Corbett v. Samsports.com Inc., 2012 ABQB 258

Court of Queen ’ s Bench of Alberta Citation: Corbett v. Samsports.com Inc., 2012 ABQB 258 Date: 20120417 Docket: 0101 07448 Registry: Calgary Between: Steve Corbett, Carol Spencer, Janice Park, Fred Matsubara, Don Boone, Alan Churchard, Darren Halliday, Heidi James, Len Collins, Jim Krumm, Dennis Nerland, Nairn Nerland, Jon Constable, Dale Christensen, Ben Dulley, and Shea Nerland Calnan Plaintiffs - and - Samsports.Com Inc. Defendant - and - Canada Revenue Agency Applicant/Defendant by Order _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice A. G. Park _______________________________________________________

[ 1 ] The Canada Revenue Agency (“CRA”) seeks an Order striking the Plaintiff by Order’s action (“the Receiver”) for want of prosecution. In the alternative the CRA seeks an Order imposing terms, conditions and time limits on the Plaintiff by Order’s action. Finally the CRA seeks costs. [ 2 ] The application is based on the grounds that 5 years have elapsed since the last thing done to significantly advance the action. Further that the delay in the action has caused significant prejudice to the Defendant by Order. [ 3 ] The CRA relies on Rules 1.4, 4.9, 4.14, 4.31, and 15.4 of the Alberta Rules of Court .

Facts [ 4 ] The Plaintiffs, namely Steve Corbett, et al , commenced an action against Samsports.com Inc. (the Defendant) on April 3, 2001, seeking, among other relief, an Order appointing a Receiver/Manager of the Defendant. [ 5 ] By Order dated April 4, 2001, Moshansky, J. of this court appointed Halverson & Associates Management Ltd. (“the Receiver”) as the receiver/manager of the Defendant. [ 6 ] A dispute arose between the Receiver and the CRA relating to a payment made by the Receiver to the CRA in the sum of $160,358.66.

The Receiver claimed that the payment extinguished the Defendant's tax liability; the CRA claimed that the payment extinguished only a portion of the Defendant’s liability. [ 7 ] By Order dated May l8, 2005, I struck the following issue to be determined at trial: Does the payment of $160,358.66 to Canada Customs and Revenue Agency (“CCRA”) by Shea Nerland Calnan LLP, as counsel for Halverson & Associates Management Ltd., the Court appointment Receiver/Manager of Samsports.Com Inc. (“Halverson”), stay any and all further liability of Samsports.Com Inc., its directors or Halverson in respect of any claim of CCRA arising pursuant to [the Income Tax Act , the Canada Pension Plan and the Employment Insurance Act ]. [ 8 ] I directed that the trial of the issue would proceed with the Receiver having carriage of the action and with the CRA as Defendant. [ 9 ] The CRA caused a list of documents to be filed in this action on or about July 28, 2005. [ 10 ] The CRA caused supplemental lists of documents to be filed on or about October 12 and December 12, 2005. [ 11 ] The CRA caused an amended list of documents to be filed on or about December 19, 2005. [ 12 ] The Receiver caused an Affidavit of Records to be filed on or about October 19, 2005.

[ 13 ] The Receiver sought to examine for discovery Harold Robertson, an employee of the CRA. On the September 11, 2006 I granted an Order quashing the Receiver's appointment for the Examination for Discovery of Harold Robertson. [ 14 ] The Receiver appealed the September 11, 2006 Order. On May 3, 2007, the Court of Appeal of Alberta allowed the Receiver's appeal and set aside the September Order. The CRA was the Respondent in the appeal. [ 15 ] In allowing the appeal, at para. 35 of its judgment the Alberta Court of Appeal stated: “ [35] Rule 200 applies to the crown.

