule 13.04 to pose five sequential questions:
• First Question: Does the challenged pleading disclose a “genuine issue of material fact”, either pure or mixed with a question of law? [Rules 13.04(1), (2) and (4)]
If Yes, it should not be determined by summary judgment. It should either be considered for conversion to an application under Rules 13.08(1)(b) and 6 as discussed below [paras. 37-42], or go to trial.
The analysis of this question follows Burton’s first step.
A “material fact” is one that would affect the result. A dispute about an incidental fact - i.e. one that would not affect the outcome - will not derail a summary judgment motion: 2420188 Nova Scotia Ltd. v. Hiltz, 2011 NSCA 74, para. 27, adopted by Burton, para. 41, and see also para. 87 (#8).
The moving party has the onus to show by evidence there is no genuine issue of material fact. But the judge’s assessment is based on all the evidence from any source. If the pleadings dispute the material facts, and the evidence on the motion fails to negate the existence of a genuine issue of material fact, then the onus bites and the judge answers the first question Yes. [Rules 13.04(4) and (5)]
Burton, paras. 85-86, said that, if the responding party reasonably requires time to marshal his evidence, the judge should adjourn the motion for summary judgment. Summary judgment isn’t an ambush. Neither is the adjournment permission to procrastinate. The amended Rule 13.04(6)(b) allows the judge to balance these factors.
• Second Question: If the answer to #1 is No, then: Does the challenged pleading require the determination of a question of law, either pure, or mixed with a question of fact?
If the answers to #1 and #2 are both No, summary judgment “must” issue: Rules 13.04(1) and (2). This would be a nuisance claim with no genuine issue of any kind – whether material fact, law, or mixed fact and law.
• Third Question: If the answers to #1 and #2 are No and Yes respectively, leaving only an issue of law, then the judge “may” grant or deny summary judgment: Rule 13.04(3). Governing that discretion is the principle in Burton’s second test: “Does the challenged pleading have a real chance of success?”
Nothing in the amended Rule 13.04 changes Burton’s test. It is difficult to envisage any other principled standard for a summary judgment. To dismiss summarily, without a full merits analysis, a claim or defence that has a real chance of success at a later trial or application hearing, would be a patently unjust exercise of discretion.
It is for the responding party to show a real chance of success. If the answer is No, then summary judgment issues to dismiss the ill-fated pleading.
• Fourth Question: If the answer to #3 is Yes, leaving only an issue of law with a real chance of success, then, under Rule 13.04(6)(a): Should the judge exercise the “discretion” to finally determine the issue of law?
If the judge does not exercise this discretion, then: (1) the judge dismisses the motion for summary judgment, and (2) the matter with a “real chance of success” goes onward either to a converted application under Rules 13.08(1)(b) and 6, as discussed below [paras. 37-42], or to trial. If the judge exercises the discretion, he or she determines the full merits of the legal issue once and for all. Then the judge’s conclusion generates issue estoppel, subject to any appeal.
This is not the case to catalogue the principles that will govern the judge’s discretion under Rule 13.04(6)(a). Those principles will develop over time. Proportionality criteria, such as those discussed in Hryniak v. Mauldin, 2014 SCC 7 (CanLII), [2014] 1 S.C.R. 87, will play a role.
A party who wishes the judge to exercise discretion under Rule 13.04(6)(a) should state that request, with notice to the other party. The judge who, on his or her own motion, intends to exercise the discretion under Rule 13.04(6)(a) should notify the parties that the point is under consideration. Then, after the hearing, the judge’s decision should state whether and why the discretion was exercised. The reasons for this process are obvious: (1) fairness requires that both parties know the ground rules and whether the ruling will generate issue estoppel; (2) the judge’s standard differs between summary mode (“real chance of success”) and full-merits mode; (3) the judge’s choice may affect the standard of review on appeal.
