0303 21772 991656 Alberta Ltd. v. 1215796 Alberta, 2011 ABQB 469

Court of Queen ’ s Bench of Alberta Citation: 991656 Alberta Ltd. v. Isfeld, 2011 ABQB 469 Date: 20110719 Docket: 0303 21772, 0403 01390 Registry: Edmonton Between: 0303 21772 991656 Alberta Ltd. and 1215796 Alberta Ltd. Plaintiffs - and - Lawrence Robert Isfeld, 257353 B.C. Ltd. and 1053163 Alberta Ltd., carrying on business under the trade name of Park Mazda Defendants And Between: 0403 01390 Lawrence Robert Isfeld and 257353 B.C. Ltd. Plaintiffs - and - Petersen Pontiac Buick GM (Alta.) Inc. and John K.J. Campbell Defendant

_______________________________________________________ Memorandum of Decision of the Honourable Mr. Justice R.A. Graesser _______________________________________________________ Nature of Application [ 1 ] The Defendant, Peterson Pontiac Buick GMC (Alta.) Inc. applies for an order requiring the Plaintiffs, Lorne Robert Isfeld and 257353 B.C. Ltd, to provide information and documents objected to on examinations for discovery. [ 2 ] The Plaintiffs object to production on the basis of relevance and materiality.

Background [ 3 ] This is one of two related actions concerning a parcel of land in Sherwood Park, Alberta. The parcel was originally owned by the Defendant, Peterson Pontiac. Peterson Pontiac sold the parcel to the Plaintiffs in 1992 for $2,780,000.00. Peterson Pontiac continued to occupy the parcel, paying monthly rent to the Plaintiffs of $31,659.10. [ 4 ] In 2003, the Plaintiffs agreed to sell the lands to 1053163 Alberta Ltd. (Park Mazda).

The purchase agreement dated April 8, 2003 describes the purchase price as $3,300,000.00. [ 5 ] The parcel was transferred to Park Mazda on June 18, 2005 for $2,800,000.00. [ 6 ] In 2003, 991656 Alberta Ltd., the owner of lands adjacent to the parcel, commenced action against Park Mazda, Mr. Isfeld and 257353 B.C. Ltd. (the “Easement Action”) claiming a declaration that it is entitled to an easement over a portion of the parcel, and alternatively claiming damages for the cost of construction of alternate access to its lands. Describe Two Actions Accurately [ 7 ] Park Mazda, Mr.

Isfeld and 257353 B.C. defended the Easement Action. This action was commenced in 2004, essentially as a “fall back” position: in the event Mr. Isfeld and 257353 B.C. are unsuccessful in defending the Easement Action, they seek to recover any losses arising out of the Easement Action from their vendor, Peterson Pontiac, and their lawyer at the time, John J. K. Campbell. [ 8 ] The two actions have been proceeding concurrently, and were ordered to be tried together. [ 9 ] At examinations for discovery in both actions in August, 2004, Mr.

Isfeld testified that he had agreed to sell the parcel to Park Mazda for the same price he had purchased it for from Peterson Pontiac, some ten years earlier. He testified the agreement was not

in writing. Park Mazda was allowed to occupy the parcel from July, 2003 without payment, because rent would be paid “in kind” at the time the sale closed. The rent would be equal to interest at the mortgage interest rate on the purchase price on closing. It is clear that Mr. Isfeld’s testimony was at odds with the July, 2003 purchase agreement. [ 10 ] The existence of the 2003 purchase agreement was not known by Peterson Pontiac until it was disclosed in documentation produced for the purposes of a judicial dispute resolution hearing in 2009.

The agreement was produced at that time to support the Plaintiffs’ claim that they had had to reduce the price to Park Mazda by $500,000.00 because of the easement problem with the neighbouring property. Because of the disclosure of the July, 2003 agreement and the apparent contradiction between its terms and Mr. Isfeld’s 2004 testimony at examinations for discovery, a further examination for discovery was held in May, 2010. [ 11 ] For that discovery, the closing documents between the Plaintiffs and Park Mazda were produced. The purchase of the parcel by Park Mazda had been financed through the CIBC.

Closing documentation was produced by the Plaintiffs. The documents show that a $2,400,000.00 mortgage was placed against the parcel by Park Mazda in favour of the CIBC. The remainder of the purchase price came from a mortgage by Park Mazda in favour of 487244 Alberta Ltd. (Leduc Mazda). [ 12 ] The purchase of the parcel appears from the financing documentation to have been part of a refinancing of 487244 and Park Mazda through the CIBC. [ 13 ] It is clear from this documentation that there was an existing business relationship between Mr. Isfeld and the principal of Park Mazda, Donald Lewicki. Mr. Isfeld and Mr.

