In civil litigation matters, one party may have to pay monetary damages to the other party. Of course, matters don’t always conclude after an initial trial and may proceed through a series of appeals. In these situations, the appellant may ask the court to issue a stay of enforcement on the judgment pending appeal. A recent decision from the Court of Appeal of Alberta shows how the courts might consider such a request and what might lead to it being granted.

Judgment ordered for unpaid royalties, leading to issue of stay of enforcement pending appeal

The appellant, Knelsen Sand and Gravel, entered into an agreement with Harco Enterprises which allowed Knelsen to extract gravel from two gravel pits that were leased by Harco. Things took a turn when Harco sold some of the gravel from the property to a third party without Knelsen’s consent. In response, Knelsen stopped paying royalties to Harco for the gravel it had taken from the two gravel pits.

Harco sued Knelsen for the unpaid royalties, while Knelsen counterclaimed for breach of contract. The matter proceeded before the Court of Queen’s Bench in Alberta in the Spring of 2021, and the trial judge awarded damages of $618,372 payable by Knelsen to Harco.

Knelsen filed a notice of appeal, which is scheduled for November 2021. In the meantime, Harco served a filed and registered writ of enforcement for the money owed. Knelsen offered to place the entire amount in trust pending the outcome of appeal, but Harco declined and indicated it would continue to pursue enforcement of the order.

A temporary stay was issued pending this decision, and a total of $774,448 was placed in trust by Knelsen. The Court of Appeal was tasked with determining whether the money should be awarded to Harco despite the appeal or if it should remain in trust pending the outcome.

Determining whether an order should be stayed pending appeal

Rules 14.48 and 14.68 of the Alberta Rules of Court allow parties to request a stay of proceedings or enforcement pending appeal. This request can be heard by the judge who made the original decision or by a single appeal judge, as was the case in this matter.

In 2000, the Supreme Court of Canada established a test for determining whether to stay enforcement of a judgment. The test has three components, summarized by the Court of Appeal in this matter as follows:

1. Does the applicant’s claim present a serious issue to be tried, or is it frivolous, vexatious, baseless, hopeless, not arguable or has extremely low prospects of success?
2. Would the applicant suffer irreparable harm if relief is not granted, or could a subsequent remedy, such as a damages order, adequately compensate the applicant?
3. Would the applicant suffer greater harm than the respondent if relief were denied, or would the harm to the respondent from granting the application exceed it?

The court explained that there are several factors that can lead to such a request, including the applicant’s need to access funds to pay for the appeal process. Similarly, the responding party (in this case, Knelsen) may also argue it needs the funds at issue in the judgment to finance the cost of the appeal proceedings.

Court determined factors weighed in favour of granting stay of execution of judgment pending appeal

The court first asked whether Knelsen’s appeal raised a serious issue to be tried. The court found that the outcome of the appeal could change the amount Knelsen owes to Harco, either partially or fully. Specifically, Knelsen challenged $212,142.68 of the $618,372.57 in damages awarded because that money was sought outside of the limitation period. Additionally, Knelsen is still pursuing its counterclaim against Harco and is seeking over $1.2 million. The court therefore determined there were serious issues to be tried.

The next step in the court’s analysis was to ask whether Knelsen would suffer irreparable harm if a stay is not granted. Knelsen argued if Harco was allowed to continue enforcing the judgment, it may be able to seize Knelsen’s specialized equipment. Knelsen stated this would render it unable to continue its business operations and would put its 710 employees out of work. It also argued Harco may not be able to repay the money collected if Knelsen is partially or entirely successful on appeal. The court agreed about the potential harm to Knelsen if they were forced to cease operations and the risk that Harco may not be able to repay money collected during enforcement proceedings.

Finally, the court reviewed whether Knelsen would suffer more harm than Harco if the stay was granted. It also considered whether Harco would suffer more harm if the stay was denied. The court determined that if the stay was granted, Harco would continue to be deprived of the funds that were found to be owed to it at trial. At the same time, the court noted the short amount of time before the appeal’s hearing date and pointed to the $774,000 already paid into trust by Knelsen. As a result, it held Knelsen’s risk was greater than Harco’s, weighing in favour of a stay of enforcement.

As Knelsen satisfied all three aspects of the test, the court ordered a stay of enforcement pending the outcome of the appeal.

Contact HMC Lawyers in Calgary for Advice in Commercial Disputes and Enforcement Proceedings

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