[35] “Discretion”: The judge’s “discretion” under the amended Rule 13.04(6)(a) governs the option whether or not to determine the full merits – i.e. the Fourth Question. I disagree with Mr. Upham’s factum that Rule 13.04(6)(a) gives the judge “unfettered” discretion to just dismiss Shannex’s summary judgment motion. The Civil Procedure Rules do not authorize judges to allow or dismiss summary judgment motions on an unprincipled or arbitrary basis.
[36] “Best foot forward”: Under the amended Rule, as with the former Rule, the judge’s assessment of issues of fact or mixed fact and law depends on evidence, not just pleaded allegations or speculation from the counsel table. Each party is expected to “put his best foot forward” with evidence and legal submissions on all these questions, including the “genuine issue of material fact”, issue of law, and “real chance of success”: Rules 13.04(4) and (5); Burton, para. 87.
[37] Conversion to an application: Lastly, the judge and counsel “must” bear in mind Rule 13.08(1)(b):
13.08(1) A judge who dismisses a motion for summary judgment on the evidence must, as soon as is practical after the dismissal, schedule a hearing to do either of the following:
(a) give directions for the conduct of the action, if it is not converted to an application;
(b) on the motion of a party or on the court’s own motion, convert the action to an application in court, set a time and date for the hearing of the application, and give further directions as called for in Rule 5 - Application.
[emphasis added]
[38] Two reasons are often cited to support the request that an action be determined by a chambers judge upon affidavits. First is that the responding party’s pleading has no merit. Second is that the disputed issues may be determined more efficiently by an abbreviated procedure without a full trial.
[39] Some jurisdictions address both factors with one Civil Procedure Rule: e.g. Ontario’s amended Rule 20, that was discussed in Hryniak. Ontario’s Rules do not have a general mechanism to convert actions into hybrid applications. Nova Scotia separates the functions with two Rules. Rule 13 addresses the first scenario with summary judgment. Rule 6 permits a chambers judge to convert an action to an application that will more proportionately allocate resources. Rule 6.02 lists the governing criteria, and a body of jurisprudence under Rule 6 has developed the principles for conversion. These include factors like those discussed in Hryniak.
[40] It is important to distinguish the functions of Rules 13.04 and 6. That is because different tones and criteria govern the two reasoning paths. A summary judgment motion frontally, sometimes scornfully attacks merit. A conversion motion considers the more efficient process to adjudicate a plausible claim.
[41] Rules 13.08(1)(b) and 6 acknowledge that, in Nova Scotia, the two functions follow separate channels. This affects the analysis of a summary judgment motion. The mere fact that an application by affidavit may allocate resources more proportionately than a trial is not a reason to summarily dismiss a pleading as unmeritorious under Rule 13.04. Rather, the proportionality factor should trigger consideration, by the judge or counsel: (1) whether the judge should exercise the discretion to decide an isolated point of law under Rule 13.04(6)(a), as discussed earlier, and (2) whether the action should be converted to an application under Rules 13.08(1)(b) and 6. See Fougere v. Blunden Construction Ltd., 2014 NSCA 52, paras. 11-20.
[42] Rule 13.08(1) says that a judge who dismisses the motion for summary judgment “must” schedule a hearing to consider conversion or directions. Accordingly, a dismissed motion under Rule 13.04 triggers the supplementary question:
• Fifth Question: If the motion under Rule 13.04 is dismissed, should the action be converted to an application and, if not, what directions should govern the conduct of the action?
[60] In a more recent case from our Court, the Honourable Justice Pierre L. Muise, in the case of Kaehler v. SystemCare Cleaning & Restoration Ltd., 2018 NSSC 219, relied on Shannex, supra, in reaching his decision. At para. 11, Justice Muise stated:
[11] Shannex interprets the amended Rule 13.04 by adjusting the approach in Burton to conform to the new wording and, as directed in Hryniak v. Mauldin, 2014 SCC 7, by “broadly, favouring proportionality and fair access to the affordable, timely and just adjudication of claims". That general approach was confirmed in Fougere v. Blunden Construction Ltd., 2014 NSCA 52, at paragraph 7, as being the proper approach.