Lewicki are both 50% shareholders and co-directors of 487244 Alberta Ltd. [ 14 ] The Plaintiffs were in fact paid $2,800,000.00 by Park Mazda, although $400,000.00 of that amount came from the loan by 487244 to Park Mazda. Essentially, a corporation Mr. Isfeld was closely connected with loaned money to Park Mazda so it could purchase the lands from him. This was not exactly a vendor take back mortgage, but there are some similarities. [ 15 ] At the May, 2010 discovery, Mr.

Isfeld was uncertain whether he had signed the July 2003 purchase agreement, although he confirmed in April, 2011 that the signature on the agreement was indeed his. Objected to Questions [ 16 ] Peterson Pontiac seeks the following information: A. Refused Undertaking: 14. #27- To obtain from the Plaintiff’s lawyers, Jackie Handerek & Forester copies of the entire file related to:

a) Lot 4B, the sale and the purchase; and

b) The loans from the CIBC to 487244 and 1053163. 15. #28- If the Plaintiff should come across any other document he thinks might be relevant to the sale and purchase lot 4B, or any of the other issues in this lawsuit, he must undertake to give it to Mr. Jackie at least 2 months before any trial day so that it can be provided to [counsel for Petersen Pontiac] in advance. B. Undertakings taken under advisement:

16. #16- to produce to Ms. Ferri a copy of the commitment letter from the CIBC to both of these companies. If it’s only a commitment letter from CIBC to 487244 Alberta Ltd., to provide the same and ask Mr. Lewicki to provide to the Plaintiff a companion commitment letter to his numbered company, 1053163 Alberta Ltd. 17. #17- To find out exactly where the additional $400,000.00 came from. Did Mr. Lewicki’s company pay $400,000 into the trust accounts of Jackie Handerek & Forester towards the purchase price for Lot 4B?

Did 487244 borrow $400,000 against their property in Leduc and loan it to Don Lewicki? 18. #19- To provide the financial statement for 487244 Alberta Ltd. for the period in time that’s relevant, which would be the statement that encompasses July 2005. 19. #21- either produce those 4 documents regarding the CIBC loan or explain why they didn’t get signed, and the explanation would include correspondence between Border Gervais and Jackie Handerek & Forester. 20. #22- To explain why the CIBC required Mr.

Isfeld to sign an assignment and postponement of claim with respect to 1053163 Alberta Ltd. 21. #24- To advise if money was loaned to Mr. Lewicki’s company either by Mr. Isfeld or any company controlled by Mr. Isfeld; and secondly, whether Mr. Lewicki’s company repaid the loans, or any part of them, to Mr. Isfeld or to a company controlled by Mr. Isfeld. 22. #25- To produce and provide a copy of the payout statement from the Bank of Montreal that demanded payment of $4,845,000.00.

In particular, if it’s not on the payout statement, to provide additional third party documents explaining who it is exactly that owed the Bank of Montreal $4,845,000.00. 23. #26- To produce a copy of Mr. Isfeld’s personal income tax return for 2005 showing the reporting of that gain of $15,000 on the sale of Lot 4B. [ 17 ] An issue also arose over the response to undertaking 13, which was to produce Park Mazda’s financial statements showing that rent was paid to the Plaintiffs. The statements produced had some information blacked-out or expurgated. Petersen Pontiac objected to the expurgated statements.

I found nothing improper about a party providing a record with information not relevant and material information to the litigation, and which was proprietary and otherwise confidential, “blacked-out” in the first instance. I was not persuaded that Peterson Pontiac should be able to see the information that had been obliterated. Position of Peterson Pontiac [ 18 ] Peterson Pontiac relies on Rule 5.30 of the Rules of Court. That rule provides: 5.30

(1) If, during questioning, a person answering questions (

a) does not know the answer to a question but would have known the answer if the person had reasonably prepared for questioning, or if as a corporate representative the person had reasonably informed himself or herself, or

(

b) has under the person’s control a relevant and material record that is not privileged, the person must undertake to inform himself or herself and provide an answer, or produce the record, within a reasonable time.

(2) After the undertaking has been discharged, the person who gave the undertaking may be questioned on the answer given or record provided. [ 19 ] Peterson Pontiac also relies on NAC Constructors Ltd. v. Alberta Capital Region Wastewater Commission , 2006 ABCA 246 , arguing that the information sought here as being relevant to facts in issue. [ 20 ] It was acknowledged at the hearing of the application that undertaking 27 had in fact been complied with in that the closing book for the transaction had been provided to Peterson Pontiac.

