Lindsey Estate v. Strategic Metals Corp., 2011 ABQB 153

Court of Queen ’ s Bench of Alberta Citation: Lindsey Estate v.

Strategic Metals Corp., 2011 ABQB 153 Date: 20110309 Docket: 0801 08351 Registry: Calgary Between: Ann Nosratieh as Executrix on behalf of the Estate of Robert Laird Lindsey, and Helmut and Eugenie Vollmer, as Representative Plaintiffs Plaintiff - and - Strategic Metals Corp., Capital Alternatives Inc., The Institute for Financial Learning, Group of Companies Inc., Milowe Allen Brost, Gary Sorenson, Graham Blaikie, Heinz Weiss, True North Productions LLC, Merendon de Honduras S.A. de C.V., Merendon Mining (Nevada) Inc., Merendon Mining (Colorado) Inc., Merendon de Venezuela C.A., Merendon de Peru S.A., Merendon de Ecuador S.A., Arbour Energy Inc., Syndicated Gold Depository S.A., Base Metals Corporation, Evergreen Management Services LLC, 3Sixty Earth Resources Ltd., Ward Capstick, Thayer Jackson, Kristina Katayama, Quatro Communication Corporation, ABC Corp 1 to 9 and John Doe 1 to 9 and Jane Doe 1 to 9 and other entities and individuals known to the Defendants Defendant _______________________________________________________ Reasons for Judgment of the Honourable Mr.

Justice G.C. Hawco _______________________________________________________

[ 1 ] The Plaintiffs have a pre-judgment attachment order (the "Order") against the Defendant Gary Sorenson, who has declared that he has no assets. The Plaintiffs ask the Court to compel Sorenson to answer certain questions related to assets. Sorenson refuses to answer on the basis that the questions are not relevant to the purpose of a pre-judgment attachment order, as they do not deal with his exigible property, of which he claims he has none.

However, Sorenson confuses the purpose of the order, which seeks to preserve sufficient exigible assets pending outcome of the litigation between the parties, with the scope of questioning permitted to achieve that purpose. Both the Civil Enforcement Act , R.S.A. 2000, c. C-15 (the "Act") and case law suggest that the Court has the authority to make any ancillary order which it considers necessary to give effect to its remedy.

Where, as here, the Plaintiff has been evasive and inaccurate in the information he has presented the Court, and the Order remains essentially hollow based on the information to date, it is just and desirable to allow a broader range of questions in order to determine what has become of specific exigible assets of the Defendant. [ 2 ] The Court issued a pre-judgment attachment order on August 25, 2010 which required the Defendant to deliver "sworn evidence of the nature and location of all his assets, wheresoever located, including assets held on his behalf or in trust for him…": at para. 6.

The Defendant declared that he had no assets, expenses, or income of any variety. The Plaintiffs cross-examined the Defendant on his declaration. During the cross-examination the Defendant produced a transfer of all his assets, both those listed and "other assets that [he] may have an interest in" to his stepson, Oscar Flores: Exhibit 5 to the Cross-Examination on Statutory Declaration of Gary Allen Sorenson on August 25, 2010.

The Defendant stated that he did not know whether the transfer had been registered in Honduras, where Oscar resides, and therefore whether it had taken effect. [ 3 ] Among the items specifically listed in the transfer were common shares in Eiger Capital Corporation Ltd. ("Eiger"). Yet, in a December 2009 cross-examination, the Defendant had stated that he and his wife held shares in Eiger. The Defendant explained the inconsistency by saying that he made the statement in December 2009 not knowing whether the transfer had been registered. However, he made no mention of the existence of the transfer at that time.

Further, the Defendant stated that he had been under the mistaken impression that his wife held one share in Eiger. The Defendant refused to comment on an alleged agreement, predating the May 2008 transfer, which agreement may have pledged the Eiger shares to other entities. [ 4 ] The Defendant maintained that he does not actually own other assets. He testified that his wife owned a $2.4 million house in Florida, despite the fact that his name appeared on mortgage and lien documents related to the house. As well, a family trust set up by the Defendant's wife owned the house in Honduras.

Next, the Defendant testified that he had free lodging and board in Calgary. He finally agreed that he owned his clothing and his Rolex watch, but only under specific questioning. The Defendant also admitted that law firms could be holding retainers on his behalf. Similarly, he was deliberately vague about the months during which he worked, at a salary of $50,000.00/month. He claimed the salary had been deposited to an account with the Regent Bank in Fort Lauderdale, Florida, then withdrawn for website development and living expenses.

The Defendant also admitted to an account in Abu Dhabi, but claimed he could get no specifics related to that account. These answers further illustrate the evasive and contradictory evidence the Defendant put before the Court. [ 5 ] Several undertaking were given at the end of the cross-examination, but produced little in the way of useful information. Specifically, statements from the Regent Bank showed a balance of $1206.26 in one account and $3583.76 in the other as of April 10, 2010.