[61] The approach set out in Shannex provides the template which I will follow in determining the results of the Motion now before me.
[62] In doing so, I am mindful of what the Honourable Justice Jamie Saunders stated at para. 87, sub-paragraph 6, of Burton, supra, and I quote:
[87] Before turning to the final issue raised on appeal, I wish to provide a quick summary of the law as it presently stands in Nova Scotia concerning summary judgment litigation. From the jurisprudence to which I have referred as well as the case law cited therein, a series of well-established legal principles have emerged. I will list these principles in the hope that their enumeration will serve as a helpful checklist or template to guide counsel and judges in their application. In Nova Scotia:
…
6. Proof at either stage one or stage two of the inquiry requires evidence. The parties cannot rely on mere allegations or the pleadings. [Emphasis added] Each side must “put its best foot forward” by offering evidence with respect to the existence or non-existence of material facts in dispute, or whether the claim (or defence) has a real chance of success.
[63] One only gets to the second stage of the analysis if the moving party has succeeded in meeting its evidentiary burden of showing there are no material factual matters in dispute. [See also para. [42] of Burton, supra.]
[64] It is also worth mentioning that if the first stage of the analysis has determined there are no material facts in dispute that would require a trial then the burden falls to the responding party to demonstrate “… on the evidence (from whatever source) whether its claim (or defence) has a real chance of success.” [Reference, once again, to Burton, supra, at para. [42].]
[65] Justice Saunders, in Burton, supra, at paras 43 and 44, provided the following to explain the words “real chance”. (I realize I am repeating what I have already stated but I believe it bears repeating.)
“[43] In the context of summary judgment motions the words “real chance” do not mean proof to a civil standard. That is the burden to be met when the case is ultimately tried on its merits. If that were to be the approach on a summary judgment motion, one would never need a trial.
[44] The phrase “real chance” should be given its ordinary meaning – that is, a chance, a possibility that is reasonable in the sense that it is an arguable and realistic position that finds support in the record. In other words, it is a prospect that is rooted in the evidence, and not based on hunch, hope or speculation. A claim or a defence with a “real chance of success” is the kind of prospect that if the judge were to ask himself/herself the question:
Is there a reasonable prospect for success on the undisputed facts?
the answer would be yes.”
[66] When one looks at HPES’s defence to HRM’s crossclaim as well as its crossclaim against HRM, there is no issue of material fact, that would require a trial. In so far as the claim or defence requires a determination of a question of law, that determination can be made on the undisputed facts that do exist.
[67] The following material facts are not in dispute:
• HRM and HPES entered into a contract, dated September 13, 2007, which sets out the terms they agreed to be bound by;
• HPES contracted with Northeast and Dunphy to provide materials and to perform services in fulfillment of HPES’s contractual obligation to HRM;
• Northeast registered a Builders’ Lien against HRM’s lands at Alderney Gate due to HPES’s failure to render payment of its invoices. Northeast’s lien was registered on April 20, 2009;
• Dunphy registered a similar Builders’ Lien against HRM’s lands at Alderney Gate on June 5, 2009;
• The contract between HRM and HPES was terminated by written correspondence signed by HRM’s mayor – Peter Kelly – and dated May 21, 2009. This was done only after HPES was given notice of default which it took no steps to rectify;
• HPES’s default under the Contract left HRM with the decision to either cap its losses to what had already been spent or to take on the risk and added cost of hiring other contractors to complete the project on the Municipality’s behalf;
• HRM chose the latter option and spent considerable sums of money completing the Project and correcting deficiencies left behind by HPES;
• HRM gave no express or implied indemnification to HPES for the claims of Northeast and Dunphy;
• HPES not only abandoned the Project but it also failed to answer the Claims made by Northeast and Dunphy leaving it to HRM to deal with;
• HPES only filed its defence to HRM’s crossclaim and commence its own crossclaim against HRM on January 6, 2015 nearly five years after the one year limitation period for commencing an action against the Municipality had expired and more than two years after the Receiver for HPES was appointed.
