Complete indemnification for solicitor-client costs is rare, however, this was the recent award granted by the Alberta Court of Queen’s Bench in Pillar Resource Services Inc v Primewest Energy Inc, 2016 ABQB 120. Pillar Resource Services Ltd. (“Pillar”), the successful party in this litigation, sought solicitor-client costs from the Defendants PrimeWest Energy Inc. and Primewest Gas Corp. (collectively, “PrimeWest”), subject to assessment and disbursements, including expert fees and the expenses arising from having certain parties give evidence by video conference. At issue was whether this “rare and exceptional” award was appropriate. In determining that it was, the Court held that conduct that prolongs litigation to leverage negotiations and sharp business practices aimed at exhausting creditors into settling for a lesser sum than what is justifiably owed is properly considered in determining whether elevated costs are appropriate.

Facts

In Pillar Resource Services Inc v PrimeWest Energy Inc and PrimeWest Gas Corp. 2014 ABQB 317, the Court found in favour of Pillar. Pillar had been hired to perform, and did perform, civil, structural and mechanical work on a gas processing plant owned and operated by PrimeWest. The Court ultimately held that Pillar had provided best-efforts estimates on the information available and that although the scope of the work changed materially over the course of the project, the work had been done at PrimeWest’s request and Pillar had kept PrimeWest up-to date on costs. Despite Pillar having been requested to perform the work, and providing up-to-date information on costs, PrimeWest proceeded to send Pillar a letter indicating that it would pay the original estimate plus a sum for the “approved scope modifications” – a sum well below what had been invoiced.

Following this, at PrimeWest’s request, Pillar prepared a detailed breakdown of its costs. PrimeWest then alleged that it had issues with Pillar’s performance and raised questions about safety services and monitors, treatment of structural steel, equipment usage, the cost of security and equipment rental. At this point the Pillar invoices (totalling nearly $1.3 million) had been outstanding for 5 months despite the fact that the maximum prospective value of the issues being discussed was $50,000. PrimeWest testified that they were only trying to understand why the total amount invoiced was different from the original estimate. However, PrimeWest also conceded that it understood the Pillar contract to be a reimbursable contract, with a fixed mark-up and that the project was a fast-track project with the inherent risk of a reimbursable contract where the scope and details of the project were not clear before start-up. The Court held that it was clear that PrimeWest had failed to deliver a functioning project within budget, and was attempting to negotiate down Pillar’s invoices as a result.

Further, the Court noted that PrimeWest did not seriously dispute certain facts but rather relied on Pillar’s onus to prove facts. For example, PrimeWest did not seriously dispute with any evidence the amount of the invoices or the fact that third-parties supplied material to the project.

Decision

In relation to costs, Pillar argued that it was entitled to complete indemnification on the basis that PrimeWest:

  1. engaged in blameworthy conduct during the trial;
  2. unduly prolonged the trial;
  3. was guilty of misconduct prior to the litigation;
  4. alleged fraud by Pillar which it failed to prove; and
  5. that justice would be served by such an award.

The issue for the Court was whether this “rare and exceptional” award was appropriate. Ultimately the Court based its decision on the following facts (para 22):

  1. PrimeWest’s misleading requests for further information from Pillar during post-completion negotiation when clarification was not really an issue, and its delays in such negotiation;
  2. PrimeWest’s attempt to introduce additional evidence in its written argument after trial;
  3. the additional trial time necessitated by the PrimeWest’s refusal to admit facts that ultimately were not in issue;
  4. the unproven allegations of fraud that continued until trial but were not addressed by PrimeWest at trial.

Of particular import are the Court’s statements regarding how PrimeWest’s negotiating tactics and the unduly aggressive position it took in the litigation of this matter impacted the cost award.

Pillar argued, in part, that PrimeWest’s witnesses provided misleading and disingenuous testimony and that this should be a consideration in awarding full indemnification of costs. The Court agreed that PrimeWest’s witnesses lacked credibility, but held that the adverse effect already impacted the trial finding. However, the Court did accept that PrimeWest had attempted to use the litigation as a means to negotiate down its bills, despite the fact that Pillar had performed the work. When this failed, Pillar was left in a position where it had to make its case and prove every element including facts that turned out at trial not to be in dispute. The Court found that failure by an opposing party to concede uncontested facts could be a factor that warrants an increased cost award. Further, PrimeWest’s litigation strategy resulted in a prolonged trial which required Pillar to submit evidence on issues that should have been admitted. Although the Court recognized that PrimeWest was entitled to take the position it did, that did not mean that it did not bear the potentially adverse consequences of its position stating that “efforts to delay the trial and prolong its length must be denounced and deterred.”

In relation to the PrimeWest’s conduct prior to the trial, PrimeWest had made attempts to negotiate down Pillar’s bills as a result of the failure of the project and high costs over budget. In its attempts to leverage its negotiating position, PrimeWest encouraged Pillar to justify its accounts claiming that it was trying to understand the charges. The Court held that this conduct was, at a minimum, sharp business practice and an attempt to exhaust a creditor into negotiating a lower settlement. This conduct was held to be of the kind that could be taken into account in assessing costs.

Further, the Court held that PrimeWest’s post-completion conduct misled Pillar into further efforts to justify their invoices in order to discourage it into settlement or prolong “the reckoning day.” The Court reasoned that although this was not an uncommon strategy, it could tip the balance of the general rule against indemnity costs. Ultimately, the Court agreed that a “business model that discourages creditors from asserting their justifiable rights by delay, misleading negotiation tactics and lack of cooperation in the trial process should be deterred.”

Implications

This case is a timely reminder that despite very challenging times for many, there are consequences to be paid for being unduly aggressive, if at the end of the day you are wrong on the merits (and maybe even if you are right). These consequences could include a substantial cost award and may have significant implications for a corporate litigant’s reputation. Further, the fact that a party is entitled to take a certain position at trial will not insulate them from a potential increased cost award later.

Perhaps the most notable aspect of the case is the Court’s confirmation that pre-action negotiation tactics are relevant in determining costs at trial. This development is consistent with the Supreme Court of Canada’s recent recognition of the duty of honest performance in contract in Bhasin v. Hrynew​ 2014 SCC 71.

It is also consistent with the recent decision of the Alberta Court of Appeal Ma v Coyne​, 2016 ABCA 119 where it held that, contrary to the generally accepted principle under the old rules that pre-commencement disbursements were not recoverable, under the new rules reasonable and proper pre-commencement disbursements can be recovered in a costs award.