The Defendant stated in cross-examination that approximately $3700 from these accounts had gone to a law firm in the United States, as the bank would not pay out the funds to him. The Defendant provided a written consent for the Plaintiffs to obtain information regarding his account at the bank in Abu Dhabi. However, the Defendant noted that the bank likely would not release any information without the consent of the primary holder of the account (as the Defendant was the secondary holder), who could not presently be located.

Further, the Defendant replied that no lawyers held funds on his behalf on the dates of November 6, 2009 or July 13, 2010 specifically. The Defendant also objected to the question as seeking both irrelevant and privileged information. Most importantly, the Defendant failed to find out whether the transfer of his assets to Oscar had been registered. The Defendant had given an undertaking to inquire of Oscar and Carmen Pinto, a Honduran lawyer, whether the transfer had been registered. The Defendant later replied that Ms.

Pinto would not disclose information regarding her client, Oscar, without an order of the Honduran court. At his cross-examination the Defendant had stated that Ms. Pinto had been and still was his lawyer (Transcript at 27). Issues A. What is the scope of discovery under a pre-judgment attachment order? B. To which questions and undertakings should the Court compel an answer to? C Should the Court allow cross-examination of the Defendant's wife?

Analysis A. Scope of Discovery Under a Pre-Judgment Attachment Order [6] There is little direct authority regarding the scope of discovery on a pre-judgment order under the Act. The Act itselfprovides no guidelines on the matter. In fact, the Institute of Law Research and Reform report Prejudgment Remedies for UnsecuredClaimants (Edmonton: Institute of Law Research and Reform, 1988) states that the Institute deliberately avoided putting in legislativeguidelines. The authors of the report noted that what constitutes necessary discovery varies greatly with the circumstances.

Lack ofinformation as to the respondent's assets could frustrate the very purpose of an order, but too much information about the respondent'sfinancial affairs could give the applicant an unwarranted advantage. Accordingly, the determination of how much discovery to order wasbest left to the court in the specific circumstances before it. The authors of the report noted that the court could order discovery under thesame jurisdiction used to order discovery under Mareva injunctions: the inherent jurisdiction of the court to make ancillary ordernecessary to render its remedies meaningful. As well, Section 17(3)(

g) of the Act, discussed further below, states that “[i]n granting anattachment order, the Court may do one or more of the following: (

g) include in the order any term, condition or ancillary provision thatthe Court considers necessary or desirable.” [7] It has been held that a Mareva defendant should not be treated like a judgment debtor, a theme echoed in other cases. TheMareva (or the pre-judgment attachment) remedy is extraordinary. Issues between the parties have not yet been litigated. The Court“should not exceed its powers to interfere in the lives of private citizens and to compel them to make public what they may wish to keepprivate”: A.J. Bekhor & Co. Ltd. v.

Bilton,[1981] Q.B. 923, [1981] 2 All E.R. 565 (C.A.) [cited to All E.R.] at 583-84. [8] In Alberta, it has been held that a Mareva examination is not an examination in aid: see MacDonald v. Eagle Resources(1996), 47 C.P.C. (3d) 46 (Alta. C.A.); Dean v. Bryan, 2007 ABQB 394. [9] In Bekhor, the Court of Appeal actually established the jurisdiction of the court to grant discovery pursuant to Marevainjunctions.

Ackner, L.J. held that inherent in the power to make a Mareva order was “the power to make all such ancillary orders asappear to the court to be just and convenient to ensure that the exercise of the Mareva jurisdiction is effective to achieve its purpose”: at576. [10] Bekhor has been followed in Sekisui House Kabushiki Kaisha (Sekisui House Co. Ltd.) v. Nagashima and Nagashima (1982), (BC CA), 42 B.C.L.R. 1 (C.A.). [11] In Montreal Trust Co. of Canada v. R.M. Holdings Ltd., 2000 NFCA 27, 188 Nfld. & P.E.I.R. 93, rev’g [1998] N.J.

No. 348(T.D.), Green J.A. held that the court could allow examination of both the alleged debtor and third parties with relevant financialinformation, under a pre-judgment attachment order. [12] Further examples of the Court’s allowing more extensive discovery against alleged debtors are seen in CommunityAssociation of South Indian Lake Inc. v MacIver (1995), (MB CA), [1996] 1 W.W.R. 168 (Man. C.A.), Mooney v.Orr (1994), (BC SC), [1995] 3 W.W.R. 116 and First Choice Capital Fund Ltd. v First Choice Capital Corp. (1997), (SK KB), 157 Sask. R. 253 (Q.B.).

While the latter case deals with discovery under an oppression action and aninjunction, Baynton, J considered that a Mareva injunction would also have been available and ordered the defendants in that case todisclose any property they had acquired “directly or indirectly from their dealings with the applicants’ investment funds and to disclosethe particulars of any such dispositions by them of such property.” (para. 2) [13] The very basis of the action by the Plaintiffs against Strategic and the other Defendants arises from allegations ofmisrepresentations and fraud resulting in the Defendants, including Mr.

