Vancouver, Harbourside Park: Developer Laxton wins court battle against contractor

                                                 Date: 19970709
Docket: C967345
Registry: Vancouver Registry


IN THE SUPREME COURT OF BRITISH COLUMBIA


BETWEEN:

NOEL DEVELOPMENTS LTD. and
SPF PROPERTIES INC.


PLAINTIFFS
AND:


METRO-CAN CONSTRUCTION (HS) LTD.,
METRO-CAN CONSTRUCTION LTD. and
THE GUARANTEE COMPANY OF NORTH AMERICA

DEFENDANTS



REASONS FOR JUDGMENT

OF THE

HONOURABLE MADAM JUSTICE KOENIGSBERG

(In Chambers)



Counsel for the Plaintiffs J. Logan, Esq.

Counsel for the Defendants B. Cramer, Esq.
Metro-Can Construction Ltd.
and Metro-Can Construction (HS) Ltd.

Place and Date of Hearing: Vancouver, B.C.
May 29 and June 18, 1997


1 This is an application under Rule 19(24)(d) to strike, as an
abuse of process, certain paragraphs of the Statement of Claim
herein and thus the action as against one of the defendants,
namely, Metro-Can Construction Ltd. ("Metro-Can"). The
plaintiffs allege that Metro-Can is liable under a Construction
Contract which is between the plaintiffs and Metro-Can
Construction (HS) Ltd. ("HS"). The plaintiffs also allege that
HS is liable. In prior legal proceedings brought by HS against
the plaintiffs, the plaintiffs took the position that HS alone
was liable. On the basis that HS was merely a "shell", the
plaintiffs sought to defeat an application for summary judgment,
or at least prevent HS from obtaining the fruit of its judgment.
The plaintiffs maintained this position throughout prior
proceedings in the Supreme Court of B.C., interlocutory
proceedings in the Court of Appeal, and in the appeal itself in
the Court of Appeal. Ultimately the plaintiffs failed to avoid
summary judgment in the prior proceedings.

2 In the present proceedings the plaintiffs have asserted that
Metro-Can is also liable under the Construction Contract. The
paragraphs sought to be struck out from the Statement of Claim
are paragraphs 6, 7, and 8, set out herein:

6. Metro-Can and Metro-Can (HS) are related,
affiliated and/or associated companies under common
control, direction and management and Metro-Can and its
officers caused the Contractor to be incorporated for
the purpose of entering into the Contract.

7. The Metro-Can and Metro-Can (HS) each performed
the obligations of the contractor under the Contract
and were joint venturers and/or partners in performing
the said obligations. For the purposes of this
Statement of Claim, the term "Contractor" shall include
the Contractor and Metro-Can.

8. Alternatively, Metro-Can (HS) entered into the
Contract as agent for Metro-Can.



3 The prior legal proceedings were between HS as plaintiff and
the present plaintiffs (hereafter collectively, "the Owners") as
defendants in S.C.B.C. Van. Reg., Action No. C961764 ("the Prior
Proceedings"). In the reasons for judgment of Boyd, J. in the
Prior Proceedings, inter alia, the court expressly noted the
Owners' attempt to rely upon the position that HS was merely a
"shell" company. No weight was given that position.

Facts
4 Before the commencement of the Prior Legal Proceedings, the
Owners had taken the position that they were entitled to set-off,
against all amounts due by the Owners to HS (hereinafter referred
to for convenience as the "Contractor"), amounts otherwise due to
the Owners by the Contractor for the Contractor's delay and the
Contractor's failure to complete the Work.

5 The Prior Legal Proceedings were commenced by the Contractor
on March 20, 1996, seeking Orders requiring:

(a) payment of the holdback for Phase 2 of the
Project, in the amount of $1,348,779.77 (the
Certified Payment Sum);

(b) payment of a $160,500 amount due on
substantial completion of the Project; and

(c) that a Deficiency Retention Amount of
$497,496.50 be paid by the Owners into the
trust account of the Owners' solicitors,
pending completion of the deficiency work.


6 Paragraph 26 of the Statement of Claim in the Prior Legal
Proceedings reads as follows:

"By agreement between the Plaintiff and the Owner prior
to the commencement of the action herein, the
commencement of the action herein and any declaration
or Order made herein shall be without prejudice to and
shall not operate as an estoppel as to the Owner's or
the Plaintiff's rights or positions as to, or a merger
whatsoever as to, any other claims, disputes or issues
whatsoever between or involving the Owner and the
Plaintiff, existing now or coming into existence later,
and whether known or unknown at this time, and whether
or not at the time of any Order in the action herein
also pleaded in the action herein or the subject of any
legal proceedings".


