The Alberta Court of King’s Bench in Star Energy Canada Inc v Builders Energy Services Ltd, 2023 ABKB 641 affirmed and enforced an undertaking personally given by the principal of Star Energy Canada Inc. (“SEC”), the plaintiff in the lawsuit, to pay the costs of the defendant in the lawsuit, Builder Energy Services Ltd. (“BES”), in the event that BES ultimately resisted the claim brought by SEC.
Background
In 2008, SEC commenced an action[1] in the Court of King’s Bench naming BES (and others) as a Defendant (the “Action”). In 2015, BES filed an application with the Court to compel SEC to pay security for costs for the Action. The application for security for costs was not heard by the Court. Instead, the parties reached an agreement that BES would forego their application on condition that the sole director and shareholder of SEC give the following undertaking (the “Undertaking”) in his personal capacity:
- I, Timothy Ulmer, the sole shareholder and director of the Plaintiff, Star Energy Canada Inc., personally undertake to be liable for all damages or indemnity, to a maximum of $22,500.00, which may be granted costs by this Honourable Court against the Plaintiff in the within action.
- I acknowledge that I have obtained legal advice regarding this Undertaking, that it has been explained to me and I fully understand the nature and importance of it.
The Undertaking was signed by the principal of SEC, Mr. Ulmer.
In 2021, SEC’s Action was dismissed for want of prosecution (delay). As part of the dismissal, BES was awarded the costs of the Action, including the application for dismissal. The parties could not agree on what costs were payable by BES to SEC. As a result, BES applied to the Court to enforce the Undertaking. The validity of the Undertaking was not disputed.
The Applications Judge who heard BES’ application ruled that “the undertaking is very clear on its face” and that the Court, despite having dismissed the Action, could still determine the issue of costs and enforcement of the Undertaking. The Applications Judge proceeded to grant judgment against Mr. Ulmer in the amount of $22,500.00, having been satisfied that costs in at least this amount were owed to BES by SEC.[2]
On appeal of the decision of the Applications Judge to a Court of King’s Bench Justice, Mr. Ulmer argued that having granted the costs award in 2021, the Applications Judge should not have granted the order to enforce the Undertaking because the Court was functus officio with respect to the matter. Where the Court is functus officio it “has no power, even with the consent of all parties, to set aside or vary a judgment or order after it has been drawn up, signed by or on behalf of the court and entered.”[3]
BES’ position was that the Rules of Court expressly permit costs to be spoken to after a final judgment or order has been entered and, alternatively, the Court Order to enforce the Undertaking did not actually vary the costs award granted at the time of the dismissal.[4]
Decision and Analysis
Justice Malik accepted the positions of BES. In particular, the Court dismissed the appeal on two grounds:
- Functus officio had no application to this case as the Rules of Court create an exception to the functus officio doctrine in these circumstances; and
- Issuing a Court Order to enforce the Undertaking after the granting of the costs award did not, in effect, vary the Court Order awarding costs.
1. The Rules and the doctrine of functus officio
When applicable, the common law doctrine of functus officio prohibits the Court from reopening a final decision unless “(1) to correct a slip, and (2) where there has been an error in expressing the manifest intention of the court.”[5]
As a Regulation, the Rules of Court trump the common law. As a result, the Rules of Court can, like all legislation, alter or limit the application of the common law, including the common law doctrine of functus officio.[6] The Alberta Rules of Court create exceptions to the doctrine of functus officio by granting discretionary power to the Court to make an order after judgment or a final order has been entered (e.g., Rules 9.14 and 10.30(1)(c)).[7]
The Court considered these Rules and their foundational principles, along with a number of related Court of Appeal decisions, and held that it was open to the Applications Judge to grant an Order enforcing the Undertaking despite the entry of a costs award and the doctrine of functus officio.
2. The enforceability of an undertaking given to the Court
The Court agreed with the Applications Judge’s finding that Mr. Ulmer’s Undertaking was independently enforceable.
