Dominion Diamond Mines ULC v. Diavik Diamond Mines (2012) Inc.

2020 BCSC 1509 Dominion Diamond Mines ULC v. Diavik Diamond Mines (2012) Inc.

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Dominion Diamond Mines ULC v. Diavik Diamond Mines (2012) Inc., 2020 BCSC 1509 Date: 20200922 Docket: S206419 Registry: Vancouver Between: Dominion Diamond Mines ULC Plaintiff And Diavik Diamond Mines (2012) Inc. Defendant Before: The Honourable Madam Justice Horsman Oral Reasons for Judgment In Chambers Counsel for the Plaintiff appearing by teleconference: J.C. McArthur A. Solose Counsel for the Defendant appearing by teleconference: M. Feder, Q.C. V. Lucas Place and Date of Hearing: Vancouver, B.C. September 16, 2020 Place and Date of Judgment: Vancouver, B.C. September 22, 2020 [1] THE COURT: This is my ruling on the application.

INTRODUCTION [2] The defendant, Diavik Diamond Mines (2012) Inc. ("Diavik") applies for an order for security for costs against the plaintiff, Dominion Diamond Mines ULC ("Dominion") pursuant to s. 236 of the Business Corporations Act, S.B.C. 2002, c. 57. [3] Dominion filed its notice of civil claim on June 16, 2020. Dominion alleges that Diavik breached the terms of a Joint Venture Agreement between the parties that concerns the exploration and development of certain mineral resources within the Diavik Diamond Mine in the Northwest Territories. Diavik is the mine manager under the Joint Venture Agreement. Dominion alleges that Diavik breached its fiduciary obligations in exercising its duties as mine manager and that its actions amounted to wilful misconduct and gross negligence. [4] Diavik filed its response to civil claim on July 15, 2020. Diavik denies that it owes fiduciary obligations to Dominion and says that it has acted in accordance with industry standards and practices in discharging its duties as mine manager. [5] The action is still in its early stages, no trial date has been set, and the parties have not exchanged lists of documents. [6] The backdrop to Diavik's application for security for costs is that Dominion has sought and obtained creditor protection under the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended [CCAA], in the Alberta Court

of Queen's Bench. Diavik says there is a strong prima facie case that Dominion will be unable to pay any costs if its claim is dismissed as Dominion is insolvent and has no exigible assets in British Columbia. Diavik says that a conservative estimate of its recoverable costs and disbursements in this action is around $257,000. Applying a discount based on the potential for early resolution, Diavik seeks an order that Dominion pay $150,000 into court as security for costs with Diavik at liberty to apply to dismiss the action if security for costs is not provided within 30 days. [7] Diamond raises a number of points in opposition to Diavik's application. As a preliminary objection, Diamond says that this application should be adjourned pending the outcome of a sale process that is close to completion in the CCAA proceeding. In my view, Diamond's request for an adjournment should be addressed first on this application. If an adjournment is granted, then I need not and should not address the substantive merits of Diavik's application for security for costs.

BACKGROUND [8] The relevant background to Diamond's adjournment request is as follows. [9] On June 19, 2020, the Alberta Court of Queen's Bench issued a Second Amended and Restated Initial Order in the CCAA proceeding (the "CCAA Order"). Among other things, the CCAA Order approves the sale and investment solicitation process for Dominion's assets, property, and undertakings. A qualified bid, which is referred to in the material as the "Stalking Horse Bid," has been received. No other qualified bids were received within the deadline under the CCAA Order. [10] I was advised by counsel for Diamond at the hearing of this application that an announcement had just been made that the sale process would proceed with the Stalking Horse Bid. The timelines under the CCAA Order have been, or would be, accordingly altered somewhat. Counsel advises that it is presently anticipated that the date for court approval of the sale will be extended from September 28 to October 12, 2020, and the completion date for the sale will be extended from October 31 to November 7, 2020. The situation remains fluid as the CCAA process is ongoing. [11] Dominion says that its financial position can only be determined once the sale process is complete. Accordingly, Dominion seeks an adjournment of this application until after the completion date of November 7, 2020. Dominion says there is no prejudice to Diavik