Sorenson, in having received millions of dollars from thePlaintiffs. To allow Mr. Sorenson to escape attempting to trace any such properties by saying he no longer has any assets would be torender the Receivership Orders and the many other orders which have been found in these proceedings practically useless.

[ 14 ] Since the Alberta Civil Enforcement Act does not provide guidance on disclosure pursuant to a pre-judgment attachment order, the common law applies. The court must have the same discretion as it would under a Mareva injunction to make any ancillary order necessary to give effect to its remedy. The disclosure required should take into account the extraordinary nature of the pre-judgment remedy, and avoid unnecessary intrusions into the private or business interests of the alleged debtor.

However, where the debtor has effectively rendered the pre-judgment order meaningless, it is a proper exercise of jurisdiction to compel answers to such questions and undertakings as are necessary to breathe life into the order. B. To which questions and undertakings should the Court compel an answer? [ 15 ] The Plaintiffs have divided the questions into categories. For ease of reference, I have also included the undertakings in the categories. 1) Question to Verify Evidence Regarding Lack of Income [ 16 ] The Defendant made reference to a written request that he resign from his position.

The Plaintiffs seek the document in order to verify the date of resignation given by the Defendant. The Defendant has been evasive regarding the dates of his employment, possibly changing his evidence regarding the months he was unemployed. The Defendant has been less than candid. Therefore, it is a reasonably ancillary order to require him to produce documentation supporting the date of his resignation; he has brought this increased disclosure on himself through his behaviour. The Defendant may have legitimate privacy concerns regarding what the document may reveal in terms of his business relationships.

Perhaps an acceptable compromise would be to require the production of the document but provide for the removal of the names of the people who made the request. The information is relevant in allowing the Plaintiffs to trace what has happened to the exigible asset that arose out of the Defendant’s income. 2) Questions and Undertakings Related to Transfer of Assets to Oscar [ 17 ] Clearly, the question of whether the transfer of assets from the Defendant to Oscar has been registered in Honduras has direct bearing on whether the items transferred are exigible assets of the Defendant.

The Defendant should be required to disclose this information. Further, his answer to the undertaking to inquire whether the transfer has been registered again suggests an inference that he is trying to evade the processes of the court. The response given to the undertaking was that “Ms. Pinto informed Mr. Sorenson that she is not prepared to provide a response to any requests for information in respect of her client, Oscar Flores, without an order of the Honduras Supreme Court”. In fact, Ms. Pinto continues to act for Mr. Sorenson. As such, he may direct her to respond to him in that capacity.

He is also directed to inquire directly of Oscar Flores as to whether the transfer has been registered and when that took effect. [ 18 ] Questions relating to just what property was intended to be included in the transfer are, of course, proper and appropriate. 3) Questions and Undertakings Related to Funds Held by Lawyers on Behalf of Mr. Sorenson [ 19 ] The question related to the sources of funds held by lawyers is relevant to identifying exigible assets held on behalf of the Defendant.

Trust funds in a lawyer’s account are a fact and is not subject to solicitor-client privilege. 4) Questions Respecting Conveyance of Eiger's Interests in MMCL [ 20 ] These questions are relevant in determining what became of a possible exigible asset, the Eiger shares once owned by the Defendant. 5) Questions Regarding Mr. Sorenson's Florida Residence

[ 21 ] These questions are relevant in determining the status of a specific asset that may be exigible. C. Cross Examination of Mrs. Sorenson [ 22 ] The Plaintiffs seek to add Mrs. Sorenson as a party. They are entitled to do so. She may be thus examined as a party and be compelled to attend for examination for that purpose. [ 23 ] The whole purpose of the examination of Mr. Sorenson at this stage is to attempt to determine what has happened to assets which he owned prior to purporting to transfer them to Mr. Flores.

The pleadings are directly concerned with attempting to return to the Plaintiffs funds which they have alleged were obtained by misrepresentation and outright fraud. Mrs. Sorenson apparently claims to be the owner of a property in Florida which may be worth as much as $2 million. Mr. Sorenson appears to be the person on the mortgage. Mrs. Sorenson is a necessary party to these proceedings given the position that Mr. Sorenson takes and she may therefore may be joined and examined. Mr. Sorenson is directed to advise Plaintiffs’ counsel of his wife’s location. [ 24 ] The Plaintiffs are entitled to their costs.

Heard on the 14 th day of December, 2010. Dated at the City of Calgary, Alberta this 8 th day of March, 2011. G.C. Hawco J.C.Q.B.A. Appearances: Michael Mysak Bennett Jones LLP for the Plaintiff Kenneth J. Warren, Q.C. Gowling Lafluer Henderson LLP for the Defendant