Date: 20060508
Docket: A-99-04
Citation: 2006 FCA 167
Present: SHARLOW J.A.
BETWEEN:
JAMES W. HALFORD and VALE FARMS LTD.
Appellants
and
SEED HAWK INC., PAT BEAUJOT, NORBERT BEAUJOT, BRIAN KENT and SIMPLOT CANADA LIMITED
Respondents
REASONS FOR ORDER
SHARLOW J.A.
[1] The appellants James. W. Halford and Vale Farms Ltd. (collectively, "Halford") seek a stay of the award of costs in the Federal Court pending the disposition of this proceeding, which is an appeal and cross-appeal from a judgment of the Federal Court dated January 23, 2004 (2004 FC 88). The judgment under appeal dismissed Halford's action for infringement of a patent, dismissed a cross-appeal for a declaration that the patent was invalid, and awarded costs to the respondents, to be spoken to by notice of motion. The hearing of the appeal is scheduled to commence on May 29, 2006, three weeks from the date of these reasons.
[2] After the issuance of the judgment under appeal, a motion was made in the Federal Court for directions as to costs. That resulted in a Federal Court order dated September 14, 2004 (2004 FC 1259) giving certain directions. That order is not under appeal. The assessment of costs was completed on March 31, 2006 (2006 FC 422). The assessed amounts are $540,031.60 for Seed Hawk Inc. and the individual respondents (collectively, "Seed Hawk"), and $253,996.51 for the respondent Simplot Canada Limited ("Simplot"). The awards bear interest from January 23, 2004 at the rate of 5% per year. Halford has moved in the Federal Court for a review of the assessment.
[3] Seed Hawk opposes the stay on the ground that this Court has no jurisdiction to grant it, and alternatively on the basis that the motion for a stay should be dismissed on the merits. Seed Hawk has also moved for security for costs, in the event the stay is granted. Halford opposes the motion for security. Counsel for Simplot did not submit a separate argument, but adopted the position of Seed Hawk, including the request for security for costs in the event the stay is granted.
Jurisdiction
[4] Section 50 of the Federal Courts Act, R.S.C. 1985, c. F-7, reads as follows:
| 50. (1) The Federal Court of Appeal or the Federal Court may, in its discretion, stay proceedings in any cause or matter
(a) on the ground that the claim is being proceeded with in another court or jurisdiction; or
(b) where for any other reason it is in the interest of justice that the proceedings be stayed.
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50. (1) La Cour d'appel fédérale et la Cour fédérale ont le pouvoir discrétionnaire de suspendre les procédures dans toute affaire :
a) au motif que la demande est en instance devant un autre tribunal;
b) lorsque, pour quelque autre raison, l'intérêt de la justice l'exige.
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[5] Section 50 permits this Court to entertain a motion to stay any judgment of the Federal Court that is under appeal. Seed Hawk argues that Halford is asking this Court to stay a judgment of the Federal Court that is not under appeal, namely the September 14, 2004 order. That order states, among other things, that notwithstanding the commencement of the appeal, the assessment of costs would proceed and the costs would be payable upon the completion of the assessment. Seed Hawk argues that its attempts to execute on its costs award cannot be stayed by this Court because Halford has not appealed the September 14, 2004 order.
[6] I do not accept Seed Hawk's argument on this point. There is an appeal before this Court putting in issue the disposition of the case in the Federal Court. That necessarily includes the award of costs (which in any event is specifically raised in Halford's notice of appeal). In my view, that is sufficient to give this Court the jurisdiction to entertain Halford's motion to stay the execution of the award of costs.
Merits of the motion for stay
[7] It is common ground that I am required to consider the three part test in RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311.
(a) Serious issue
[8] Halford argues that the appeal raises a serious issue. I agree. This point is not disputed by Seed Hawk.
(b) Irreparable harm
[9] On the question of irreparable harm, Halford says that it has sufficient assets, net of liabilities, to pay the assessed costs if its appeal is not successful, but that its assets are not liquid. Most of its assets are capital assets that are required for the business of Vale Farms Ltd. or for Mr. Halford's farming business (which he undertakes jointly with his son). Halford says that if Seed Hawk and Simplot are permitted to execute on their awards before the appeal, the business of Vale Farms Ltd. will necessarily come to an end and it probably will not be possible to revive it if the appeal succeeds.
[10] Seed Hawk argues that Halford has not established irreparable harm, relying primarily on the case of Dableh v. Ontario Hydro (1994), 57 C.P.R. (3d) 387 (F.C.T.D.). In that case, like this one, a patent holder had failed in his action for infringement and costs were awarded against him. Before the conclusion of the assessment, the patent holder applied to the Federal Court for a stay of the cost proceedings pending appeal, apparently arguing among other things that he was at risk of bankruptcy. Seed Hawk argues that this case establishes, as a matter of law, that the enforcement of an obligation to pay court costs can never be irreparable harm. I do not read this case as establishing or purporting to establish any such broad proposition. In my view, the part of the judgment cited by Seed Hawk is simply a statement directed at the particular facts of that case. It is worth noting that even though the appellant in that case was not granted a stay, his appeal continued and was successful: Dableh v. Ontario Hydro (C.A.), [1996] 3 F.C. 751.