7 It was common ground that there were many issues, some still
in their infancy, between the parties, other than the direct
issues that would be raised in the Prior Legal Proceedings.
Accordingly, there was included in the Statement of Claim in the
Prior Legal Proceedings, the following prayer for relief.

"an Order that any and all of the aforesaid Orders
shall be without prejudice to and shall not operate as
an estoppel as to the Owner's or the Plaintiff's rights
or positions as to, or a merger whatsoever as to, any
other claims, disputes or issues whatsoever between or
involving the Owner and the Plaintiff, existing now or
coming into existence later, and whether known or
unknown at this time, and whether or not at the time of
any Order in the action herein also pleaded in the
action herein or the subject of other legal
proceedings;"



8 An Appearance was filed by the Owners in the Prior Legal
Proceedings on March 25, 1996, five days after the Writ was
issued.

9 The Contractor in the Prior Legal Proceedings filed a motion
for summary judgment on the day after the Appearance was filed by
the Owners. The Summary Judgment Application was for all of the
relief claimed in the Statement of Claim in the Prior Legal
Proceedings, including the Order sought regarding estoppel.

10 On April 2, 1996, seven days after the Summary Judgment
Motion was filed, the Affidavit of Mr. Hayman on behalf of the
Owners, was sworn in opposition to the Contractor's motion. The
Affidavit suggested that there appeared to be a different "Metro-
Can" company incorporated for each project in order to avoid
liability for claims. No evidence was adduced by either party to
indicate whether or not other Metro-Can companies might be able
to satisfy any judgment obtained by the Owners.

11 The Contractor elected, as it was entitled to do, to proceed
to the summary judgment application prior to the time limited for
the filing of a Defence and Counterclaim by the Owners. The
hearing of the Contractor's summary judgment application took
place on April 9, 1996. Counsel for the Owners provided The
Honourable Madam Justice Boyd with a written submission,
including, at paragraph 12, the submission that:

"The Plaintiff [Contractor] appears to be a "shell"
company, incorporated solely for the present contract.
Any judgment on the Defendants [Owners] Counterclaim is
likely to be worthless."


Although no Defence or Counterclaim had been filed by the Owners,
the time for doing so not having expired, the written submissions
of the Owners indicated the nature of the Owners' counterclaims
against HS (the Contractor). There was no reference in the
Owners' written submission to any other claims or counterclaims
it might later choose to bring against any other party, including
Metro-Can.

12 At the conclusion of the April 9, 1996 hearing of the
Summary Judgment Application, Madam Justice Boyd reserved her
decision.

13 The Owners' Statement of Defence and Counterclaim in the
Prior Legal Proceedings was filed on April 25, 1996, 26 days
after the Prior Legal Proceedings were commenced, six days after
the summary judgment application was heard and over three weeks
prior to the May 8, 1996 Reasons for Judgment of The Honourable
Madam Justice Boyd.

14 The Counterclaim contained claims against Metro-Can and The
Guarantee Company of North America in addition to the Contractor
Hs. Paragraph 25 of the Counterclaim stated that:

"The Plaintiff and Metro-Can Construction Ltd. acted as
partners and as one another's agents with regard to the
construction of the Project and the matters referred to
in the Statement of Defence. Metro-Can Construction
Ltd. is jointly and severally liable to the Defendant
along with the Plaintiff with regard to the breaches of
contract referred to therein."


15 Apparently, the Statement of Defence and Counterclaim,
although filed in the Registry, were not served on counsel for
the Plaintiffs in the Prior Legal Proceedings. It would appear
that the failure to serve counsel was a result of inadvertence.

16 In Reasons for Judgment, Boyd, J. said, at page 11, that:

"While the Owner has made some suggestions that the
Plaintiff appears to be a "shell" company, incorporated
solely for the purpose of pursuing the present
construction contract, I will not spend any time
addressing this allegation. The concluding remarks
contained in Mr. Hayman's Affidavit are not based on
anything more than speculation on the Owner's part and
cannot from the foundation for the relief sought."


17 Immediately after delivery of these Reasons, counsel for the
Contractor in the Prior Legal Proceedings demanded payment of the
Deficiency Retention Sum. As counsel for the Contractor in the
Prior Legal Proceedings would not agree to an interim stay in
order to allow counsel for the Owners sufficient time to prepare
for a stay application, the Owners brought on an interim stay
application returnable May 9th.