Halverson is entitled to examine Robertson as of right, subject to the crown’s rights under r. 200(2). Halverson may also examine Wearmouth, who is the crown’s representative designated in accordance with s. 7 of the Regulations and whose discovery evidence may be used against the CRA at trial.” [ 16 ] Counsel for the CRA made attempts to

schedule Examinations for Discovery with the former counsel for the Receiver in this action. To date, no Examinations for Discovery or questioning have taken place. [ 17 ] On May 6, 2010, I granted a Case Management Order. Pursuant to the Order, Shea Nerland Calnan LLP was authorized to continue its representation of the Receiver for the purpose of replacing the Receiver, following which Shea Nerland Calnan LLP was required to file a Notice of Ceasing to Act. The CRA took

part in the case management conference at which the Order was granted. [ 18 ] By Order dated June 14, 2010, I provided Shea Nerland Calnan LLP with a deadline of August 31, 2010 to replace the Receiver and to then file a Notice of Ceasing to Act. This Order was granted at a case management conference in which the CRA took part. [ 19 ] At a further case management conference on November 25, 2010 I appointed Alger & Associates Inc. as the Receiver for the purposes of this action (“Replacement Receiver”). Again the CRA took

part in this case management conference. [ 20 ] Between February 15, 2011 and August 31, 2011 counsel for the CRA attempted to arrange an application to strike this action for delay with counsel for the Replacement Receiver. Counsel for the Replacement Receiver is the present counsel on this application. [ 21 ] In support of its application the CRA filed an Affidavit in which it was deposed that pursuant to the terms of the Income Tax Act directors can be held liable for certain tax debts owed by a corporation.

As long as this action remains in existence, the CRA is not, pursuing the directors the Defendant for the Defendant’s tax liability. The affiant set out further that she believed that the delay in this action is benefiting the directors of the Defendant and prejudicing the CRA. The CRA collections officer primarily involved in the dispute between the Receiver and the CRA was Al Wearmouth.

Wearmouth retired from the CRA on or about February 10, 2010. [ 22 ] The CRA’s affiant further deposed that the CRA suffered prejudice in this matter due to the retirement of Wearmouth and the retirement of the original Receiver, the 2 key persons who were involved in the negotiating the payment made to the CRA by the Receiver which is the subject matter of the issue to be determined at trial in this action. Issue [ 23 ] The issue in this application is whether the action should be dismissed for want of prosecution pursuant to rule 15.4 or rule 4.31 of the Alberta Rules of Court . They state:

15.4(1) Unless subrule (2) applies, the Court, on application, must dismiss the action as against the applicant if ..... (b) 5 years have elapsed since the last thing done to significantly advance the action 15.4(2) The Court must not dismiss the action if ..... (

d) an application has been filed or proceedings have been taken since the delay and the applicant has participated in them for a purpose and to the extent that, in the opinion of the Court, warrants the action continuing. 4.31 If delay occurs in an action, on application the Court may (

a) dismiss all or any part of a claim if the Court is satisfied that the delay has resulted in significant prejudice to a party, or (

b) make a procedural order or any other order provided for by these rules.

Position of the CRA [ 24 ] The CRA submitted that it is entitled to an Order for dismissal of the action as more than five years have elapsed since the last thing done to significantly advance the action. [ 25 ] The CRA referenced the following principles associated with Rule 15.4: ​ The rule is mandatory and permits no discretion: if five years has elapsed since the last thing done to materially advance the action, then the Court must dismiss the action; ​ A step or “thing” must be completed and not just commenced; ​ The “thing” must move the lawsuit closer to trial in a meaningful way; ​ Advancing the action is not sufficient; the action must be materially advanced. [ 26 ] The CRA submitted that a procedural step required by the rules is a thing which materially advances the action.

The last procedural step required by the rules in the action was the filing of the list of documents and Affidavit of Records. This step occurred over 5 years ago in October and December of 2005. [ 27 ] It was the submission of the CRA that the attempt by the Receiver to examine Robertson for discovery in 2006 and the

resulting decision of the Alberta Court of Appeal, were not procedural steps required by the rules and were not things that materially advanced the action. In this connection the CRA argued an attempt to examine for discovery does not materially advance an action.

The CRA submitted an Examination for Discovery which occurs clearly advances the action but merely setting a date for an Examination for Discovery does not materially advance the action. [ 28 ] The CRA further argued that unlike (required) procedural steps, the 5 year clock will not restart unless the thing done, in fact, caused the action to materially advance. As a consequence a court must look back to make this determination.

