IN THE SUPREME COURT OF BRITISH COLUMBIA

Date: 20120402

Docket: 05 5970

Registry: Victoria

Between:

Chemainus First Nation

Plaintiff

And

Bullock Baur Associates Ltd., Western Industrial
Contractors Ltd., Knappett Industries Ltd., Lowen Hydrogeology
Consulting, and the Attorney General of Canada

Defendants

Before: The Honourable Mr. Justice S.R. Romilly

Reasons for Judgment

A.       NATURE OF PROCEEDINGS

[1]             The current proceedings concern two applications.  The first application is made by the Chemainus First Nation (“CFN”) for an order allowing it to interplead funds pursuant to Rule 10-3 of the B.C. Supreme Court Civil Rules, B.C. Reg 168/2009 [the Rules].  It asks for a further order of the Court that all claims and counterclaims within Victoria Registry action number 05 5970 (the “Action”), be dismissed, as well as an order for solicitor and client costs for this motion.

[2]             The second application is made by Western Industrial Contractors Ltd. (“WIC”), in which it seeks an order for production of documents by CFN and NovaTec Consultants Inc. (“NovaTec”) respecting the engineering for remediation work done to CFN’s failed sewer system.  WIC seeks a further order that it be allowed to cross-examine Paul Turje on his Affidavit #1, filed January 12, 2012.

[3]             For the reasons stated below, I make the following orders:

1.       CFN’s application to interplead the Funds is denied on the basis that it confuses the issues and CFN has not established that it is a neutral stakeholder;

2.       There will be an order of the Court dismissing all claims and counterclaims contained in Victoria Registry action number 05 5970, pursuant to the parties’ agreement in the Settlement;

3.       There will be an order of the Court entitling CFN to its costs on a solicitor and client basis from WIC for the preparation of that part of its application dealing with the enforcement of the release of claims in the Settlement;

4.       WIC’s application for production and cross-examination of Paul Turje on his affidavit is denied for being not relevant to the issues before the Court.

B.       BACKGROUND

i.        The Original Contract

[4]             In 2003, CFN began the process of having a sewer system constructed for Chemainus Indian Reserve #13.  The sewer system was eventually constructed at a cost of $8,373,031.11.  WIC performed the construction of the system, but was not responsible for the geo-technical investigation or site selection for the sewer system nor were they responsible for the design which had been done by the engineering firm, Bullock Baur Associates Ltd. (“B.B.”).  The price paid to WIC for the original construction of 20 fields was approximately $400,000.

[5]             After construction, it was discovered that the sewer system did not function properly, causing effluent to bubble up through the ground.  The system’s failure posed a serious human health concern to residents on the Chemainus Indian Reserve #13.  The present Action was commenced by CFN jointly and severally against the parties responsible for designing and constructing the system:  WIC (the contractor), B.B. (the engineer), Lowen Hydrogeological Consulting (“LHC”) (the hydrogeologist), and the Attorney General of Canada (“Canada”).

ii.       The Settlement Agreement

[6]             The Action was a complex one.  Trial was set for 12 weeks.  However, after a long pre-trial mediation, the parties reached a settlement agreement (the “Settlement”).  The Settlement was signed in March 2010 and dated for reference March 10, 2010.

[7]             In the Settlement, the defendants agreed to contribute either services or funds to redesign and rebuild the sewer system so that it would function safely and effectively.  In its Mediation Brief, CFN projected that the total cost to redesign and rebuild the system would be $783,458.02.

[8]             In exchange for CFN’s agreement to release its claims in the Action, the defendants undertook liability to redesign and rebuild a functioning sewer system.  Canada and B.B. each contributed funds.  WIC and LHC agreed to contribute labour.  WIC also agreed to pay for the plaintiff’s engineer, NovaTec, for the redesign of the system.

[9]             Put briefly, the Settlement terms can be summarized as follows:

a.       the original contract was to apply except as modified by the Settlement;

b.       CFN was to identify the location for seven replacement septic fields;

c.       WIC was to construct seven replacement fields;

d.       Canada and B.B. were to pay WIC $300,000 plus, potentially, some payments for extras to a maximum of $50,000 (the “Remediation Price”);

e.       an engineer, designated by CFN, would “redesign any changes required to the existing system”;

f.        WIC was to pay for the costs of the engineer designated by CFN for the redesign work but not site selection;

g.       Canada was to pay the cost of site selection;

h.       WIC “will not be responsible for the suitability of the site chosen or the correctness of the design”;

i.        CFN was to be responsible for clearing the new fields and ensuring that the work was complete before WIC scheduled the arrival of men, machines and materials;

[10]         A portion of the Settlement under considerable dispute is paragraph 10:

CFN’s Engineer will redesign any changes required to the existing system as a result of the decommissioning and reconstruction of the Failing Fields and design of the New Fields to integrate into the system. All engineering costs associated with the redesign or the design of the Failing Fields and the New Fields will be paid by WIC.

