Murphy v Cahill, 2012 ABQB 220

Court of Queen ’ s Bench of Alberta Citation: Murphy v Cahill, 2012 ABQB 220 Date: 20120402 Docket: 1203 04666 Registry: Edmonton Between: Gerald Murphy and Gerald Murphy in His Capacity As Trustee of the Gerald Murphy ’ s Children ’ s Parallel Life Interest Settlement Trust Applicants - and - Margaret Cahill, Christopher Cahill, 1248429 Alberta Ltd., 554168 Alberta Ltd., 1247738 Alberta Ltd., and Canadian Consolidated Salvage Ltd. Respondents _______________________________________________________ Reasons for Judgment of the Honourable Mr.

Justice Donald Lee _______________________________________________________ [ 1 ] The Applicants Gerald Murphy and Gerald Murphy in his Capacity as Trustee of the Gerald Murphy’s Children’s Parallel Life Interest Settlement Trust (collectively “Murphy”) has brought an application for an Interim Receivership Order returnable March 30, 2012 (the “Receivership Application”).

Murphy seeks an Order appointing a Receiver Manager on a interim basis of 1248429 Alberta Ltd. (“554 Holdco.”), 554168 Alberta Ltd. (“554”), 1247738 Alberta Ltd. (“CCS Holdco.”) and Canadian Consolidated Salvage Ltd. (“CCS”), (collectively referred to as the “CCS Group”). The Applicants seek this interim relief on the grounds that it is “just and convenient” to appoint an interim Receiver Manager pursuant to Section 13(2) of the Judicature Act , R.S.A. 2000, c.J-2, and pursuant to Section 242(3) (

b) of the Alberta Business Corporations Act , R.S.A. 2000, c.B-9.

[ 2 ] CCS is engaged primarily in the business of buying and selling scrap metal for recycling, and is a wholly owned subsidiary of CCS Holdco. 554's business is to hold the lands on which CCS conducts it’s scrap metal business. 554 is a wholly owned subsidiary of 544 Holdco. Murphy, and the Respondent Margaret Cahill are the sole directors of the CCS Group.

Murphy, Margaret Cahill, and the Respondent Christopher Cahill are shown in the Share Registry as the sole shareholders of CCS Holdco. and 554 Holdco. as follows:– Corporation Voting Shares (%) Equity Shares (%) CCS Holdco Murphy (50%) Margaret (50%) Murphy (80%) Margaret (10%) Chris (10%) 554 Holdco Murphy (50%) Margaret (50%) Murphy (80%) Margaret (10%) Chris (10%) [ 3 ] CCS is the owner of property located in the County of Strathcona, and in Downtown Edmonton. 554 is the owner of property located in Downtown Edmonton, and on the NE outskirts of the City of Edmonton. [ 4 ] Murphy and the two Respondents ostensibly entered into a Unanimous Shareholders Agreement for CCS Holdco and 554 Holdco which provide that:– (

a) There shall only be two directors of each of CCS Holdco and 554 Holdco; (

b) No person shall have a casting vote in the event of an equality of votes at a meeting of the Board of Directors; and, (

c) Any shareholder, officer or director shall have full and unrestricted access to the corporate and business records of the corporation and any of its subsidiaries at all times, and each party shall comply with requests from others in a timely fashion as to records and items in the possession of any such person. [ 5 ] According to correspondence and the corporate solicitors for the CCS Group, there has been an “inability to obtain director and shareholder concurrence” with respect to passing of Directors Resolutions and the necessary paperwork to support Annual Returns.

It is submitted by the Applicant Murphy that Boards of Directors of the CCS Group are legally and practically deadlocked to the ongoing dispute between Murphy and Margaret Cahill, and as a result the Board of Directors is incapable of making any decisions regarding the governance of the CCS Group. [ 6 ] Murphy has sworn what he terms as an “Oppression Affidavit” in which he describes how he recently learned the property taxes were in arrears for the Strathcona lands, East Downtown lands, Downtown lands, and the Celanese lands.