The CRA further submitted that while the decision of the Court of Appeal may have been a “thing”, it did nothing to materially advance the action or move the action closer to trial in a meaningful way. It further noted the Receiver never examined Robertson for discovery. [ 29 ] As a result the CRA submitted the last thing done to materially advance the action occurred on December 19, 2005 and thus the action must be dismissed for want of prosecution. [ 30 ] In the alternative the CRA submitted Rule 4.31 applied.

It submitted that it has suffered significant prejudice as a result of the delay of the Receiver and the Replacement Receiver and, as such the Court should dismiss the action. Receiver ’s Position [ 31 ] It was the Receiver’s submission that 5 years has not elapsed “since the last thing done to significantly advance the action” occurred. It submitted that a number of “things” have been done in the 5 years proceeding November 21, 2011, which was the date of the filing of the Notice of Motion in respect of this application, to significantly advance the action.

Specifically it referred to the clarification by the Alberta Court of Appeal on May 3, 2007 of the Receiver’s entitlement to examine Robertson as a matter of right and the Receiver’s entitlement to examine Wearmouth as the Crown representative. It further referred to the recognition that a Replacement Receiver was required to replace the original Receiver, who retired. These steps to appoint their Replacement Receiver were taken in 2010.

It noted the Replacement Receiver is required to provide instructions to counsel in respect to the action. [ 32 ] Simply put, its position was that 5 years have not passed since the Alberta Court of Appeal made a legal determination of an issue raised in the action. [ 33 ] It further submitted that the CRA has participated in the proceedings which resulted in the granting of Case Management Orders.

It noted that case management is grounded in the Alberta Rules of Court and is a “thing” which in the case at bar has “moved the lawsuit closer to trial in a meaningful way”. [ 34 ] As a result the Receiver submitted the circumstances in this case pursuant to Rule 15.4(2)(

d) warrant that the action continue. Reasons [ 35 ] The CRA submitted the last procedural step required by the Rules of Court in this action was the filing of the list of documents and Affidavit of Records which last occurred in December, 2005. The CRA filed its Notice of Motion to strike this action under Rules 1.4, 4.9, 4.14, 4.31, and 15.4 on November 21, 2011. The application was heard before me on December 13, 2011 and continued on January 17, 2012. [ 36 ] Conrad, J.A. in her majority judgment in the Alberta Court of Appeal in the case of Trout Lake Store Inc. v.

Canadian Imperial Bank of Commerce , 2003 ABCA 259 , 330 A.R. 379 at para. 33 set out the appropriate approach on a 244.1 application to dismiss as follows: (Rule 244.1 was the predecessor rule to the present Rule 15.4) “1. The proceedings should be examined as at the date of the application to dismiss for want of prosecution pursuant to Rule 244.1.

2. If at any time in the action there has been a gap of five years or more where no "thing" has been done to materially advance the action, the judge shall examine what has occurred since that five-year gap. 3. If the delaying party has not done a thing to materially advance the action since the five-year gap, the action shall be dismissed, absent agreement to the delay. 4. If the delaying party has done a thing to materially advance the action after the five-year gap, and the other party objected and applied for a dismissal, the action shall be dismissed, absent any agreement to the delay. 5.

If the delaying party has done a thing to materially advance the action after the five-year gap, and the applicant has participated in that thing, continued to participate in the action, or otherwise acquiesced in the delay, the action shall continue, and the application for dismissal refused. These steps will avoid the foot race to the courthouse and it will encourage the party seeking to process its claim to proceed in an expeditious manner throughout.

At the same time, it will encourage the non-delaying party to act in a timely basis and, at a minimum, to object to any further action taken by the delaying party at the first opportunity.” [ 37 ] Using that approach November 21, 2011 is the commencement date at which the history of the proceedings should be retroactively reviewed over the last 5 years. [ 38 ] Accordingly the question must be asked has there been a gap of 5 years from November 21, 2006 to November 21, 2011 where no “thing” has been done to materially advance the action.

If the Receiver has not done a thing to materially advance the action since the end of the 5 year gap, the action shall be dismissed. [ 39 ] The Receiver took out an appointment to examine Robertson, an employee of the CRA. On September 6, 2006 on the application of the CRA, I granted an Order under the Alberta Rules of Court quashing the Receiver’s appointment for the Examination for Discovery of Robertson. [ 40 ] The Receiver appealed my Order. On May 3, 2007 the Court of Appeal of Alberta allowed the Receiver’s appeal and set aside the September 6, 2006 Order.