[11]         With paragraph 10, the parties recognized that the system would necessarily have to be redesigned, since the design of the old system failed.  WIC now maintains that the work undertaken by CFN’s engineer, NovaTec, went beyond what was “required” and that therefore it is not liable for NovaTec’s invoiced engineering costs of $101,653.82.

[12]         WIC also complains that the redesign and construction actually cost $400,000, which is $100,000 more than WIC was allotted to be paid by B.B. and Canada.

iii.       Post-Settlement

[13]         Paragraph 17 of the Settlement reads as follows:

17.       When these minutes of settlement have been signed by all parties:

a.   the Trial of The Action will be adjourned by consent of all parties;

b.   There will be mutual release of all claims in the action including the counterclaim other than claims arising under this settlement;

c.   CFN will deliver a Bill of Costs in taxable form;

d.   the Defendants will pay CFN’s taxable costs and disbursements either as agreed or failing agreement as set by taxation.

[14]         All parties have agreed to the form of the release and the form of the consent dismissal order.  All parties have signed the release and the consent dismissal order except WIC who has, for the past two years, refused to execute the release and consent to a dismissal of the settled Action.

[15]         Since 2010, CFN has been holding $175,000 in Settlement funds.  The funds were originally paid to counsel for CFN in trust by B.B., representing its 50% contribution to the $350,000 fixed Remediation Price it shared with Canada.  CFN claims that only $120,000 of the funds (the “Funds”) remain to be paid out to the contesting claimants as it has validly retained $55,000 it was entitled to in costs under paragraph 17(d) of the Settlement.  CFN claims no interest in the Funds.  WIC, B.B. and NovaTec have all claimed entitlement to the Funds.

[16]         According to WIC’s submissions, “Bullock Baur Associates Ltd. and the Attorney General of Canada have failed or refused to pay the remediation price or any part thereof to Western Industrial.”

C.       CHEMAINUS FIRST NATION’S APPLICATION

[17]         In Part 1 of its application before me, CFN asks this Court to make several orders, including:

1.       That the sum of $120,000 be paid into court to the credit of this action;

2.       For an order that the funds paid into court be paid out as follows:

a.       to NovaTec, the sum of $95,000;

b.       to B.B., the sum of $24,207.50;

3.       An order dismissing the action and the counterclaim; and

4.       An order that the plaintiff recover the costs of this motion from the defendant WIC as solicitor and own client costs, or as determined by the Court.

D.       WESTERN INDUSTRIAL CONTRACTORS LTD.’S APPLICATION

[18]         In Part 1 of its application before me, WIC asks for the following orders:

1.       An order that the plaintiff, CFN, and NovaTec produce to the defendant, WIC, copies of all correspondence, including email correspondence, passing between them with respect to the sewer disposal fields on the Chemainus Indian Reserve #13;

2.       An order that NovaTec produce to the defendant, WIC, copies of:

a.       All internal time records with respect to work done relating to the septic disposal field on the Chemainus Indian Reserve #13;

b.       Copies of all work product, hard copy or electronic and including drafts, relating to the septic disposal field on the Chemainus Indian Reserve #13;

c.       Copies of all internal communications relating to the septic disposal field on the Chemainus Indian Reserve #13;

d.       Copies of all contracts and billing and payment records with third parties or independent contractors relating to the septic disposal field on the Chemainus Indian Reserve #13;

3.       An order that Paul Turje be cross-examined as a representative of NovaTec on his Affidavit #1 filed January 12, 2012, including within the scope of such cross-examination all issues relating to work done or purported to be done by NovaTec relating to the septic disposal field on the Chemainus Indian Reserve #13;

4.       That the cross-examination of Paul Turje take place before a court reporter at a time and place to be arranged between counsel.

E.       PARTIES’ POSITIONS

i.        NovaTec Consultants Inc.

[19]         NovaTec is not a party to the Action, but is an application respondent to the present two applications.

[20]         NovaTec was brought into this litigation after the parties entered into the Settlement.  NovaTec was the engineering company contracted by CFN to provide engineering services in redesigning the failing sewer system on the Chemainus Indian Reserve #13.