[11] In any event, Halford does not argue that there is a risk of bankruptcy. Halford argues that it is at risk of the forced termination of its business. There are several examples in which that has been recognized as irreparable harm: see, for example, RJR-MacDonald (cited above), at paragraph 59; and Trojan Technologies Inc. v. Suntec Environmental Inc., 2003 FCA 309.
[12] In my view, the evidence submitted by Halford is sufficient to establish on a balance of probabilities that irreparable harm will result if the stay is not granted.
(c) Balance of convenience
[13] The third part of the test requires me to balance the probable harm to Seed Hawk if the stay is granted but the appeal fails, against the probable harm to Halford if the stay is denied but the appeal succeeds.
[14] I have already indicated that I am satisfied that if the stay is denied, the business of Vale Farms Ltd. probably will come to an end.
[15] If the stay is granted but the appeal fails, Halford will face considerable practical problems in executing on its costs award because the assets of Halford are not liquid, and in any event all or substantially all of the assets of Vale Farms Ltd. and Mr. Halford are encumbered by security interests in favour of who are not parties in these proceedings. Many of the valuable personal assets of Mr. Halford are farm assets that under the relevant provincial laws are not subject to execution proceedings. It is theoretically possible that Halford will declare bankruptcy, although that is not threatened or contemplated at the moment. The cost award is an unsecured claim that would rank behind all existing secured creditors of Vale Farms Ltd. and Mr. Halford.
[16] While I recognize the potential difficulties faced by Seed Hawk in attempting to realize its cost award, I have no basis for concluding that those difficulties will be made worse by staying the proceedings for the period required to determine the outstanding appeal. The delay will be a matter of three weeks until the commencement of the hearing, plus whatever additional time may be required if judgment is reserved. In this Court, most reserved judgments are issued within a few weeks of the hearing.
[17] Based on the record before me, I conclude that the balance of convenience favours granting the stay.
Conditions
[18] All of the respondents seek security for their assessed costs, as well as the estimated costs of the appeal. Security for costs may be granted as a condition of granting a stay under Rule 398(2) of the Federal Courts Rules, SOR/98-106, or under Rule 416 if there is an outstanding award of costs. In principle, security should be a condition of the stay, if reasonably possible.
[19] The form of security sought by Seed Hawk is a bank guarantee or letter of credit. Seed Hawk argues that Halford has not diligently pursued the possibility of obtaining such security, and also suggests that there is no evidence that Halford would be required to provide security to any bank that would be prepared to provide a bank guarantee or letter of credit. The efforts undertaken so far by Halford to explore the possibility of providing the kind of security sought by Seed Hawk have not been extensive. On the other hand, there has been little time for Halford to explore all possible options in that regard.
[20] In any event, if the material in the record is a fair representation of the financial circumstances of Vale Farms Ltd. and Mr. Halford personally, it may well prove very difficult for them to obtain a bank guarantee or letter of credit of the form sought by Seed Hawk, for the same reasons as Seed Hawk may face practical problems in collecting on their costs award if the Halford appeal fails. I see no point in imposing on Halford a condition that is practically impossible to fulfil.
[21] That is not to say that there should be no conditions. Halford has volunteered certain undertakings that will preclude any dealings outside the ordinary course of business. I granted an interim stay pending the disposition of these motions that included a number of conditions to that effect. I see no reason why those conditions should not continue.
[22] I note that it was an important part of Halford's case that the realizable value of the assets of Vale Farms Ltd. should be determined without regard to certain debts owed by Vale Farms Ltd. to Mr. Halford and to corporations he controls. As far as I can determine from the material provided by Halford, Mr. Halford is the controlling shareholder of J. Fund Investments Ltd., and indirectly controls Halford Holdings Inc. and Vale Farms Ltd. I will therefore impose certain conditions that will preclude Mr. Halford and the corporations he controls from asserting any of their rights as creditors or shareholders to the prejudice of the claim of any of the defendants for costs.
Items under seizure
[23] I previously granted an interim stay, which will be replaced by the order to be issued concurrently with these reasons. Before that stay was in force, the respondents had seized certain machinery and equipment from Vale Farms Ltd. Some of that machinery was released from seizure pursuant to the interim stay order. The respondents have since learned that the remainder of the seized machinery and equipment is encumbered by a security interest in favour of a third party creditor of Vale Farms Ltd. Its continued retention will not assist the respondents in their efforts to collect any costs that may be owed to them after the conclusion of this appeal. I will therefore order it to be released immediately from seizure.
Costs
[24] Costs of these motions will be costs in the cause.
"K. Sharlow"
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