Additionally he deposes that Tax Notices had been issued by the City of Edmonton with respect to portions of the Downtown lands and the Celanese lands, pursuant to which those properties would be auctioned or revert to the City if the arrears were not paid. 554 and CCS were also incurring late payment penalties as a result of the failure to pay property taxes. However Murphy now acknowledges that subsequent to demands by counsel for Murphy for the payment of those tax arrears, that they have been provided with proof of recent payment of those tax

arrears. [ 7 ] In the Receivership Application, Margaret Cahill and CCS are joint debtors to a Security Agreement registered by Mercedes- Benz Financial as against a 2008 Mercedes-Benz B200 vehicle. Murphy deposes that he did not authorize, nor did he allow Margaret Cahill to have personal use of the vehicle. On or about July 13, 2008 the Mercedes was involved in an accident with a pedestrian outside the South Edmonton Common Cineplex Odeon.

The pedestrian has claimed damages in the amount of approximately $160,000 for personal injuries suffered in the alleged hit and run. [ 8 ] Murphy has also deposed to a number of Garage Keepers’ Liens that have been registered against CCS, as well as a number of Statements of Claim filed against companies part of the CCS Group as follows:– (

a) On or about April 15, 2010 CCS entered into a 6-month lease (the "Lease") for a SCS Model CM 1200 guillotine shear (the "Shear") with Ecovery LLC (the "Lessor"), which was later extended for a further 6-month term. The Lessor alleged that the CCS defaulted under the Lease for failing to make payments and failing to return the Shear at the expiry of the Lease term, among other things, and was indebted to the Lessor for $120,000.00 in arrears and $2,100.00 in liquidated damages. The Court of Queen's Bench of Alberta issued a Replevin Order on December 21, 2011 against CCS with respect to the Shear. (

b) On or about January 12, 2011, Eco-Industrial Business Park Inc. ("Eco-Industrial") filed an Amended Amended Statement of Claim claiming damages in excess of $200,000.00 against CCS and 554, operating as Clearway Recycling, and Chris Cahill Jr. (the "CCS Defendants") for failing to make payment for scrap metal removed from lands owned by Eco-Industrial pursuant to an agreement between Eco-Industrial and the CCS Defendants (the "Agreement"), and for approximately $60,000.00 for environmental damage to the lands (the "Eco-Industrial Action").

CCS filed a Statement of Defence and Counterclaim claiming damages against Eco-Industrial in the approximate amount of $650,000.00 for failure to pay for services rendered under the Agreement. (

c) On January 31, 2012 Finning (Canada), a division of Finning International Inc. ("Finning") obtained a default judgment for $14,914.61 against CCS for failure to pay invoices for service owing to Finning (the "Finning Judgment"). (

d) Garage Keepers' Liens have been registered by Diamond International Trucks Ltd. against CCS as follows: a. $4,418.93 for repairs effected on an International 7600, serial no. 1HTWYSBT27J449788; b. $9,266.25 for repairs effected on an International 5600, serial no. 1HSXHSCT07J478049; and, c. $6,037.48 for repairs effected on an International 5600, serial no. 1HTXHSCT77J386318. (

e) On or about February 24, 2011, Sunview Pacific Limited ("Sunview") filed an Amended Amended Statement of Claim against several defendants, including CCS, carrying on business under the trade name Clearway Recycling, and Christopher Emmett Cahill.

Sunview alleged, among other things, the theft of specialized industrial equipment and sought damages in the amount of $7,500,000.00 (the "Sunview Action"). [ 9 ] Murphy has not been given notice of, nor has he participated in any director’s meetings; he has not received audited financial statements for the CCS Group since at least 2008, and he has not agreed to waive the appointment of an auditor for any of the CCS Group. [ 10 ] Murphy submits that a Receiver Manager should be appointed for CCS Group on an interim basis as it is presently in a “state of suspension” due to the ongoing dispute and deadlock between the directors.

[ 11 ] I dealt with a similar situation was recently dealt with by this Court in Romspen Investment Corporation v Hargate Properties Inc. , 2011 ABQB 759 . In Romspen , the applicants sought to include a separate corporation, CLCPL, to a receiver-manager order.

This Court noted that the CLCPL was central to the effective operation of the corporation originally under receivership, which held the real property assets of the business. [ 12 ] I concluded that a receiver could be appointed where it appeared just or convenient to do so, and that prior cases had appointed receivers over companies that were intricately involved with companies already in receivership. [ 13 ] The same reasoning can be applied to all of the corporations of CCS Group.