The Alberta Court of Appeal confirmed the Receiver’s entitlement to examine Robertson under Rule 200 of the then Alberta Rules of Court , subject to the CRA’s rights under then Rule 200(2) and further it confirmed the Receiver’s entitlement to examine Wearmouth as the representative of the CRA. [ 41 ] In my opinion the Alberta Court of Appeal made a legal determination of an issue raised in the action. The Receiver was granted the right to proceed to an Examination for Discovery of Robertson and Wearmouth.

This was a right the Receiver attempted to exercise in 2006 but which was initially quashed by my Order but which right was upheld by the Alberta Court of Appeal in May 2007. I note further the CRA was the party who initiated the application and participated in the application before myself and the Alberta Court of Appeal. These proceedings before myself and the Alberta Court of Appeal was a “thing” which was completed and moved the lawsuit closer to trial in a meaningful way. These proceedings not only advanced the action but they materially advanced the action. See Morasch v. Alberta , 2000 ABCA 24 , 75 Alta.

L.R. (3d) 257 at 261 (C.A.). Prior to the Alberta Court of Appeal decision, the Receiver on the basis of my decision, did not have the right to proceed to discovery of Robertson. The Alberta Court of Appeal decision materially advanced the action and moved the action closer to trial in a meaningful way in that it provided the Receiver with an opportunity to obtain evidence by virtue of a contemplated discovery process of the CRA’s witnesses. This was not merely a setting a date for discovery. Rather it confirmed the right of the Receiver to participate in the discovery process.

The Alberta Court of Appeal decision preserved the Receiver’s right to conduct Examinations for Discovery. [ 42 ] Further I am strengthened in my views by instructions from the Alberta Court of Appeal in Calgary (City) v. Chisan , 2000 ABCA 313 , 271 A.R. 384 where Fruman, J. A. for the Court stated at paras. 3 and 4:

[3] Rule 244.1 refers to “things”, not procedural steps. The appropriate inquiry is whether, looking back, a thing done in fact movedthe lawsuit closer to trial in a meaningful way: Morasch v. Alberta (2000), 2000 ABCA 24 , 250 A.R. 269; 213 W.A.C. 269; 75Alta. L.R. (3d) 257 (C.A.), at 261.

Rule 244.1 refers to a “thing done in an action that materially advances the action.” In our view, thething may be an event in the actual action under consideration, or in a closely related action, when the proceedings are inextricablylinked. [4] In the circumstances of this case, no court would have entertained an action to find Chisan in contempt while he was stillattempting to exercise his appeal rights of the order on which the contempt application was based, despite the fact that the contemptproceeding was not formally stayed.

The dismissal of Chisan’s ultimate appeal rights was therefore a thing in an action which materiallyadvanced this action, as contemplated in Rule 244.1. In effect the Court held the appropriate starting date for the calculation of the 5 years was June 28, 1994 - which was the date all appealswere finally exhausted. [43] Watson, J. (as he then was) in his decision in Tire City & Auto Inc. v.

Harrison, 2002 ABQB 592, 319 A.R. 75 furthercommented on an appeal ruling against a trial court’s decision in the context of whether the appeal continued to engage the jurisdictionof the trial court respecting the starting date for the calculation of the 5 year gap. He stated at paras. 30 and 36: [30] In any event, for many cases, the Court's approach to the "thing" which is argued to have saved the action from oblivion has beenthe crux of the decision.

During the course of argument with counsel, I offered the view that the cases seemed to suggest that a "thing ...that materially advances an action" could be defined as

an act or conduct of a party which engaged the jurisdiction of the court relative tothat party and the action, and was not merely preparatory to doing so nor amounting to some extrinsic activity involving the parties. [36] In addition, an appeal ruling against a trial court's decision though it arguably takes place outside the trial court context, is anadjudication which may directly affect the exercise of the trial court's jurisdiction: Peterka. On the other hand, activity by one of threeplaintiffs was not said to keep alive the moribund actions of another plaintiff in the same action in King.