Citing an 1835 English case, the Court found that when an undertaking is given to the Court, this is “equivalent to an injunction and, if violated may be the subject of an application to the court.”[8] If such an undertaking is not properly fulfilled, a party can enforce this “solemn promise” with contempt proceedings, even if the undertaking has not been incorporated into a Court order.[9] This right has been codified by Rule 10.52(3)(a)(vi), which provides that “[a] judge may declare a person to be in civil contempt of Court if the person, without reasonable excuse . . . does not perform or observe the terms of an undertaking given to the Court.”
The Court also held that an undertaking to pay money is akin to a contractual agreement between the parties that the Court cannot revoke or vary.[10] As a result, to allow Mr. Ulmer to receive the benefit of BES foregoing their security for costs application without assuming the burden of having to carry out his promise to pay would be “antithetical to a proper and fair administration of the Rules.”[11] In this case, the Court found that Mr. Ulmer did not uphold his end of the bargain to pay the costs of BES if BES was successful.
Takeaways
As with all common law doctrines, the doctrine of functus officio is subject to alteration or exception by statute. Unless your matter relates to costs, or the further Order would not require the original Order to be varied and is needed to provide a remedy to which a party is entitled in connection with the Order, a final Order or decision may not be reopened unless to correct a slip, or where there has been an error in expressing the manifest intention of the Court. It is important to ensure that the terms of an Order or judgment are clear and reflect the practicalities of all of the circumstances of the case.[12] Where there is any doubt, the parties should seek guidance from the Court before having the Order entered.
Although in this case the validity of Mr. Ulmer’s Undertaking was not at issue, and his Undertaking expressly stated that he had obtained legal advice regarding the Undertaking and fully understood its nature and importance, confirming validity of an undertaking will often be the first step in determining its enforcement. A valid and enforceable undertaking will not be easily relieved, whether given by client or lawyer. The Court views an undertaking as a “solemn promise” that they cannot and will not interfere with. In fact, until “such time as the Undertaking is satisfied, [the promisor] remains responsible to the Court for its performance.”[13] While an undertaking can be a powerful resolution and litigation tool, it does present a risk for the individual providing it. A party who fails or refuses to fulfill their undertaking can be subject to very serious sanctions, up to and including imprisonment. As a result, it is essential that the scope and consequences of an undertaking be fully explained to, and understood by, the promisor.
If you have any further questions about these issues, please contact Miller Thomson’s Commercial Litigation Group.
[1] The reported King’s Bench decision does not describe the nature of the underlying action and the lower level decision of the Applications Judge is unreported.
[2] Star Energy Canada Inc v Builders Energy Services Ltd, 2023 ABKB 641 at para 8 (“Star Energy”)
[3] Fas Gas Oil Ltd v JH Automotive Ltd, 2004 ABCA 120 at para 19.
[4] Star Energy, supra note 2 at para 10.
[5] Doucet-Boudreau v Nova Scotia, 2003 SCC 62 at para 78, citing Chandler v Alberta Association of Architects, 1989 CanLII 41 (SCC), [1989] 2 SCR 848 at 860 as cited in Star Energy, supra note 2 at para 16.
[6] Star Energy, supra note 2 at para 17.
[7] Rule 9.14 reads: “On application, the Court may, after a judgment or order has been entered, make any further or other order that is required, if (a) doing so does not require the original judgment or order to be varied, and (b) the further or other order is needed to provide a remedy to which a party is entitled in connection with the judgment or order.” Rule 10.30(1)(c) reads: “10.30(1) Unless the Court otherwise orders or these rules otherwise provide, a costs award may be made . . . (c) in respect of trials and all other matters in an action, after judgment or a final order has been entered.” [emphasis added].
[8] Star Energy, supra note 2 at para 24, citing London & Birmingham Railway v Grant Junction Canal Co, [1835] 1 Ry. Ca. 224 as cited in David Eady & A Smith, Aldridge, Eady & Smith on Contempt, 3rd ed (London: Sweet & Maxwell, 2005).
[9] Ibid. at para 24.
[10] Ibid. at para 25.
[11] Ibid at para 22.
[12] This article only canvasses the Rules-based exceptions in Rules 9.14 and 10.30. It is important to ensure no other statutory exceptions apply when purporting to argue a Court is functus officio with respect to a matter.
[13] Star Energy, supra note 2 at para. 26.