As CCS Holdco and 554 Holdco are the sole shareholders of CCS and 554, and share the same directors, the affairs of all of the corporations are intrinsically involved, and should be subject to the same receivership. [ 14 ] The Respondents Margaret Cahill and Christopher Cahill seek an adjournment with respect to the hearing of the Receivership Application pending cross-examination of Murphy on his Affidavits.

Chris Cahill in an Affidavit sworn on March 30, 2012 says that the two applications being brought on behalf of Murphy are an exercise in “naked aggression on the part of a consummate bully” “designed with one object in view . . . to appropriate to Murphy the fruits of all the efforts and labour of” himself and Margaret Cahill since the inception of these businesses. [ 15 ] Chris Cahill also alleges that the deadlock in the Board of Directors is completely false as the reality is that Murphy has rebuffed all efforts on his part to communicate with him, including efforts to resolve all outstanding issues by refusing to talk, refusing to meet, and refusing efforts to communicate. [ 16 ] Chris Cahill in his Affidavit describes a lengthy meeting that took place between counsel on August 11, 2011 to discuss the resolution of all outstanding issues, and he deposes that a process was agreed upon between counsel which involved the sale of some of the lands presently held which would have resulted in Murphy recuperating a substantial portion, if not all, of his investment in this business.

According to Chris Cahill all efforts of his counsel following the settlement meeting to communicate with Murphy’s former counsel were rebuffed, and there were no further communications between counsel with respect to the Agreement that had been reached. [ 17 ] Margaret Cahill in Affidavit evidence deposes that the company has been in sound financial standing at all material times, and that Murphy has received financial statements on a regular basis, albeit not audited.

She deposes that she has invested over $250,000 of her own money into the business which she treats as a shareholder loan, and that her son Chris Cahill who runs the salvage business/scrap yard has invested the sum of $253,000 of his own money which is also treated as a loan. [ 18 ] Counsel for Margaret Cahill has also produced letters from Deloitte & Touche LLP confirming the terms of the engagement of that firm by Murphy to act as their agent and to provide financial consulting services which would result in Murphy receiving detailed regular written reports concerning the companies in question. [ 19 ] Murphy opposes the adjournment application by the Cahills on the grounds that:– (

a) Questioning would be frivolous and result in unnecessary delay; (

b) A delay caused by adjournment may result in irreparable harm and unnecessary risk to the assets of the CCS Group. [ 20 ] Rule 6.7 of the Alberta Rules of Court provides that:– A person who makes an affidavit in support of an application or in response or reply to an application may be questioned, under oath, on the affidavit by a person adverse in interest on the application …

[21] Rule 314(1) of the Rules of Court, Alta. Reg. 390/1968 (the “Old Rules of Court”) was the predecessor to Rule 6.7.

Rule314(1) provided that:– A person who has made an affidavit, including an affidavit of documents, filed in any action or proceedings, may be cross-examined onthe affidavit without order. [22] These Sections are very similar and Murphy submits that the jurisprudence under Rule 314(1) is applicable to 6.7 of thecurrent Rules of Court. [23] The Alberta Court of Appeal has held that the “right to cross-examine is not an absolute or unlimited right,” as stated by theCourt of Appeal in Point on the Bow Development Ltd. v.

William Kelly & Sons Plumbing Contractors Ltd. (2004), 2004 ABCA 53, 346 A.R. 171 (C.A.) at para. 7:– . . . A request to cross-examine may be denied in instances where the examination would be totally frivolous or is only designed toforestall the proceedings. [24] It is submitted that Questioning Murphy on his Receivership Affidavit would be frivolous and would only unnecessarilyforestall the proceedings, as the Receivership Affidavit primarily attaches public record documents as Exhibits.

As a result, there can bevery little in the Receivership Affidavit that is subject to dispute. [25] Similarly, the Court may deny cross-examination where there is no reasonable prospect that the cross-examination may have an impact on the outcome of the application. In Re Battery Plus Inc., (ON SC), 2001 29 C.B.R. (4th) 191, the Courtdenied the Respondent's application for an adjournment to cross-examine on the Applicant's Affidavit in the context of an interimreceivership application under the Bankruptcy and Insolvency Act.