[68] Based on the undisputed facts in this case there is nothing that would require a trial as it pertains to HRM and HPES.
[69] As for HPES’s claims based on unjust enrichment and quantum meruit, they cannot be used as a means of circumventing a statutory limitation period. [See Caglar v. Moore, 2005 CanLII 39871 (On Sc), at paras. 34 and 35.] The equitable relief sought is inextricably linked to the alleged breach of contract.
[70] I rely on the case of Rillford Investments Ltd. V. Gravure International Captial Corp. [1997] 7 W.W.R. 534, where, at para. 29, it is written:
29 As to unjust enrichment, I have serious reservations about the direct linkage suggested by plaintiff’s counsel between the principles of quantum meruit and the newer concept of unjust enrichment. It is difficult to see how the remedy of unjust enrichment could be implied when the plaintiff’s claim in quantum meruit is met head-on by the existence of an express contract. See Peter Kiewit Sons’ Company of Canada Ltd. et al. v. Eakins Construction Ltd., 1960 CanLII 37 (SCC), [1960] S.C.R. 361. But even if the principles of unjust enrichment are applicable, the law is clear as noted in Rathwell v. Rathwell, 1978 CanLII 3 (SCC), [1978] 2 S.C.R. 436, that “a contract” can constitute a juristic reason for the enrichment (at p. 455). As a recent example of this, see the decision of this Court in Hill Estate v. Chevron Standard Ltd. et al. (1992), 1992 CanLII 4025 (MB CA), 83 Man.R. (2d) 58 (at p. 70):
Decided cases are of little assistance in determining what is meant by “juristic reason.” It simply comes down to this: if there is an explanation based upon law for the enrichment of one at the detriment of another, then the enrichment will not be considered unjust and no remedy, whether by constructive trust or otherwise, will be available. For example, there might be a contract between the parties under the terms of which an enrichment by one at the expense of the other is contemplated or justified. [emphasis added]
[71] The equitable doctrine of unjust enrichment applies where there is no juristic reason for a party to benefit at the expense of another. As indicated in Rillford, supra, “the plaintiff’s claim in quantum meruit is met head-on by the existence of an express contract.” The same applies to HPES’s claim based on unjust enrichment. Any damages that HPES might have sought are derived directly from the Contract. HPES breached its contract with HRM when it ceased work on the Project in February of 2009. HPES was not prevented from carrying out its obligations under the Contract because of any actions taken by HRM. HPES must bear the responsibility for its failure to honour its contractual obligations to the Municipality.
[72] I have not dealt with HRM’s claim for summary judgment based on an abuse of process. I do not think it is necessary to address this in my decision given the success of their other arguments. In light of what was said by Justice Muise and Justice Moir in their earlier decisions involving some of the parties to the motions herein, and abuse of process could indeed result if this Court was being asked to conclude differently than they had.
Final Decision
[73] High Performance Energy Systems Inc.’s motion to disallow Halifax Regional Municipality’s limitations defence is denied.
[74] Halifax Regional Municipality’s motion to strike out High Performance Energy Systems Inc.’s Statement of Defence to HRM’s crossclaim and to also strike out the crossclaim brought by HPES against HRM is granted. What is left for resolution are the claims of Northeast Equipment Limited and Fred M. Dunphy Excavating and Construction Limited under the Builders’ Lien Act.
Costs
[75] I will leave it to the parties to try to come to an agreement on costs. If an agreement cannot be reached, I will invite counsel to file written submissions on costs within 60 days of the date of release of this decision.
McDougall, J.