[21]         Paul Turje was the engineer working under contract with NovaTec and acted as the design and construction engineer on this project.

(a)      NovaTec’s Response to the Application of the Plaintiff, CFN

[22]         NovaTec consents to the orders sought by the plaintiff at paragraphs 1 and 2(a) of Part 1 of the Notice of Application, i.e. that the sum of $120,000.00 be paid into court and that $95,000.00 of those Funds be paid out to NovaTec.

[23]         NovaTec takes no position on the remaining orders sought by the plaintiff.

[24]         Affidavit #1 of Paul Turje made January 12, 2012 sets out that the engineering work was done, it was completed in or around December 2010, NovaTec issued invoices to CFN totalling $101,653.82, and those invoices remain unpaid.

(b)      NovaTec’s Response to the Application of the Defendant, WIC

[25]         NovaTec opposes the orders sought by the defendant in Part 1 of WIC’s Notice of Application, i.e. for NovaTec to produce documents and for cross-examination of Mr. Turje on his Affidavit #1 made January 12, 2012.

[26]         NovaTec submits that the real issue between CFN and WIC is the interpretation of the Settlement agreement.  WIC seeks production of NovaTec’s documents and cross-examination of Mr. Turje in order to gather evidence to support WIC’s interpretation of the Settlement agreement.  Counsel for NovaTec submits that this is not a proper exercise in the existing Action.

(1)      Document Production

[27]         NovaTec submits that WIC’s application for production of documents from NovaTec, a non-party, should be dismissed.

[28]         In response to WIC’s application, NovaTec has already produced certain documents sought, including:  timesheets, its Completion Report which basically includes all work product, and sub-consultant invoices.

[29]         NovaTec did not produce correspondence between NovaTec and CFN because Affidavit #2 of Gary Campo sworn February 20, 2012 already includes email correspondence covering the period from June 1, 2010 to October 1, 2010.

[30]         NovaTec did not produce any of its internal communications.  NovaTec submits that WIC’s request for internal communications amounts to a “fishing expedition”.

(2)      Cross-Examination

[31]         Counsel for NovaTec submits that WIC’s application for cross-examination of Mr. Turje on his affidavit should be dismissed.

[32]         She submits that cross-examination on an affidavit in chambers proceedings is permissive, referring to Rule 22-1(4), which states: “On a chambers proceeding, evidence must be given by affidavit, but the court may (a) order the attendance for cross-examination of the person who swore or affirmed the affidavit” (emphasis added).  Thus, she submits that an order for cross-examination on an affidavit is discretionary and an applicant is not entitled to cross-examination as of right.  Cross-examination on an affidavit should be ordered only if the evidence to be tested on cross-examination is relevant to the application for which the affidavit is sworn or affirmed.  Cross-examination on an affidavit does not give the examining party a right to ask questions relating to issues in the proceeding in general or other issues between the parties.

[33]         She submits that WIC is seeking to cross-examine Mr. Turje on general issues arising from the Settlement agreement.  That was not the purpose for which the affidavit was sworn.

[34]         Counsel for NovaTec further submits that what WIC is really seeking is an order allowing it to conduct an examination at large of Mr. Turje.  Such an application would appropriately be brought under Rule 7-5:  Pre-Trial Examination of Witness.  In order for WIC to be entitled to a pre-trial examination of Mr. Turje as a witness, there needs to be an existing action where Mr. Turje is a witness to the issues raised in the pleadings.  There is no such existing action.  In addition, WIC would not be entitled to a pre-trial examination of Mr. Turje unless Mr. Turje has refused to give any responsive statement to WIC’s inquiries.  This has not happened.

[35]         Neither Mr. Turje nor NovaTec was a party to the Settlement agreement.  A non-party’s understanding or misunderstanding of the Settlement agreement is not relevant to the correct interpretation of the terms of the agreement.  Counsel for NovaTec submits that the interpretation of the Settlement agreement is the real issue existing between CFN and WIC, and WIC’s application is to gather evidence for that issue.  This is not a proper exercise in the existing Action and therefore WIC’s application should be dismissed.

ii.       Chemainus First Nation

(a)      The CFN Interpleader Application

[36]         Other than for its costs, CFN submits that it has no beneficial interest in the Funds, which are the subject of competing claims between two or more persons.  Further, CFN submits that it does not collude with any property claimant and is willing to deliver the Funds to the Court or dispose of them as the Court may direct.

(b)      CFN’s Response to WIC’s Production/Cross-Examination Application

[37]         CFN opposes the orders sought in paragraph 1 of Part 1 of WIC’s Notice of Application.  It takes no position on the orders sought in paragraphs 2, 3 and 4 of Part 1.

