McDonald v. Sylogist Ltd., 2010 ABQB 776

Court of Queen ’ s Bench of Alberta Citation: McDonald v. Sylogist Ltd., 2010 ABQB 776 Date: 20101206 Docket: 0703 11610 Registry: Edmonton Between: Ken McDonald and Norine McDonald Plaintiffs - and - Sylogist Ltd. and James Wilson Defendants _______________________________________________________ Memorandum of Decision of L. A.

Smart, Master in Chambers _______________________________________________________ Issue and Background [ 1 ] The Defendant Sylogist seeks disclosure from the Plaintiff Ken McDonald (Ken) the identity of three former ordinary employees of the Defendant Sylogist who are thought by the Defendants to be the exclusive source of the allegations set out in the Statement of Claim. This matter arises out of an August 28, 2006 sale of the Plaintiffs’ business (the Collaborative Learning Network “CLN”) by the Defendant Sylogist.

The Plaintiffs received for payment $800,000 cash, $250,000 in shares of Sylogist and 100,000 share options at $2.05. Ken McDonald was also employed by Sylogist as the Director of its Educational Division. [ 2 ] At the time of the transaction shares of Sylogist were trading at about two dollars each. A major business activity of Sylogist

[ 2 ] At the time of the transaction shares of Sylogist were trading at about two dollars each. A major business activity of Sylogist arose from a May 19, 2005 agreement with the Alberta Municipal Services Corp. (AMSC) to develop a project described as “Munishare”. On November 27, 2006 AMSC gave notice of a purported default and its intention to terminate the Munishare agreement. Sylogist on the same day issued a press release advising the Munishare agreement had been wrongfully terminated and thereafter shares of Sylogist declined to about $.80 per share. [ 3 ] The Plaintiffs now allege inter alia that: (

a) There had been a breakdown in the relationship between Sylogist and the AMSC beginning in the fall of 2005; (

b) The Munishare Project “was analyzed as being well over budget in April of 2006"; (

c) Sylogist missed the Munishare Project “go-live” date; (

d) Sylogist’s Q3 report dated June 30, 2006 misrepresented “the true status of the Munishare Project”; and (

e) By August 28, 2006, it was “apparent that the Munishare Project had failed: it was grossly over budget, key project milestones and deliverables had not been met, key project human resources had abandoned the project and the AMSC had notified Sylogist that it was in default of its contractual obligations”. Cross-Examination on Affidavit of Records [ 4 ] Ken was cross-examined on the Plaintiffs’ Affidavit of Records.

On the cross-examination his evidence was that the Plaintiffs do not and did not have any documents or records relating to the allegations and that the facts and information in relation to the allegations were provided by three former employees of the Defendant Sylogist. He refused to name these former employees as they had spoken to him on the basis that their discussion was confidential. Counsel for the Plaintiffs invited the Defendants to bring an application to relieve Ken of his confidentiality obligations.

The Application [ 5 ] The Defendants brought an application to compel Ken to re-attend to answer questions pertaining to the following: (1) identities of the former employees; (2) the facts and information provided by them and

(3) Ken’s knowledge in relation to the allegations regardless of the source. The parties recognize that the relief sought falls outside the parameters of a cross-examination on an Affidavit of Records, however, as they may become an issue on Discovery they agreed the application should proceed. [ 6 ] During the cross-examination on the Affidavit of Records, Ken stated he first spoke to a former employee in April 2007 where he also learned of two other former employees who could provide information.

After this application was set down by the Defendants, Ken filed an Affidavit stating that contrary to his earlier testimony his contact in April 2000 did not include any discussion with respect to the allegations in the Statement of Claim. Furthermore all discussions took place after he had retained Field & LLP as counsel in July 2007. The argument in result then being that all inquiries were made in contemplation of litigation and therefore subject to litigation privilege.

Defendants’ counsel cross-examined Ken on his affidavit but was unable to move him off his more recent version of the timing. [ 7 ] Defendants’ counsel acknowledges that in light of the timing, it is clear that the discussions with the former employees would be subject to litigation privilege. Plaintiffs’ counsel acknowledges that the Plaintiffs must answer questions pertaining to the facts within their knowledge regardless of the source and cannot be shielded by a claim of litigation privilege.

This leaves only the issue of disclosure of the names of the former employees and whether they are subject to litigation privilege. It is argued that its up to the Defendants to figure out which of their former employees they might be. The Defendants say that at any given time they have about 70 employees and it is unreasonable to in essence have them guess. They say knowing the identity of the former employees will allow them to assess what knowledge they are likely to have and provide considerable insight into what case it is they will have to meet. To wait

until shortly before trial to identify these individuals could well result in the need for further examinations and delay. [ 8 ] I agree that the names of these former employees are subject to litigation privilege but having said that I do not believe that is entirely determinative of this matter. The purpose of disclosure and examination is to allow a party to gain sufficient knowledge of the other parties claim or defense to know the case to be met.

It is sometimes characterized as avoiding trial by ambush. [ 9 ] The new Rules of Court speak of providing a means by which claims can be fairly and reasonably resolved in a timely and cost efficient way. Both parties agree that the names of witnesses must be disclosed. Admittedly this generally takes place much closer to trial but with the objectives of the Rules in mind, I see no mischief in disclosure of witnesses known to the Plaintiffs at this time, who will be called at trial. Conclusion [ 10 ] In these circumstances, I direct disclosure by the parties of their respective witnesses at this time.

Of course, additional witnesses may be identified as discovery proceeds and I do not purport to restrict additions should they arise. In my view there has been mixed success on this application and therefore, I direct that costs of this application be in the cause. Heard on the 22 nd day of February, 2010. Dated at the City of Edmonton, Alberta this 6 th day of December, 2010. L. A. Smart M.C.C.Q.B.A. Appearances: Daniel Carroll, Q.C. Field LLP for the Plaintiffs D. Robb Beeman Caireen E. Hanert Heenan Blaikie LLP for the Defendants