Any documents not contained in the closing book were not in the possession of the Plaintiffs, but could be obtained by Peterson Pontiac from public registries. [ 21 ] With respect to undertaking 28, the undertaking was not necessary because of the continuing obligation under R. 5.10 to produce relevant and material records a party becomes aware of and which have not already been produced in the litigation. [ 22 ] Ms. Ferri for Peterson Pontic argues that undertakings 16, 17, 19, 24 and 25 are relevant to determine how the purchase price was paid, as Mr.

Isfeld testified on discovery in May 2010 that he did not believe that 487244 was involved in the transaction. [ 23 ] Undertakings 21 and 22 are relevant because Mr. Isfeld testified that he had no recollection of the documents or whether or not they were signed. He had also testified that he was not a shareholder of Park Mazda and had not loaned money to Park Mazda. [ 24 ] She further argued that all of the undertakings were necessary because Mr. Isfeld’s evidence has changed over time and was generally vague or equivocal. [ 25 ] Finally, it is argued that Mr.

Isfeld’s evidence suggests a degree of collaboration between Mr. Isfeld and Mr. Lewicki’s companies, and that any loss is unrelated to the actions of Peterson Pontiac and resulted from the arrangements between Mr. Isfeld and Mr. Lewicki. Plaintiffs’ Position [ 26 ] Mr. Cotter, on behalf of the Plaintiffs, referred me to NAC as well as Trimay Wear Plate Ltd. v. Way , 2009 ABQB 47 , 2009 CarswellAlta 75 (Q.B.). [ 27 ] He responded as follows:

1. Undertaking 16 has been answered in substance already through questioning and production of records showing the allocation of funds from the CIBC financing; 2. Undertaking 17 has already been answered - a $400,000.00 mortgage from 487244; 3. Undertaking 19 is unnecessary, as its purpose was to determine how the purchase price was paid and that has already been answered: $2,400,000.00 from the mortgage and $400,000.00 by mortgage from 487244; 4. Undertakings 21, 22, 25 and 26 are objected to on the basis of relevance and materiality; and 5. Undertaking 24 need not be answered because Mr.

Isfeld already confirmed that he had not loaned any money to 1053613 (Park Mazda). Analysis [ 28 ] In Trimay , I referred to NAC and held there: 12 The question to determine with these particular questions, therefore, is whether or not discovery questions going solely to credibility are proper. 13 Rule 200(1.2) makes it clear that a person being examined "is required to answer only relevant and material questions." Relevance is determined with reference to the issues raised in the pleadings.

The scope of discovery mandated by the Rules of Court narrowed in 1999 as a result of amendments that were aimed at excluding questions of tertiary relevance. 14 The Alberta Court of Appeal discussed the scope of oral discovery in NAC Constructors Ltd. v. Alberta Capital Region Wastewater Commission, [2006] A.J. No. 1051, 2006 ABCA 246 and stated at paras. 12 and 13 : Oral examination for discovery is now confined to eliciting facts of primary relevance, that is, facts that are directly in issue, or of secondary relevance, that is, facts from which the existence of the primary facts may be directly inferred.

Both primary and secondary relevance are determined by reference to the issues raised by the pleadings. Questions seeking information that could reasonably be expected to lead to facts or records of secondary relevance (that is, questions asking for information that is only of tertiary relevance) need no longer be answered. In addition to being relevant within the meaning of Rule 186.1, information sought on discovery must be material, that is, be reasonably expected to "significantly" help determine one or more of the issues raised in the pleadings.

The materiality of evidence refers to its pertinency or weight in relation to the issue it is adduced to prove: Black's Law Dictionary, (6th ed. 1990). Facts or documents may be relevant within Rule 186.1, but, either alone or in combination with other evidence, be of no significant help to the examining party in proving or disproving a fact in issue. As Slatter J. observed in Weatherill Estate v. Weatherill, (2003) 337 A.R. 180 (Q.B.), 2003 ABQB 69 at para. 17 , "... relevance is determined by the pleadings while materiality is more a matter of proof ...". See also Tolko Industries Ltd. v.

Railink Ltd. (2003), 14 Alta. L.R. (4th) 388, 2003 ABQB 349 at para. 6 . 15 Way's credibility will certainly be a key issue at trial. Trimay alleges that he misappropriated proprietary and confidential information. Way denies this. But will confirmation of a timeline for product development on a different product significantly help determine one or more of the issues at trial? 16 The answer to that question is clearly no. Questions that relate solely to credibility of the witness were disallowed even before the scope of discovery was narrowed. See Stevenson & Côté, Civil Practice Encyclopoedia, 2003 Juriliber, at

Chapter 28, Part H.4 and the cases cited therein. 17 Here, the questions are not related partly to an issue and partly to credibility. They relate solely to credibility.

