Date: 20100125
Docket: T-1475-09
Citation: 2010 FC 84
Vancouver, British Columbia, January 25, 2010
PRESENT: Roger R. Lafrenière, Esquire
Prothonotary
BETWEEN:
HIGHLAND
PRODUCE LTD.
Applicant
and
EGG FARMERS OF CANADA (formerly known as the
CANADIAN EGG MARKETING AGENCY)
Respondent
REASONS FOR ORDER AND ORDER
LAFRENIÈRE P.
[1]
The
underlying proceeding is an application for judicial review by the Applicant,
Highland Produce Ltd. (Highland) of a decision of the National Farm Products
Council (NFPC) dated August 5, 2009, whereby the NFPC dismissed a complaint
by Highland under s. 7(1)(f) of the Farm Products Agencies Act. The
judicial review application is the latest in a decade long dispute between Highland and the
Respondent, the Egg Farmers of Canada (EFC), formerly known as the Canadian Egg
Marketing Agency (CEMA), concerning the pricing of eggs during the period from 1999
to 2003.
[2]
By
motion in writing, EFC seeks an order requiring Highland to pay into
court security for costs in the amount of $250,000.00, representing an unpaid
costs award registered as a judgment in favour of EFC against Highland in the Alberta
Court of Queen’s Bench, and additional security for costs of the present
application in the amount of $59,662.82. Highland opposes the
motion, both as to EFC’s entitlement to security for costs and the quantum of
the security claimed.
[3]
In
its written representations in response to the motion, Highland suggests
that the Court may want to hear from counsel for the parties to help clarify
some of the issues raised in the motion; however, there is no formal request
for an oral hearing. Upon reviewing the material filed by the parties, I am
satisfied that the matter can be fairly disposed of without personal
appearance.
Background
[4]
By
way of background, Highland is a third generation family-run business that
has carried on operations as an egg processor since 1969. At all material
times, CEMA was responsible for running the supply management system for eggs
in Canada.
[5]
Prior
to 1998, CEMA supplied eggs to industrial egg processors on an informal basis. CEMA
sought to formalize the terms of egg supply to egg processors and, in 1998, entered
into formal agreements with all egg processors, including Highland (1998
Agreement). In June 1999, CEMA re-opened contract and price discussions with
respect to eggs that were surplus to the table market and reached a compromise
on a new contract with the egg processors in 2000 (2000 Agreement). Highland objected to
various terms contained in the 2000 Agreement.
[6]
CEMA
terminated its 1998 Agreement with Highland in June 2000, but continued to
charge Highland lower prices
for six months as required by the notice provisions of the 1998 Agreement.
[7]
Highland commenced an
action in the Alberta Court of Queen’s Bench against CEMA and its directors on
November 10, 2000. Highland sought damages in the amount of $18,000,000.00
for breach of contract arising from the alleged wrongful termination of the
1998 Agreement. Highland alleged, in particular, a breach of the duty of
fairness and duty to negotiate in good faith. The action was stayed by Order of
Madam Justice J.B.Veit dated October 24, 2003. At paragraph 41 of her reasons,
Justice Veit concluded that Highland was required to proceed
by way of arbitration in accordance with the contract governing the parties.
She wrote:
The arbitration clause in the
contract survives the termination of the contract; therefore, independently of
the issues relating to service ex juris, Highland’s proceedings must be stayed to allow
the arbitration proceedings to run their course. Moreover, some of the relief
requested by Highland, specifically a declaration against a federal government
agency, is relief which can only be granted by the Federal Court of Canada; for
that reason as well, Highland’s Alberta action must be stayed.
[8]
Highland did not
appeal Justice Veit’s decision. Instead, it changed counsel and commenced a
second action against CEMA and the Canadian Poultry & Egg Processors
Council on June 28, 2005, alleging that CEMA breached its duty to act in good
faith and fairly “through ineffective price adjustments that effectively
eliminated the supply of Industrial Product Eggs to Highland”.
