Executive Summary: Key Legal and Evidentiary Issues

• Settlement agreement on December 22, 2023 required the developers to pay $237,396.93 and for the architect to discontinue its action and release builders liens and CPLs after suing for an alleged unpaid balance of $465,382.88.

• Because the notice of discontinuance was prepared but never filed, the action survived, and almost a year later the developers filed a response and counterclaim seeking damages for alleged deficiencies in the same architectural services.

• The Supreme Court stayed the proceeding and found the developers’ conduct to be an abuse of process, concluding they appeared to be using the existing claim to circumvent an expired limitation period, and awarded special costs.

• On the security-for-costs application, Johnson Architect relied on land title searches showing that the developers’ properties were frequently encumbered by large mortgages, liens and other charges, raising a risk of non-recoverability of costs.

• The developers asserted that they had real estate assets with millions of dollars of unencumbered equity and argued the settlement did not release their claims and that their counterclaim was within the limitation period, intending to seek to adduce fresh evidence on appeal.

• The court ordered the developers to post $10,000 as security for costs of the appeal and $5,000 as security for costs of the Supreme Court proceeding, stayed the appeal pending posting of security, and permitted an application to dismiss the appeal as abandoned if security is not posted by January 26, 2026.

Facts of the case
The dispute is between Douglas R. Johnson, Architect Ltd. (referred to as “Johnson Architect”) and the appellants 0998823 B.C. Ltd. (“099”) and Mann Development (Main St) Inc. (“MDI”), who are developers. Johnson Architect says it provided architectural services under two contracts to improve the developers’ lands, but that the developers did not pay in full, leaving an outstanding balance of $465,382.88. On December 15, 2023, Johnson Architect commenced an action in the Supreme Court of British Columbia to recover the unpaid balance. It also filed two builders lien claims and caused two certificates of pending litigation (CPLs) to be placed on title to the developers’ lands. On December 22, 2023, before the developers filed a response, the parties entered into a settlement agreement. Under that agreement, the developers would pay $237,396.93 in exchange for Johnson Architect’s dismissal (later changed to a discontinuance) of the action and release of the associated liens and CPLs. The developers paid the settlement funds, and Johnson Architect released the liens and CPLs. Counsel agreed that Johnson Architect’s counsel would file a notice of discontinuance rather than a consent dismissal order, but although counsel for Johnson Architect drafted and endorsed the notice of discontinuance, it was never filed due to an oversight.

Developers’ response and counterclaim
Almost one year later, on November 4, 2024, the developers filed a response to the original claim and a counterclaim. Through the counterclaim, they sought damages related to alleged deficiencies in the architectural services for which Johnson Architect had sought payment. On November 27, 2024, Johnson Architect objected to the filing of the response and counterclaim, asserting that they were a breach of the settlement agreement and an abuse of process. Johnson Architect proposed resolving the matter through consent dismissal of the original claim and confirmation that its limitation defences were preserved. As understood in the reasons, this proposal would have allowed the developers to commence a new independent action, subject to any defences, including any limitation defence accrued as of the date of the counterclaim. Counsel for the developers responded on March 3, 2025, rejecting the proposal and demanding a response to the counterclaim within two weeks, failing which they would seek default judgment. On March 4, Johnson Architect advised that it would seek enforcement of the settlement agreement, apply to strike the response and counterclaim, and seek special costs.

Chambers decision in the Supreme Court
On March 14, 2025, Johnson Architect brought an application to enforce the settlement agreement by way of a stay of the proceedings. The application was heard on April 9, 2025. Two days before the hearing, the developers filed a requisition seeking default judgment on the counterclaim due to the absence of a response. The requisition did not advise the court of Johnson Architect’s outstanding application to stay the proceedings, and default judgment was granted on April 9, 2025. In reasons issued on April 25, 2025, the court granted Johnson Architect’s application to enforce the settlement agreement by ordering a stay of proceedings. The court found that the settlement agreement was predicated upon the end of the underlying action and that the parties did not intend the action to survive beyond completion of the settlement, and that the action’s survival was only due to the error in not filing the notice of discontinuance. The court observed that, in the year following the settlement agreement, the developers never insisted that Johnson Architect fulfill its promise to discontinue the action. It was understood to be common ground that the limitation period had expired for the cause of action advanced in the counterclaim, had it been filed as a separate action at that time. The court found that the developers’ objective in proceeding by way of counterclaim appeared to have been to use the existing claim to circumvent the expired limitation period and concluded that this amounted to an abuse of process. The court ordered a stay of the proceedings to remedy the abuse of process and ordered special costs against the developers for obtaining default judgment knowing that Johnson Architect’s application to enforce the settlement agreement was pending.