The Court did so on the basis that “there [was] no reasonable prospectthat anything gleaned on the cross-examination” that would “in any way affect the outcome of this application.” [26] In this case, the CCS Group is uncontrovertibly deadlocked. The Unanimous Shareholder Agreements and Bylaws of thecorporations of the CCS Group force the directors to make unanimous decisions, or no decision at all. It is submitted thatnotwithstanding anything else in the Receivership Affidavit, this incontrovertible deadlock is sufficient to justify the appointment of aninterim receiver-manager.

Questioning on the Receivership Affidavit would be frivolous, as Questioning could not reveal informationthat would change this state of affairs. [27] Similarly, the Court has the discretion to proceed to order an interim receivership without adjourning to permit Questioningwhere property is at risk. In BG International Limited v. Canadian Superior Energy Inc., 2009 ABCA 127 at paras. 9 - 10, the AlbertaCourt of Appeal found that where irreparable harm would occur from the delay to appoint a receiver, an adjournment for crossexamination would not be allowed:– 9.

Next the appellant argues that it was denied its basic rights because it was not granted an adjournment, it was not allowed to crossexamine on the respondent's affidavit, and it was not given time to file its own affidavit. Despite the presence of the appellant, theapplication proceeded almost as if it was an ex parte application. While there is substance to this complaint, it is not uncommon forinterim receivers to be appointed on an ex parte basis, and there were remedies available to review or withdraw the order granted.

Giventhe urgency found by the chambers judge, the method of proceeding was not, in this case, fatal. ... 10. The appellant was asked to suggest terms on which an adjournment might be granted, but persisted in its request for anadjournment that did not address the respondent's legitimate concerns.

The chambers judge was entitled to conclude that the requestedadjournment could itself have led to irreparable damage to all parties. [28] It is submitted that in the present case there is urgency for the appointment of a receiver-manager as there is a completedeadlock in the management of all the CCS Group, and there appears to be an ongoing risk of improper use and management of

corporate property. Conclusion [ 29 ] While the right to cross-examine is not an absolute or unlimited right, I conclude that the questioning of Murphy on his Receivership and/or his Oppression Affidavits would not be frivolous and would not only be for the purpose of forestalling the proceedings. One of the central issues in the Receivership Application is whether or not there is a deadlock, and whether or not that deadlock has been caused by Murphy as alleged by the Cahills.

Another issue as part of the Receivership Application seems to be the disputed extent to which Murphy has been excluded from knowing the financial status of his investment and his companies.

Presumably these would all be the subject of cross-examination, and could affect the outcome of the Receivership Application. [ 30 ] Similarly given that the Court has the discretion ultimately with respect to the appointment of an Interim Receiver, some of the information it seems that would arise from the cross-examination would be useful in determining how the Court should exercise its discretion. [ 31 ] The urgency that did exist at the time this application for the appointment of a Receiver Manager was begun appears to have at least temporarily dissipated with the payment of outstanding tax arrears, which has foreclosed any possible sale of the lands in question by the City of Edmonton or the County of Strathcona.

It may well have been the filing of the Application by Murphy that brought about the payment of the tax arrears by the Cahills, but nevertheless those exigent circumstances have been temporarily at least resolved and taken care of. Nothing that remains in terms of the alleged deficiencies and unusual circumstances surrounding the CCS Group appears to require immediate attention or qualify as an exigent circumstance at this time that cannot await the outcome of the cross-examination.

I conclude then that any delay caused by this adjournment will not necessarily result in irreparable harm and unnecessary risk to the CCS Group of assets. [ 32 ] As such I conclude that Murphy will be required to submit to examination on his Affidavits filed in the within action. If counsel are not able to agree on a time line for the completion of such Questioning, they may return to me for further direction. The costs for the March 30, 2012 application will “be in the cause”. Heard on the 30 th day of March, 2012. Dated at the City of Edmonton, Alberta this 2 nd day of April, 2012. Donald Lee J.C.Q.B.A.

Appearances: Sandeep K. Dhir and L.E. Miller Field LLP for the Applicants Rostyk Sadownik Wheatley Sadownik for the Respondent - Margaret Cahill Terrence Warner Miller Thomson LLP for the Respondent - Christopher Cahill