[38]         Counsel for CFN submits that WIC must remember that the Settlement was just that – a settlement, and not a commercial contract for profit.  In exchange for its undertaking to fix its own mess and rebuild the system, WIC received $300,000 and a release of all claims in the Action.  Indeed, WIC should view this situation in a positive light:  its contribution to the Settlement turned out to be less than the other defendants and $383,000 less than the $783,000 initially projected.

iii.       Western Industrial Contractors Ltd.

(a)      Response to the Application of CFN

(1)      Interpleader

[39]         Counsel for WIC submits that the purpose of the interpleader rule is to deal with conflicting in rem claims and the rule requires that the applicant not claim an interest in the Funds.

[40]         Counsel for WIC says that CFN does not qualify for use of the interpleader rule since:

(a)      They claim the use of part of the Funds to satisfy their liability to NovaTec and thereby are claiming an interest in the Funds;

(b)      They are claiming to be entitled to a release of claims by WIC against them and are thereby claiming an interest in the Funds;

(c)      They are implicitly claiming the right to retain $55,000 to be applied to costs.

[41]         In support of this submission, counsel for WIC drew my attention to Brown v. Garrison (1967), 63 W.W.R. 248 (B.C.C.A.); and360networks inc. v. Impsat Comunicacoes Ltda., 2001 BCCA 656.

(2)      Dismissal of Claims/Counterclaims

[42]         Counsel for WIC submits that the Settlement does not provide for a consent dismissal order.  Furthermore, he submits that CFN never mentioned the issue of a release in its Notice of Application, this having only been introduced via CFN’s submissions on its application.  Finally, he submits that the entry of a consent dismissal order was agreed in the wording of the release to follow the exchange of funds for WIC’s remediation work.  So far, WIC has not been paid.

(b)      WIC’s Position on its own Application

(1)      Production/Cross-Examination

[43]         Counsel for WIC submits that the Settlement is a contract to be interpreted and applied in a commercially reasonable fashion.  On this issue, he submits that the Settlement provides that the engineer designated by CFN (NovaTec) was to do the “required” design work, not to upgrade the sewer system from a “Chevy” (which is what CFN originally paid for) to a “Cadillac”.  To determine the reason for converting the Chevy system to a Cadillac system, WIC’s counsel submits that it is necessary to have access to the information and documents it seeks in its application.

F.       ISSUES

[44]         The issues are as follows:

1.       Is CFN entitled to interplead the Funds as a neutral stakeholder with no beneficial interest?

2.       Should all claims and counterclaims in the Action be dismissed, based on the enforcement of the terms in the Settlement agreement?

3.       Should CFN recover special costs from WIC for its application to have the Settlement agreement enforced?

4.       Should WIC obtain an order for production of documents from CFN and NovaTec and be able to cross-examine Paul Turje on his affidavit?

G.      THE LAW

i.        Interpleader

[45]         Rule 10-3 states:

(1)  If

(a)  a person (in this rule called the “applicant”)

(i)   is sued or expects to be sued in respect of property in the person’s possession or under the person’s control or in respect of the proceeds from a disposition of the property, or

(ii)  receives a claim in respect of

(A)       the property, or

(B)       the proceeds

by or from 2 or more persons (in this rule called the “property claimants”) making adverse claims, and

(b)  the applicant claims no beneficial interest in the property,

the applicant may apply to the court for interpleader relief.

[46]         Willes J. made the following remarks concerning interpleader in Evans v. Wright (1865), 12 L.T. 77 (U.K.C.A.) at 78:

The principle of interpleader is, that when two persons are concerned in a dispute, and a third person has that which is to be the fruit of the dispute, and has no part in it, but is willing to give it up according to the result of the dispute, if that third person is sued, he is not obliged to be at the expense or risk of defending the action, but on giving up what is sometimes called “the thing in medio”, he is relieved, and the court directs that the persons, between whom the dispute really exists, should fight it out at their expense.