in an adjournment. The litigation is in its early stages, pleadings have only just closed, and no trial date has been set. Dominion agrees that it would be reasonable as a term of any adjournment to stay the litigation during the period of the adjournment so that Diavik is not required to incur costs before its application can be heard. [12] As a further basis for its adjournment request, Dominion points out that there is a provision in the CCAA Order which precludes the exercise of rights and remedies against Dominion during a "stay period" other than with leave of the Court. The relevant term provides: 14. During the Stay Period, all rights and remedies of any individual, firm, corporation, governmental body or agency, or any other entities (all of the foregoing, collectively being "Persons" and each being a "Person"), whether judicial or extra-judicial, statutory or non-statutory against or in respect of the Applicants or the Monitor, or affecting the Business or the Property, are hereby stayed and suspended and shall not be commenced, proceeded with or continued except with leave of this Court [13] The CCAA Order defines the Stay Period as ending on September 28, 2020, or such later date as the court may order. I understand that the Stay Period is presently expected to extend to the date for the completion of the sale which is November 7, 2020. [14] Dominion says that Term

14 on its face applies to an application for security for costs which seeks a statutory remedy that could impact other creditors. If the application is adjourned until after November 7, 2020, the Stay Period will have expired and there will be no concern with a requirement for Diavik to seek leave of the CCAA Court in order to bring an application for security for costs. Dominion says hearing the application now, when leave has not been granted to Diavik to seek the remedy of security for costs, would contravene Term 14 of the CCAA Order. [15] Diavik opposes any adjournment of its application. Diavik says it is entitled to bring the application for security for costs to preserve its position, having been sued by a company with no assets in British Columbia and no apparent ability to pay a future costs order. Diavik argues that Dominion's suggestion that its financial position may improve with the sale is speculative. In any event, such potential change in position can, in Diavik's submission, be anticipated within the terms of the order it seeks by extending the deadline for Dominion to pay security into court to 60 or 90 days. Diavik disputes Dominion's interpretation of Term 14 of the CCAA Order and says there is no requirement to seek leave of the court to bring an application for security for costs.

DECISION [16] In my view, the balance of convenience favours adjourning the hearing of this application until after the November 7, 2020, completion date for the sale. Three factors are of particular relevance to my assessment of the balance of convenience: 1. Diamond's financial position may change as a result of the pending sale. While I accept Diavik's submission that there is no evidence before me to establish as a fact that Diamond's financial situation will improve, that does not make the sale irrelevant as a factor for this Court's consideration. Absent some demonstrated prejudice to Diavik in an adjournment, the Court should hear the application for security for costs with a complete understanding of the plaintiff's financial situation. Whatever other uncertainties exist, what can be said with certainty is that there will be a change in circumstances in some form with the completion of the sale.

2. There is no prejudice to Diavik that I can discern in an adjournment of this application for a period of approximately two months, particularly at this early stage in the litigation. Diavik's concern in applying for security for costs is that it will have to incur costs defending this action which are ultimately unrecoverable. Diavik will not incur potentially unrecoverable costs if it is a term of the adjournment that the action is stayed in the interim.

3. Even absent the pending sale, I would, in any event, have adjourned this application to permit Diavik time to seek leave of the Alberta Court of Queen's Bench pursuant to Term 14 of the CCAA Order to pursue the remedy of security for costs against Diamond. In saying this, I make no determination of whether an application for security for costs falls within the scope of the CCAA Order. It seems to me that the point is at least arguable. To the extent that there is uncertainty about the scope of a term in the CCAA Order, in my view, that uncertainty should be resolved by the Alberta Court of Queen's Bench within the context of the CCAA proceeding and not by this Court in the context of an interlocutory application for security for costs. [17] Accordingly, my orders on this application are as follows: 1. Diavik's application for security for costs is adjourned generally.

2. Diavik is at liberty to reset the application at a date convenient to both parties after November 7, 2020.

3. The action shall be stayed in the interim with the exception that Diavik has liberty to set a trial date.

4. The stay may be lifted by the mutual consent of the parties or further order of the court. [18] Counsel, my preliminary view is that the costs of this appearance should be in the cause. Do either party seek an alternative order? [19] MR. McARTHUR: That is acceptable to the plaintiff, My Lady. [20] MR. FEDER: And likewise the defendant, My Lady. [21] THE COURT: All right, then costs shall be in the cause. "Horsman J."