The damages claimed totalled $11,500,000.00.
[9]
After
some preliminary motions, the parties agreed that the issues identified in the
second action should be referred to arbitration, along with the issues in the
first action. On consent of the parties, the second action was stayed by Order
dated October 17, 2005.
[10]
The
arbitration agreement between the parties provided that the decision of the
arbitrator was to be final and binding, subject only to statutory rights of
appeal, and that no collateral attack on the arbitration decision would be
made.
[11]
In
the arbitration, Highland sought damages against CEMA for negligence,
breach of fiduciary duty, breach of contract, breach of a duty of good faith,
and conspiracy. The acts that were alleged to have given rise to these private
law breaches all concerned CEMA’s administration of the egg supply management system.
[12]
The
arbitration was conducted by the Honourable John W. Morden, formerly a Justice
of the Ontario Court of Appeal (Arbitrator). Following a 22-day hearing, the
Arbitrator rendered an Arbitration Award on August 5, 2008. Although he found
that CEMA was “far from perfect in many respects”, the Arbitrator concluded
that Highland had failed
to establish liability on CEMA’s part and to prove any loss. Accordingly, he
dismissed all of Highland’s claims.
[13]
Highland did not
appeal or otherwise challenge the Arbitration Award, which was recognized as a
Judgment of the Alberta Court of Queen’s Bench on January 8, 2009. Highland’s two
actions which had been stayed in favour of the Arbitration were dismissed by
Justice Graesser of the Alberta Court of Queen’s Bench. Highland did not
appeal the dismissal of its two actions.
[14]
The
parties subsequently made submissions to the Arbitrator with respect to costs
of the arbitration. On April 29, 2009, the Arbitrator awarded costs to CEMA in
the amount of $250,000.00, noting that CEMA was successful with respect to each
one of Highland’s claims.
Highland did not appeal or otherwise challenge the cost award, which was
recognized as a Judgment of the Court of Queen’s Bench of Alberta on October
8, 2009. Despite a demand for payment, Highland has not paid
the costs awarded either in whole or in part.
[15]
Highland’s President,
Larry Ewanishan, deposes in his affidavit in response to EFC’s motion that
Highland has not been an operative company since October 2003 when the actions
of CEMA caused Highland to close down operations. Mr. Ewanishan states
that Highland has earned
no significant revenue since that time, has no significant assets, and lacks
funds to pay the cost award. Highland’s 2008 Financial
Statement, attached as an exhibit to Mr. Ewanishan’s affidavit, shows that its
cash balance decreased from $3,442,573.00 to nil between 2007 and 2008.
The amount of $3,390,000.00 was paid in 2008 to J.D.D. Holdings Ltd., a related
company.
[16]
On
September 18, 2008, Highland submitted a formal complaint to the NFPC
relating to matters that, according to Highland, were not
addressed by the arbitration process and fall within the jurisdiction of the
NFPC. On August 5, 2009, the NFPC dismissed Highland’s complaint
in its entirety. Highland brought the present proceeding on September 3,
2009 seeking an order in the nature of certiorari to quash and set aside
the NFPC’s decision.
Analysis
[17]
There
is no dispute between the parties as to the law and general principles
applicable on a motion for security for costs. Security for costs is a
discretionary award. The initial onus is on the moving party to demonstrate
that it is entitled to security for costs pursuant to Rule 416 of the Federal
Courts Rules. If the moving party has demonstrated that it is entitled to
an award of security, unless there is some other reason why security should not
be granted, the onus shifts to the responding party to demonstrate under Rule
417 that it is impecunious and that it has a meritorious case.
[18]
EFC
relies on Rule 416(1)(f), which provides that the Court may order a plaintiff
to give security for a defendant’s costs where it appears that the defendant
has an order against the plaintiff for costs in the same or another proceeding
that remain unpaid in whole or in part. (Rules 416 to 418 apply, with such
modifications as are necessary, to applicants and respondents in an
application: see Rule 415.)
