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PRE-JUDGMENT REMEDIES - Preservation order - Grounds

Friday, May 21, 2021 @ 9:09 AM  

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Appeal by the plaintiff City from a decision dismissing its application for a preservation order under s. 5(5) of the Enforcement of Money Judgments Act. The City sued the respondents for alleged defects in the supply and installation of sewer pipe. When the City learned that the respondent Mi-Sask was selling its assets and winding up its business, it applied for a preservation order. Mi-Sask had voluntarily sold land and equipment since its directors wanted to retire. The amount remaining from the auction proceeds after payment of shareholder loans and funding defence expenses were intended to be set aside for the lawsuit. The chambers judge dismissed the application after concluding that the City failed to prove that, absent a preservation order, enforcement of the judgment it sought in the project claim would likely be partially or totally ineffective. The chambers judge concluded that, but for Mi-Sask’s evidence of insurance, it was obvious Mi-Sask would be unable to satisfy a judgment in favour of the City. He also acknowledged that the evidence of insurance was adduced in the context of seeking an exception to a preservation order to fund the expenses of defending the action and that it was not led to demonstrate there was insurance to pay the judgment that might be awarded. He nonetheless found that the City failed to discharge its onus of proof, as it failed to provide sufficient evidence as to the terms of that insurance.

HELD: Appeal allowed. A preservation order was granted. The chambers judge failed to distinguish between the evidential burden and the persuasive burden. As a result, he erred in law as to the nature and operation of the burden of proof by concluding that, absent evidence to the contrary, prima facie evidence or prima facie proof on an application for a preservation order resulted in a compelled fact determination, rather than a permissible fact determination. While the evidential burden on a s. 5(5) application was that the plaintiff must adduce or point to evidence that constituted prima facie proof of specified conditions, the persuasive burden was proof that those conditions existed on a balance of probabilities. If the court was unable to conclude on a balance of probabilities that those conditions existed, the plaintiff would not succeed. The chambers judge erred in concluding that the City had not made out a prima facie case and thus erroneously concluded that the City was obliged to adduce further evidence as to Mi-Sask’s insurance. In doing so, the chambers judge committed a palpable and overriding error in assessing the facts. The error was attributable, at least in part, to his legal errors in relation to the evidentiary and persuasive burden. Given the evidence led by the City, Mi-Sask had a tactical burden to disclose the relevant insurance evidence and not simply to raise a question about it. The City was not obliged to adduce that evidence by cross-examining Mi-Sask and entering the potentially complex and time-consuming task of demonstrating it was likely there would be insufficient insurance coverage to cover a claim. Imposing such an obligation would fundamentally undercut the balance necessary to make the preservation order remedy effective to protect the legitimate interests of plaintiffs while still protecting defendants’ property rights. The proposed disposition of funds to pay for professional services or other costs relating to the winding up, and for wages or other ongoing operating costs, as Mi-Sask was no longer carrying on business, would not fall within the s. 5(5)(b)(ii) exception to a preservation order. Those expenditures would increase the shortfall that would be suffered by the City. All conditions necessary for the grant of a preservation order were thus proven.

Yorkton (City) v. Mi-Sask Industries Ltd., [2021] S.J. No. 115, Saskatchewan Court of Appeal, N.W. Caldwell, L.M. Schwann and B. Barrington-Foote JJ.A., March 19, 2021. Digest No. TLD-May172021010