NL – Pre-judgment attachment order granted re possible damages payable from arbitration -#548

In Sandford v Astaldi, 2021 NLSC 130, the plaintiffs sought a pre-judgment attachment order pursuant to s. 27 of the Newfoundland and Labrador Judgment Enforcement Act on the exigible property of defendant Astaldi Canada Inc. They also asked that defendants Muskrat Falls Corporation (“MFC”) and Nalcor Energy be prohibited from dealing with Astaldi property they hold in a manner that would be likely to hinder the plaintiffs in the enforcement of any judgment they may obtain against Astaldi in their litigation. The exigible property at issue was: (a) monetary damages which Astaldi hoped to receive as a result of a private commercial arbitration against MFC and Nalcor; and (b) proceeds held by MFC and Nalcor from the sale of equipment owned by Astaldi. The issue on the application was whether there were reasonable grounds to believe that Astaldi “is dealing” or “is likely to deal” with its exigible property otherwise than for the purpose of meeting its reasonable and ordinary business expenses; and, if so, whether the manner of it so dealing would likely seriously hinder the plaintiffs in enforcement of a judgment. Justice Thompson granted the pre-judgment attachment order on the ground that Astaldi was no longer conducting business at all in the province, which meant that it was not dealing with its exigible property at all, nor meeting its expenses.

Defendant Astaldi was the principal contractor for the Muskrat Falls Hydroelectricity Project in Muskrat Falls, Newfoundland and Labrador. It was hired by defendant MFC, which was owned by defendant Nalcor. In October, 2018, Nalcor terminated the contract with Astaldi and Astaldi left the project.  In November, 2018, Astaldi terminated all of its employees on a without-cause basis. The termination notice recognized that there were outstanding amounts owing to employees such as vacation pay, banked time, and pay in lieu of notice and Astaldi promised to pay those amounts as soon as payments were made to it.

In 2018, Astaldi brought an arbitration against MFC and Nalcor, in which it sought $200 million in damages.

In October, 2020, the plaintiff brought an action against Astaldi for damages arising from the termination of his employment in November, 2018. In or about May, 2021, the plaintiff’s action was consolidated with the actions brought by 34 other former employees who advanced essentially the same claims. The total damages sought in all 35 claims were $1.37 million.

The issue before Justice Thompson was whether all 35 plaintiffs were entitled to a pre-judgment attachment order pursuant to s. 27 of the Judgment and Enforcement Act. It provides that, “a claimant may apply for an attachment order where the claimant has commenced proceedings in the province to establish the claimant’s claim” and can meet the following test:

(a) there is a serious issue to be tried; and

(b) there are reasonable grounds for believing that the defendant is dealing with the defendant’s exigible property, or is likely to deal with that property,

(i) otherwise than for the purpose of meeting the defendant’s reasonable and ordinary business or living expenses, and

(ii) in a manner that would be likely to seriously hinder the claimant in the enforcement of a judgment against the defendant.

The pre-judgment attachment application was heard and decided by Justice Thompson on October 12, 2021. At that time, the arbitration hearing had concluded and the final award was expected to be released on October 29, 2001.

Justice Thompson noted that, “a remedy that which intrudes upon the defendant’s property rights prior to being successful in their litigation, is a remedy that is extreme or drastic.” Further, the court was to apply the requirements for the order “carefully, requiring strict compliance in assessing the reasonable grounds for belief” part of the test. Justice Thompson referred to the delicate balance that is engaged in this analysis:

[17] The case law notes that care has to be especially taken in permitting an attachment to issue without judgment on the merits thereby possibly negatively impacting on the ability to effectively continue one’s business. As I have discussed with counsel today this remedy, inappropriately given, might be the straw that breaks the camel’s back. It is a very delicate balance that must be engaged.

In granting the order sought, Justice Thompson applied each of the elements of the test in the Judgement and Enforcements Act as follows.

First, there was a serious issue to be tried as required under s. 27(2)(a) of the Act. Astaldi admitted that the plaintiffs were entitled to payment for termination of employment, but the date of the entitlement was disputed, as a result of which “pay in lieu of notice is very much in issue “. Justice Thompson called this a “conditional admission and general denial”.

Second, Justice Thompson considered the “reasonable grounds” part of the test set out in s. 27(2)(b) of the Act. Astadli was not conducting business at all in the province as a result of the termination of its contract. Astaldi was seeking recourse in the arbitration. Justice Thompson found that the defendant’s complete loss of the ability to control and deal with its exigible property, including the inability to pay past expenses, met the test for showing reasonable grounds to believe that the defendant was likely to deal with its property other than for the purpose of meeting its reasonable and ordinary business expenses. He found that a claimant cannot be required to establish reasonable grounds about what the defendant might have done or might do in the future when it has no capacity to act. In this case, Astaldi admitted to having no ability to pay the plaintiffs, but said it intended to do so to the extent required. This situation had continued for almost three years. Therefore, the plaintiffs established that, while due to factors outside its control, Astaldi had not met its reasonable and ordinary business expenses for three years and, had the plaintiffs obtained judgments during this period, they would not have been successful in enforcement.

Justice Thompson declined to consider Astaldi’s argument that the plaintiffs had failed to prosecute their claims for three years, because they were properly brought and, had they been pursued, Astaldi could not have satisfied any judgments obtained. Nonetheless, he required an undertaking from the plaintiffs, pursuant to s. 28(2) of the Act, requiring them to prosecute their claims without any undue delay.

Editor’s Notes:

First, Justice Thompson declined to try to anticipate how this attachment order would affect priority issues among Astaldi creditors, which was an issue raised by Astaldi. This is an interesting issue which may depend upon the outcome of the commercial arbitration – and any potential court proceedings arising therefrom.

Second, for earlier Case Notes in respect of court proceedings relating to the arbitration among these parties see:  N.L. – court endorses principle of separability of arbitration agreement despite omission in legislation – #131 and N.L. – court renews ex parte order in service of court’s deference to arbitration – #134.