[47]         In Interpro Contractors Ltd. v. Fort Nelson (Village), [1976] 6 W.W.R. 481 (B.C.S.C.), McTaggart L.J.S.C. made the following remarks:

4          The purpose of interpleader has been expressed as follows in Kosmenko v. Mason. & Hosie Ltd., 14 W.W.R. 316 at 318, [1955] 3 D.L.R. 256 (Sask.):

“Interpleader was originally a process whereby a person in possession of property not his own was enabled to call upon rival claimants to such property to appear before the court in order that the rights to such property, as between such claimants, might be determined. Later the right was extended to include a debt: Interpleader Act, 1831, 1 & 2 Will. IV, ch. 58. Otherwise the object of the Rule was not changed. Maclennan in his work on interpleader, at p. 2, states the object as follows:

“’The supreme object of an interpleader proceeding is to protect a person when he stands in the situation of a stake-holder not knowing to whom to pay the money or to deliver the property, so that he shall not be vexed by contending claimants, whose contention is not in reality with him but with each other, when a recovery against him by one party will not be a protection against the claim of the other’.”

5          A number of authorities have been cited: Dawson, Wade & Co. v. Van Volkenburg (1961), 38 W.W.R. 63 (B.C.); A.G. for England v. Can. Bank of Commerce, [1948] O.W.N. 785; Barber v. Royal Loan & Savings Co. (1912), 23 O.W.R. 31, 4 O.W.N. 91, 5 D.L.R. 885; Milden v. Royal Bank (1962), 37 W.W.R. 523 (Sask.); Clarkson Co. v. Hamilton, [1972] 3 O.R. 762; Kosmenko v. Mason & Hosie Ltd., supra.

[48]         At para. 10, McTaggart L.J.S.C. made the following comment:

10        Further, “The avoidance of multiplicity of actions and proceedings is a well-settled principle and an interpleader order should only be granted if the result of so doing will be to clear up all, or substantially all, of the issues between the parties” (Miles v. Manufacturers Life Insur. Co. (1954), 11 W.W.R. 459 at 462 (Man.)).

[49]         In Savage v. First Canadian Financial Corp. (1996), 27 B.C.L.R. (3d) 21 (S.C.), Master Joyce, as he then was, stated the following:

8          ...Counsel refers to the decision in Interpro Contractors Limited v. Village of Fort Nelson [1976] 6 W.W.R. 481 (B.C.S.C.). In my view, that case is distinguishable. In the first place the scope of s. 48(1) [now Rule 10-3] is wider now that it was then. It now permits interpleader where there are competing "claims" in addition to where there are competing lawsuits (whether actual or anticipated). Secondly, in that case the applicant was clearly not neutral. It had “sided” with one of the competing claimants. Here the applicant is neutral. Finally, in that case it was held that "where the applicant knows that rival claims are about to be settled by litigation between the claimants he cannot get relief by interpleader. In this case, the application set for Thursday, even if it proceeds on that date, deals only with an application to vary the existing restraining order made against the parties. It will not have the same finality of determination as did the proceedings in Interpro. As to the proposition that interpleader should only be granted if the result of so doing will be “to clear up all, or substantially all of the issues between the parties”, with respect I suspect it will be rare when interpleader itself will have that result, yet I see no reason why a stakeholder should not be permitted to free itself of the arena of conflict pending the parties’ resolution of their dispute.

ii.       Settlement Agreement – Dismissal of Claims and Costs

[50]         CFN refers to Ring Contracting Ltd. v. B & G Logging Ltd (1998), 119 B.C.A.C. 166, for the proposition that, where a settlement agreement has been validly reached between the parties, a plaintiff may apply to have its terms enforced, including the enforcement of a release and a dismissal of any claims put forth by a party that were supposed to be released by the settlement.  Secondly, CFN relies on Ringfor its position that a plaintiff should be indemnified for its efforts in having a settlement agreement enforced by an award of special costs.

[51]         In Ring, multiple parties had entered into a settlement agreement which included a release of all claims in the action. After signing the settlement, Ring initiated a much larger claim against B & G than was first included in the settlement release.  As McEachern C.J.B.C. states at para. 1 of Ring, the first question is whether a settlement has been reached.  After agreeing with the trial judge’s finding that a settlement of all of Ring’s claims had been reached by the parties (para. 13), McEachern C.J.B.C. goes on to uphold the trial judge’s dismissal of Ring’s claim as well as the order for special costs, stating at paras. 21-23:

21        Notwithstanding these might-have-beens, on the facts as we now understand them, I see no reason to disagree with the decision of Taylor J. to order special costs because of Ring's unreasonable and reprehensible refusal to complete the settlement which is an integral part of the litigation.

22        To assist the parties, I would confirm the order of Taylor J. that the action between Ring and Foundation is settled, and that Ring must now execute the release that appears at Appeal Book, p. 119, amended by deleting the third paragraph which contains the impugned indemnity.