Appeal and positions of the parties
On May 20, 2025, the developers filed a notice of appeal. They seek an order to set aside the decision to stay the proceeding and to permit them to continue their counterclaim, and they also seek to set aside the costs order. On October 2, 2025, Johnson Architect filed the application in the Court of Appeal for security for costs of the appeal and of the underlying Supreme Court proceeding, and also sought a stay of the appeal pending posting of security and the ability to apply to dismiss the appeal as abandoned if security was not posted. Johnson Architect relies on land title searches which it says show significant encumbrances on properties owned by 099 and MDI, including an example of a property assessed at $12.6 million that is encumbered by a mortgage of just over $72 million, and other properties with mortgages and liens. It submits that the appeal has no merit because the developers led no evidence below, there was no dispute as to the terms of the settlement, the issue was contractual interpretation, and the stay and costs orders were discretionary and entitled to deference. The developers submit that costs will be readily recoverable and assert that they are established real estate companies holding considerable assets, pointing to two examples of properties, one held by each, which they say have millions of dollars of unencumbered equity. They contend there is merit to the appeal, arguing that the court erred in interpreting the settlement agreement as releasing their claims and in finding that the counterclaim breached the settlement or was an abuse of process. They further argue, based on new evidence not put before the chambers court, that the counterclaim was brought within the two-year limitation period and therefore was not statute-barred, and they intend to bring a separate application to adduce fresh evidence on appeal regarding the limitation issue.

Court’s analysis on security for costs
The court considered the legal framework under s. 34 of the Court of Appeal Act, including the jurisdiction to order security for costs of the appeal and of the underlying proceedings and the requirement that any payment of security be in an amount and form determined by the justice. For security for costs of the appeal, the court referred to the factors of the appellant’s financial means, the merits of the appeal, the timeliness of the application, and the recoverability of costs, with the ultimate question being whether an order is in the interests of justice. The court addressed the merits of the appeal and did not see much merit in the argument that the settlement agreement was interpreted as releasing the developers’ claims, noting instead that the finding was that the parties intended to discontinue the existing claim and that this was a finding of fact. As to the limitation argument, the court noted that the developers rely on new evidence and had chosen to put no evidence before the chambers court, and observed that the motive for filing the counterclaim was not the only reason for the stay and the award of special costs. The court concluded that it could not say there was no merit to the appeal, but that it would be challenging for the developers. The court accepted that the application for security was timely. On financial means and recoverability, the court found, from the limited evidence, that the developers have some net equity in some properties and that an order for security for costs would not preclude them from advancing the appeal. However, it observed that the developers are in a notoriously risky business and that the evidence showed their real estate assets are frequently encumbered and often used as security, and are often subject to development-related mortgages, liens and judgments. The court considered this sufficient to establish a real risk that efforts by Johnson Architect to recover costs could be hampered and difficult and noted the presumption in favour of granting security for costs if recovery may be difficult.

Outcome and financial consequences
On security for costs of the appeal, the court concluded that it was in the interests of justice to order security because the developers had not shown that there was no risk that recovery of costs would be difficult and because their own position that they had financial means indicated they would not be deprived of the opportunity to appeal. In setting the amount, the court considered previous guidance on typical appeal costs, the draft bill of costs prepared by Johnson Architect predicting costs in the range of approximately $11,000 for a half-day appeal not including any fresh evidence application, and determined that $10,000 was a reasonable amount of security for costs of the appeal. Regarding security for costs of the underlying Supreme Court proceedings, the court noted that security for trial costs before assessment is ordered only in exceptional cases and that recent decisions have expressed a preference for adjourning such applications until the amount of the obligation is known. Johnson Architect sought such security based on concerns about non-recoverability and on the finding that the developers had engaged in an abuse of process, and referred to the weak merits of the appeal. The court agreed that these circumstances were exceptional and justified an order for security of costs of the Supreme Court, but, because costs had not yet been assessed, considered that only a modest amount was appropriate. Based on a sample bill of costs prepared by Johnson Architect, the court ordered the developers to post $5,000 as security for the trial costs. In disposition, the court ordered that the developers post $10,000 for security for costs of the appeal and $5,000 as security for the costs of the application in the trial court, granted a stay of the appeal pending posting of security, and granted an order permitting Johnson Architect to apply to dismiss the appeal as abandoned if the appellants fail to post security. The court set January 26, 2026 as the date by which the security must be posted and stated that, should the developers not post the security by that date, Johnson Architect may apply to dismiss the appeal as abandoned.