[ 29 ] The rationale for production of most of the information in this application is to determine where the $400,000.00 balance of the cash to close (after the mortgage proceeds of $2,400,000.00 were paid) came from. Because the documentation produced in relation to the closing shows that the $400,000.00 came from a loan and mortgage to Park Mazda from Leduc Mazda, the answer has been given. [ 30 ] Mr. Isfeld was examined in his personal capacity as Plaintiff and as the officer of 257353 B.C., and not as a director, employee or officer of 487244. That corporation is not a party to any of the litigation.

The extent to which documentation or information relating to that corporation should be produced in this litigation was not argued. [ 31 ] Mr. Isfeld testified that he did not loan money to Park Mazda. The response to undertaking 21 whether he or “any company controlled by him” loaned money to Park Mazda was “no”. The evidence was that he was a director and 50% shareholder of 487244. It is unclear from his answer to undertaking 21 whether his answer was based on him not “controlling” Leduc Mazda or on some other basis.

His evidence was clear that he was unaware of any loan from Leduc Mazda to Park Mazda. [ 32 ] I agree with Ms. Ferri that the relationship between Mr. Isfeld and Mr. Lewicki is relevant to the Plaintiffs’ claim for damages. It is also clear that Mr. Isfeld’s credibility is in issue. But the specific undertaking requests still need to be tested for relevance and materiality. [ 33 ] My decisions on each of the contested undertakings are as follow: 16. CIBC commitment letter - production of the actual commitment letter is in my view delving into the minutia.

While it may be relevant (in the old “touching the matters in issue” sense), it is not material to any issue in the litigation. The details of the security provided by Park Mazda (and Leduc Mazda) are a level down from the details of how Park Mazda paid for the parcel. That is already known through the documentation provided: mortgage proceeds from CIBC and from Leduc Mazda. This document need not be sought out by Mr. Isfeld nor produced. 17. Exactly where the $400,000.00 came from - this is already known. It came by way of mortgage from Leduc Mazda, a corporation both Mr. Isfeld and Mr. Lewicki each own 50% of.

More information again delves into the minutia and need not be provided. 18. Financial statements for 487244 - the only relevance here would be to confirm how 487244 has characterized the mortgage from Park Mazda. Again, this is too far removed in materiality from the issues in the litigation to fall within the proper scope of discovery. They need not be produced. 19. Security documents - Mr. Isfeld did not recall signing the security documents requested of Leduc Mazda. The only basis for requiring production of these marginally relevant documents is to test Mr. Isfeld’s credibility.

But he did not deny signing them; he did not recall. So production of the actual documents gets nowhere. Credibility alone does not support production. These documents do not pass the test of materiality and need not be produced. 20. Explanation for assignment and postponement of claim - to the extent that this question does not require an opinion, or is a question of law, or which requires the witness to speculate on another person’s motives (any of which may be a valid objection in itself), the question is not relevant to any issue in the litigation.

The CIBC required the document as part of the security it needed to advance funds to the borrowers. Mr. Isfeld was a shareholder and director of one of the borrowers. Any further explanation is irrelevant, and need not be provided. 21. Did Mr. Isfeld loan Mr. Lewicki’s company any money - this has already been answered in the negative. 22. Bank of Montreal payout statement - this is irrelevant to any issues in the litigation and need not be provided. 23. Mr. Isfeld’s personal tax return - how Mr.

Isfeld treated the gain on the sale of the parcel is, if anything, an issue that goes solely to credibility, and as such need not be provided.

Conclusion [ 34 ] Ms. Ferri has not persuaded me that any of the information or records sought meets the “relevance and materiality” threshold. None of the undertakings refused needs to be provided. [ 35 ] That does not mean that Ms. Ferri is not entitled to cross-examine Mr. Isfeld on the undertaking responses given. If by answering undertaking 21 in the negative, he intended his answer to be taken as meaning that 487244 Alberta did not loan Park Mazda the $400,000.00, some further exploration of where the $400,000.00 actually came from might be permissible (although to the extent that it did not come from Mr.

Isfeld it is difficult to see how Park Mazda’s source of funds is otherwise relevant and material). Otherwise, issues within Leduc Mazda as to how it came to loan $400,000.00 to Leduc Mazda appear to be matters between Mr. Isfeld and Mr. Lewicki. [ 36 ] Peterson Pontiac’s application is dismissed, with costs. Heard on the 16 th day of May, 2011. Dated at the City of Edmonton, Alberta this 19 th day of July, 2011. R.A. Graesser J.C.Q.B.A. Appearances: Gina Ferri Nicholl & Akers for Petersen Pontiac Buick GM (Alta.) Inc. Richard J. Cotter, Q.C. Fraser Milner Casgrain LLP for Lawrence Robert Isfeld and 257353 B.C.

Ltd.