[19]
Highland does not
dispute that a prima facie case for security for costs has been made out,
but submits that it should be relieved from the requirement to give security
pursuant to Rule 417 based on impecuniosity. After having carefully reviewed
Mr. Ewanishan’s affidavit, I am not satisfied that impecuniosity has been made
out with “robust particularity”: see Morton v. Canada (Attorney
General)
2005 CanLII 6052 (ON S.C.), (2005), 75 O.R. (3d) 63 (S.C.J.) at para.32.
[20]
First,
according to Mr. Ewanishan, Highland owns a building and
land on which the company used to operate. While the assets are said to
encumbered by loans to secured creditors, no information is provided as to the equity
remaining in the property.
[21]
Second,
Highland has failed
to explain why all of the cash reserves were removed from the company and
transferred to a related company contemporaneously with a negative decision
from the Arbitrator. I agree with EFC that, absent a plausible explanation, a
negative inference should be taken that Highland was seeking
to avoid potential liability for costs arising from the arbitration.
[22]
Third,
Highland has failed
to establish that it does not have any other source of revenue, such as
shareholders, to post security for costs.
[23]
Based
on the record before me, Highland has failed to meet the
burden of establishing that it is impecunious. As a result, I need not consider
under Rule 417 whether Highland’s application has
merit.
[24]
EFC
has
produced two bills of costs reflecting its projected fees and disbursements
with respect to the forthcoming application. The first bill of costs is
prepared on a party-and-party basis assessed in accordance with column III of
Tariff B in the amount of $8,154.07. The second bill of costs is prepared on a
solicitor and client basis in the amount of $59,662.82.
[25]
Taking
into account the number of proceedings instituted by Highland against CEMA over
the past decade, which were all resolved in CEMA’s favour, the hearing judge
may be inclined to censure Highland in the event the application for judicial review is found
to be vexatious and an abuse of process. In the circumstances, I conclude that
security for costs should be posted by Highland in an amount roughly equivalent to the
solicitor-client costs projected by EFC, excluding those related to a student.
[26]
EFC
submits that in order to obtain security for costs under Rule 416(1)(f), the
unpaid order for costs need not arise out of proceedings in the Federal Court,
relying on a recent decision of the Federal Court of Appeal in B-Filer Inc.
v. Bank of Nova Scotia, 2007 FCA 409 (CanLII). In B-Filer, the
respondents had been awarded costs in a hearing of the Competition Tribunal in
the amount of $887,049.62. The appellants did not challenge the fact that the
costs award was owing and that it was not paid. Mr. Justice Marc Noël of the
Federal Court of Appeal awarded security for costs in an amount equivalent to
the unpaid costs arising from the Competition Tribunal proceeding.
[27]
B-Filer is
distinguishable, however, on the grounds that the applicant in that case was
appealing the original decision of the Competition Tribunal to the Federal
Court of Appeal. Even though Highland is raising issues in
this application similar to some considered by the Arbitrator, it remains that Highland’s complaint
before the NFPC is a discrete proceeding.
[28]
For
the above reasons, an order will issue compelling Highland to post security
in an amount of $50,000.00 within thirty-one days from the date of this order.
The order will also provide that no further step, except for an appeal of this
order, shall be taken in the application until security is posted in accordance
with this order. EFC shall be entitled to the costs of the motion.
ORDER
THIS COURT ORDERS that:
1.
The
Applicant, Highland Produce Ltd., shall post security in the amount of $50,000.00
for the costs of the Respondent, Egg Farmers of Canada, no later than February
25, 2010, failing which the application may be dismissed without further notice
at the request of the Respondent.
2.
The
Applicant shall pay to the Respondent its costs of this motion, hereby fixed in
the amount of $3,000.00, forthwith and no later than February 25, 2010.
3.
Except
with respect to any appeal of this Order, no further steps shall be taken in
the proceeding until the Applicant posts the security for costs ordered herein.
“Roger R. Lafrenière”
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