23        It follows that the appeal is dismissed with costs.

[52]         A key finding in Ring was that the claim that Ring initiated subsequent to the settlement agreement was based on the same cause of action accepted by the parties to have been settled in the settlement agreement.  As such, for pursuing substantially the same claim it agreed to settle, McEachern C.J.B.C. finds Ring’s behaviour to have been reprehensible and unreasonable and awards special costs.

[53]         In Clare v. I.J. Manufacturing Ltd., 2003 BCSC 1235, Edwards. J. distinguishes that case from Ring on the basis that in Ring, “there was a specific finding that a settlement agreement had been reached.  There is no basis for such a finding here.” (at para. 9).  In Hartjes v. Hietbrink, 2005 BCSC 1572, Cole J. found that a settlement had been reached and granted judgment in favour of the plaintiff, including an award for special costs.

[54]         Cole J. stated the following in Hartjes:

[2]        I am satisfied that the terms of the settlement agreement have always been clear, the plaintiffs had negotiated in good faith.  The position taken by the defendant was without merit and her refusal was unreasonable and reprehensible when she failed to complete the agreement as the terms were clear and not ambiguous.

[3]        Authority for the awarding of special costs and circumstances similar to this is found Mr. Justice Taylor’s reasons for judgment in Ring Contracting Ltd. v. B & G Logging Ltd., unreported, Nanaimo Registry Dockets SSC1074 and SSC12256, August 18, 1997, which was upheld by the Court of Appeal 119 B.C.A.C. 166, para. 20.

[4]        The plaintiffs are entitled to special costs as assessed.

iii.       Production of Documents/Cross-Examination of Affiant

[55]         WIC relies on Rules 7-1(11), 7-1(18) and 22-1(4).

[56]         Rule 7-1(11) states:

(11)      If a party who has received a list of documents believes that the list should include documents or classes of documents that

(a)  are within the listing party’s possession, power or control,

(b)  relate to any or all matters in question in the action, and

(c)  are additional to the documents or classes of documents required under subrule (1) (a) or (9),

the party, by written demand that identifies the additional documents or classes of documents with reasonable specificity and that indicates the reason why such additional documents or classes of documents should be disclosed, may require the listing party to

(d)   amend the list of documents,

(e)   serve on the demanding party the amended list of documents, and

(f)    make the originals of the newly listed documents available for inspection and copying in accordance with subrules (15) and (16).

[57]         Rule 7-1(18) states:

(18)      If a document is in the possession or control of a person who is not a party of record, the court, on an application under Rule 8-1 brought on notice to the person and the parties of record, may make an order for one or both of the following:

(a)  production, inspection and copying of the document;

(b)  preparation of a certified copy that may be used instead of the original.

[58]         Rule 22-1(4) states:

(4)        On a chambers proceeding, evidence must be given by affidavit, but the court may

(a)  order the attendance for cross-examination of the person who swore or affirmed the affidavit, either before the court or before another person as the court directs,

(b)  order the examination of a party or witness, either before the court or before another person as the court directs,

(c)  give directions required for the discovery, inspection or production of a document or copy of that document,

(d)  order an inquiry, assessment or accounting under Rule 18-1, and

(e)  receive other forms of evidence.

H.       ANALYSIS

i.        Interpleader

(a)      Is CFN entitled to interplead the Funds as a neutral stakeholder with no beneficial interest?

[59]         I note at the outset that CFN’s Notice of Application seeks different orders than those sought in CFN’s submissions and its draft order.  Specifically, the application asks for an order that $120,000 be paid into court and that $95,000 be paid to NovaTec and $24,207.50 be paid to B.B.  CFN’s submissions/draft order on the other hand, ask simply for the Funds to be paid into court.

(b)      CFN’s Application – Paying the Funds out to NovaTec and B.B.

[60]         Paying prime consideration to CFN’s Notice of Application, CFN is not entitled to the order it seeks under Rule 10-3.  As mentioned, NovaTec is owed $101,653.82 for its engineering work.  The engineering agreement is between CFN and NovaTec.  Partial satisfaction of NovaTec’s engineering costs from the Funds amounts to CFN’s beneficial interest in the Funds.  Based on the privity of contract between NovaTec and CFN for the engineering work and between the parties to the Settlement, it is incorrect for CFN to claim that it “has no liability to NovaTec” for the invoiced engineering costs.  Regardless of WIC’s liability to CFN under the Settlement for the costs of the engineering, I agree with WIC’s submissions that there is no privity of contract between WIC and NovaTec and thus it cannot be said that WIC has an obligation to pay NovaTec directly for the engineering work.  WIC’s obligation under the Settlement is to indemnify CFN for the engineering costs.