18 In preparation for the interim stay application, the
Affidavit of Lynda Murdoch was filed, exhibiting the results of
Land Title and Personal Property Security Registry searches,
showing that the Contractor in the Prior Legal Proceedings
apparently did not own property in New Westminster or Vancouver
and that although the Personal Property Security Registry showed
charges against Metro-Can there were no such charges against
(HS).

19 Also in preparation for the interim stay application, Mr.
Jenkins (lead counsel for the Owners) swore an Affidavit saying
that:

"If an interim stay of execution is not granted and the
funds are paid to the Respondent, I believe the
Appellants may suffer significant prejudice in that
they will not likely be able to recover the funds if
successful on Appeal. Exhibit "E" to this my Affidavit
are pages 1, 2 and 3 of the Affidavit of Mr. Jim Hayman
sworn April 1, 1996 and filed in the Supreme Court
action."



20 Mr. Jenkins did not refer to the Counterclaim, give his
views on the strength of the Owners' claim against the Defendants
by Counterclaim, or speculate on the ability of the Defendants by
Counterclaim to pay any judgment obtained against them.

21 At the hearing of the interim stay application on May 9,
1996, counsel for the Owners provided a written submission to Mr.
Justice Hinkson.

"The amount to be paid immediately to the General
Contractor is approximately $1.5 million. There is
evidence which raises a reasonable doubt that if the
$1.5 million is paid to the General Contractor it will
not be recoverable by the Owner in the event that this
Appeal is successful."


22 At paragraphs 45, 46 and 47 of the Owners' written
submission on the interim stay application, counsel said:

"The Respondent [Contractor] is not a long-established
company. The evidence suggests that the Respondent
company was incorporated solely for the purpose of
performing this project and is one of the many
similarly named companies incorporated with the same
registered and records office and principals.

There is no evidence of any assets belonging to the
Respondent in this jurisdiction or any other
jurisdiction. Searches conducted in the Land Title
Office show the Respondent owns no land in the
Vancouver or New Westminster districts. A search of
the Personal Property Registry shows no security
interest in favour of the Respondent.

It is submitted that, in the absence of some evidence
of assets in the jurisdiction, the Respondents ought to
be required to post security for release of the funds
pending appeal."



23 The existence of the filed Counterclaim against Metro-Can
and The Guarantee Company of North America in the Prior Legal
Proceedings was not raised by either counsel before Mr. Justice
Hinkson, as neither counsel appear to have been aware of the fact
that the Counterclaim had been filed.

24 The stay application was heard on May 15, 1996 by Madam
Justice Southin. Again, counsel for the Owners provided to the
Court a written submission saying the following:

"[The amount involved is] approximately $2 million
which, if paid out to the Plaintiff from trust, will
very likely be lost to the Appellants forever." (page
1)

"Metro-Can Construction (HS) Ltd. appears to have been
incorporated for this project. There are many "Metro-
Can Construction" companies, and many contractors, in
order to limit their liability, will incorporate a
different company for each project." (page 3)

"Land Title and Personal Property Registry searches
have not revealed any property owned by the
Plaintiff/Respondent." (page 3)

"The evidence indicates that the contractor is unlikely
to be able to pay any judgment obtained by the Owner.
This appears to be confirmed by Mr. Voth in his
Affidavit filed April 3, 1996, page 6, paragraph 19."
(page 16)

"It is of course extremely difficult, especially on a
summary judgment application and without discovery of
documents and pre-trial examinations, for the Owners to
determine the financial condition of the Contractor.
The Owner raised a prima facie case that the contractor
could not pay. The contractor did not respond."



25 Again, the matter of the Counterclaim was not raised.

26 Counsel for the Contractor also provided to the Court a
written submission on the hearing of the stay application.

27 In the written submission provided to the Court by counsel
for the Contractor, counsel said, at paragraph 16:

"The Appellants [Owners] rely upon the fact that the
Respondent [Contractor] is alleged to be a corporation
without real estate or registered security interests,
as if this were a revelation and as if that should
permit the Appellants to rewrite the terms of the
contract. It is fair to note that the president of
both the Appellants is Mr. John Laxton, Q.C., a very
talented and sophisticated lawyer, and it is
interesting that there was no evidence whatsoever
proffered by Mr. Laxton below that he had any
misconception about the substance of the Respondent
when the $30 million subject contract was negotiated
and agreed to by the parties. Moreover, Mr. Don Voth,
the president of the Respondent, deposes in paragraph
19 of his Affidavit sworn and filed below April 3,
1996:

19. 'The only company the owner ever dealt
with was the Plaintiff. Mr. Laxton is a
very sophisticated individual. If the
purpose of Mr. Hayman's Affidavit is to
insulate that the Plaintiff didn't care
about doing a good job because of the
limited legal exposure, I reject that
entirely as utterly unfair to the Plaintiffs
and the individuals involved in carrying out
this project on behalf of the Plaintiff. I
could just as easily point out that Mr.
Laxton did not contract personally as
owner/developer and accuse him of wanting to
avoid personal liability for all of the
damages the owner/developer expected to
cause the Plaintiff. Before the
construction contract was signed by the
Owner the Plaintiff, Mr. Hayman told me that
he had made inquiries about the Metro-Can
reputation ion Vancouver and that Mr. Hayman
had heard only good things. Now that the
Owner seems to be intent on denying payment
to the Plaintiff, both myself and other
personnel within the Plaintiff's
organization are characterized as or implied
to be unreliable and shoddy.'"



Analysis
28 The summary of the submissions in the instant application of
the Defendant, Metro-Can is set out in paragraph 2 of the reply
submissions:

An objective reading of the Owners' submissions in
the Prior Proceedings allows for only one reasonable
interpretation: (i) the contracting parties are the
Owners and Metro-Can Construction (HS) Ltd.; (ii) HS is
a mere "shell", without assets or business activities
other than the Construction Contract with the Owners;
(iii)if the Court(s) does(do) not stay execution of the
judgment granted to HS, or oblige HS to post security,
this will effectively "dismiss the owner's
counterclaim" because any judgment against HS will be
worthless. The Owner's submissions referred to the
Contractor", not "a Contractor." [emphasis added] By
the time of the appeal, the whole of the Owners'
submissions with respect to $1.35 million of the $1.5
million awarded to HS were premised on this position.
The Owners had conceded the $1.35 million was otherwise
owing to HS. There was never a hint in any affidavit
or submission put before the courts by the Owners in
the Prior Proceedings that anyone other than HS was
liable as contracting party. Throughout the Prior
Proceedings, the heart of the Owners' position, and on
appeal the whole of the Owners' position, was that it
was HS, a mere shell, against whom recourse was
possible as the contracting party.



29 On the basis of these "positions" taken by the owner in the
Prior Proceedings, the defendant says this court should strike
the offending paragraphs of the Statement of Claim, i.e. 5, 6 and
7, because they are fundamentally inconsistent and thus
constitute an abuse of process.

30 I cannot agree that there is only one reasonable
interpretation of the Owners' position in the earlier proceedings
and that it is that the Owners have no recourse against any other
party than HS for cross-claims. As the Owners point out, one
must resort to implication to sustain that interpretation. In
fact, the Owners never said they had no other recourse or that
they would not seek any other recourse. All of the statements
and positions taken by the Owners in the earlier proceedings
regarding the status of HS, are not contradicted by the present
positions. The corporate entity HS may not have assets which
could be the subject of an attachment proceeding should the Owner
be successful in the action. Also, it is not contradicted by HS
that HS was incorporated for this project and for the purposes of
limiting liability. These arguments, positions and facts did not
persuade any court in any event that therefore HS should not have
the benefit of its judgment. Most importantly however, it was
true or at least a tenable argument on the part of the Owners
(defendants in the earlier proceedings) that HS is a "shell" and
might not be a financially deep pocket in protracted litigation.
It does not follow however, that the Owners were taking the
position that it could not or would not pursue any other party
for liability if it could find a cause of action against another.
To take that step has a cost and I might say, on the material
before me, a slim chance of success. In other words, a
reasonable interpretation of the Owners' position before the
court was if we cannot stay execution for security for the
cross-claim against HS, we will have to start an action against
another party against whom we have a far less clear cause of
action.

31 The Owners submitted, correctly in my view, that this is not
a case of two inconsistent rights being asserted or two
inconsistent positions it is a case of potentially two co-
existing rights. And the positions taken are not fundamentally
inconsistent; they are in fact only superficially inconsistent.

32 In the result, the application is dismissed.

33 Each party has sought liberty to apply for, in the case of
the plaintiffs' increased costs against the defendants and for
the defendants, special costs against the plaintiffs. This is
obviously hard fought litigation. However, nothing which was
before me, in the vast array of facts, correspondence and
positions, nor in the resolution of the matter, would justify
anything other than costs to the plaintiffs' on Scale 3. If
there are facts relevant and unknown to the court as yet, I give
liberty to apply to speak to the matter of costs.


"Koenigsberg, J."
Koenigsberg, J.





Vancouver, British Columbia
July 9, 1997