(c)      Neutrality of the Stakeholder

[61]         As Master Joyce (as he then was) notes in Savage (at para. 8), in Interpro, the Village of Fort Nelson agreed with the claim of Interpro for the funds it (the Village) held.  The Village denied the claims of the third party workmen and materialmen who were seeking from the Village, the funds Interpro allegedly owed them under a subcontract.  Thus, in Interpro, it was found that the Village was not a neutral stakeholder, as it sided with one of the parties making competing claims to the funds (namely, Interpro).

[62]         The situation is similar in this case.  CFN has made clear its position that WIC owes NovaTec directly for the engineering invoices and has asked in its application for the Court to pay out such funds to NovaTec.  It has also asked that the remaining funds ($24,207.50 ) be paid out to B.B.  Implicitly, by acknowledging the claims of both NovaTec and B.B., CFN is disagreeing with WIC’s claim and, as such, cannot be said to be a neutral stakeholder.

(d)      WIC’s Other Arguments Respecting CFN’s Interest in the Funds

(1)      Paying the Funds into Court as a Basis for the Release

[63]         CFN is not seeking the dismissal of WIC’s claims on the basis of the Funds being paid into court – the dismissal is sought as a term of the agreed upon Settlement, that the signing of the Settlement made it necessary for all parties to release their claims.  As far as the material submitted discloses, payment to WIC for the remediation work was not a precondition in the Settlement to the parties releasing their claims.

(2)      CFN Withholding $55,000 for Costs Amounts to a Beneficial Interest

[64]         The fact that CFN is seeking to withhold $55,000 of the $175,000 held by its solicitors in trust to satisfy its agreed upon costs under paragraph 17(d) of the Settlement adds further confusion to the issues in this case.  Of the $175,000 held by CFN’s counsel in trust, it claims no interest in $120,000.  As disclosed by the evidence attached to Gary Campo’s Affidavit #1, counsel for WIC agreed via email that “the $55,000 will be paid, without interest, by set off from the Remediation price when the Remediation price becomes payable”.  Pursuant to paragraph 16 of the Settlement, the Remediation Price has become payable, as NovaTec has issued the relevant certificate of substantial completion.  Thus, there is an argument that CFN’s right to the $55,000 has already crystallized and no longer forms part of the funds it holds in trust.  On the other hand, it is not clear that CFN’s entitlement to the $55,000 should be paid out of the funds deposited by B.B., in trust, with CFN’s counsel.  This aspect of the interpretation of the Settlement agreement is not altogether clear from the material submitted and simply adds another layer of confusion to the competing claims to the funds held in trust by CFN’s counsel.

(e)      Conclusion on Interpleader

[65]         CFN’s application to interplead the Funds is denied.  Although Master Joyce acknowledges that it will be rare when interpleader actually achieves the goal of “clear[ing] up all, or substantially all of the issues between the parties” (see Savage at para. 8, citing Interpro at para. 10), granting interpleader in this case has the opposite effect and confuses the issues.  First of all, granting interpleader implicitly acknowledges that NovaTec has a claim to the Funds that does not involve CFN.  In truth, CFN was the only party to the contract with NovaTec on which NovaTec bases its claims to the Funds. Thus, there are significant issues of interpretation for both the Settlement agreement and the engineering agreement which purported to incorporate the provisions of the Settlement agreement. CFN’s entitlement to $55,000 in costs from the $175,000 its counsel holds in trust is similarly not conclusive.  Overall, it cannot be said that CFN should have no part in the competing claims over the Funds held by its counsel.  Furthermore, CFN has tipped its hand in this case by siding with NovaTec’s putative claim to the Funds.  CFN’s neutrality is an issue.

(f)       Dismissal of Claims and Counterclaims

(1)      Should all claims and counterclaims in the above action be dismissed, based on the enforcement of the terms in the Settlement agreement?

[66]         The terms of the Settlement, insofar as they relate to the parties’ agreement to release all claims in the Action, are clear.  Under paragraph 17, all parties, by signing the agreement, agreed to release their claims in the Action.  While the Settlement does not specifically state that the parties will sign a consent dismissal order, this would be the effect of their agreement to its terms.

[67]         As revealed by Gary Campo’s Affidavit #2, all parties have signed the amended minutes of settlement which incorporated paragraph 17 of the Settlement agreement.

[68]         WIC maintains that CFN did not refer to a release in its application and therefore cannot now pursue relief related to a release.  Based on the terms of the Settlement above, this position is not fatal to CFN’s claim that the parties have agreed to the Settlement and that, failing consensual release of their respective claims, all claims under it should be dismissed by order of the Court.  Based on the terms of the signed Settlement, WIC has agreed to release its claims.  CFN’s application for an order dismissing all claims and counterclaims in the Action is allowed.

(g)      Costs

(1)      Should CFN recover special costs from WIC for its application to have the Settlement agreement enforced?

[69]         The case at bar presents a similar situation to that in Ring.  However, there are two important distinctions.  First of all, WIC points out that Ring dealt with a situation where costs were awarded because a party to a settlement contract (Ring) had initiated a new claim, subsequent to a settlement agreement which bound the parties to release claims based on the cause of action sought to be settled.  Secondly, a complicating factor in Ring was the inclusion in the release of an unlimited indemnity for the defendant against future claims.  The question on this latter point was whether such an indemnity was too broad in scope and went beyond the terms of the settlement agreement (i.e. did it purport to limit even those claims that arose under the settlement agreement?).  McEachern C.J.B.C. found that, while the circumstances of the case made the determination of this issue irrelevant (as Ring’s claims against the defendant had already been dismissed), the unlimited indemnity should be deleted (paras. 17 and 22).

[70]         In this case, WIC submits that, unlike in Ring, it has not initiated any new claims and thus it is not acting reprehensibly as that term was applied in that case.  Secondly, the complicating factor from Ring is not present in this case – as noted above, the Settlement agreement specifically envisions future claims that may occur based on the Settlement and makes no attempt to limit those claims.

[71]         Respecting the latter point, this is further support for the decision to dismiss all claims under the Action.  The parties’ current disputes all relate to the Settlement agreement.  Pursuant to the Settlement agreement’s preservation of the parties’ rights to pursue claims relating to the Settlement (under paragraph 17(b)), the parties’ current disputes should be pursued via a fresh action relative to that agreement.

[72]         As for WIC’s former submission that it has not initiated any new claims as was the case in Ring, the distinction is more apparent than real.  The reasoning from Ring is that once a party has agreed to settle a cause of action, continued pursuit of that cause of action is reprehensible conduct.  It does not matter whether such pursuit is via a new claim based on the same cause of action or by pursuing the very claim a party agreed to settle.  Based on the principle from Ring, having found that there was a valid settlement of causes of action arising outof the original construction of the CFN sewer system, WIC’s refusal to consent to a release of the claims under the Action amounts to reprehensible conduct deserving of rebuke via an order for special costs.

[73]         However, only part of CFN’s application dealt with the enforcement of the release in the Settlement and thus CFN is not entitled to be indemnified by special costs for the entire application.  It will have its costs as solicitor and client costs for the part of its application related to enforcement of the Settlement agreement.

(h)      Production of Documents/Cross-Examination of Paul Turje

(1)      Should WIC obtain an order for production of documents from CFN and NovaTec and be able to cross-examine Paul Turje on his affidavit?

[74]         I am in agreement with NovaTec’s submissions on this point, above.  All of the disputes in the current proceedings relate to the interpretation of the Settlement agreement, to which NovaTec is not a party.

[75]         In its submissions, WIC states that it is particularly interested in getting “documents relating to the decision to change the design from a pressure fed to a gravity fed system.”  The question of the decision to incorporate gravity splitter chambers into the design has been addressed in Affidavit #1 of O.S. Turk sworn February 28, 2012 at para. 9.  The decision was made by Mr. Turje.  Documents relating to this decision, if such documents exist, are not relevant to the existing Action, which has been settled.

[76]         The only clear aspect of the Settlement is that the parties agreed to settle the claims under the Action.  Nothing now turns on the parties’ performance of the original contracts for the construction of the Chemainus sewer system and thus the issues present in these applications should be determined in a fresh action involving the relevant parties.

[77]         As such, WIC’s application for production of documents and cross-examination of Paul Turje on his affidavit is denied.

I.        DECISION

[78]         I make the following orders:

1.       CFN’s application to interplead the Funds is denied on the basis that it confuses the issues and CFN has not established that it is a neutral stakeholder;

2.       There will be an order of the Court dismissing all claims and counterclaims contained in Victoria Registry action number 05 5970, pursuant to the parties’ agreement in the Settlement;

3.       There will be an order of the Court entitling CFN to its costs on a solicitor and client basis from WIC for the preparation of that part of its application dealing with the enforcement of the release of claims in the Settlement;

4.       WIC’s application for production and cross-examination of Paul Turje on his affidavit is denied for being not relevant to the issues before the Court.

“Romilly J.”