In my view, these cases also fitwith the 'invoking material exercise of curial jurisdiction' approach that I propose. With that approach in mind, then, I turn to thepositions of the parties before me. [Footnotes omitted] [44] Although it is not necessary for my decision I reference Rule 15.4(2)(

d) of the Rules of Court. “The Court must not dismiss the action if (a) . . . (

d) an application has been filed or proceedings have been taken since the delay and the applicant has participated in them for a purposeand to the extent that, in the opinion of the Court, warrants the action continuing.” [45] On May 6, 2010 the CRA brought an application before me, as the case manager, for a case management conference toschedule dates. An Affidavit of Jody Shepard was filed and representations from counsel for the CRA and the Receiver were made. EdHalverson, principal of Halverson & Associates Management Ltd., the original Receiver, retired and was no longer licensed to act as aReceiver.

As a result a new Receiver was required. I ordered that Shea Nerland Calnan, LLP was authorized to continue itsrepresentation of the Receiver for the purpose of replacing the Receiver following which Shea Nerland Calnan, LLP was required to filea Notice of Ceasing to Act. Another Case Management Order was provided on June 14, 2010 where counsel for the CRA and theoriginal Receiver made representations.

Finally on November 25, 2010 I gave an Order where it was recognized that the assets ofSamsports.com Inc. continued to be in need of management and protection, and as a result Alger & Associates Inc. was appointed as thenew Receiver. [46] It is recognized the Replacement Receiver was necessary to replace the original Receiver. When Moshansky, J. on April 4,2001 appointed the original Receiver in this action the Plaintiffs on an ex-parte basis had the Court recognize the need for the assets ofSamsports.com Inc. to be managed and protected.

The Plaintiffs on that basis achieved on an interlocutory basis part of the relief set outin the prayer for relief in the Statement of Claim, namely the appointment of a Receiver.

[ 47 ] When the original Receiver could no longer continue to instruct counsel, a new Receiver was necessary to be appointed to instruct counsel to materially advance the action and move the action closer to trial in a meaningful way. In my view the appointment of a new Receiver was again the completion of a “thing” which materially advanced the action and moved the action closer to trial in a meaningful way.

A new Receiver was necessary in order to manage and protect the assets of Samsports.com Inc. and to instruct counsel. [ 48 ] In appearing in the case management process for the appointment of a new Receiver I am of the opinion the CRA, ethically, has participated in proceedings for a purpose of moving the action forward in a meaningful manner and closer to a trial in a meaningful way. That participation warrants the action continuing. A step by either party will be taken into account in deciding whether a “thing” has been done in 5 years to materially advance the action.

See Volk v. 331323 Alberta Ltd. , 1998 ABCA 54 , 212 A.R. 64 at para. 17 . [ 49 ] Respecting the alternative submission of the CRA asking for a dismissal of the action under Rule 4.31 I note that in order to be successful the CRA must demonstrate 3 things:

a) inordinate delay;

b) which is inexcusable; and

c) likely to seriously prejudice the CRA. [ 50 ] There was delay but the granting of my Order of September 6, 2006 was a matter over which the Receiver had no initial control. The CRA brought the application for the quashing of the Examination for Discovery and the Receiver responded to it, initially unsuccessfully but eventually successfully in the Alberta Court of Appeal. The retirement of the original Receiver was an event over which the original Plaintiffs, Corbett, et al, had no control. There was delay between May of 2007 and 2010 when the original Receiver retired. That was a delay of some 2 ½ to 3 years.

I cannot find a delay of that length to be inordinate. The application by the CRA before quashing the proposed discovery of Robertson and the retirement of the original Receiver were events for which explanations can be found. Such explanations cannot render any delay inexcusable. Finally, although the affiant on behalf of the CRA in this application deposed to prejudice suffered by the CRA due to the retirements of Robertson and the original Receiver, I cannot find it to be serious or significant prejudice.

The CRA submitted the trial of the issue will depend on the respective memories of these 2 retired gentlemen as to events of 10 years ago. Perhaps their memories may have faded but there was no evidence placed before me that either potential witness could not recall totally, partially or at all of those events. Further it was the CRA’s actions in quashing the discovery of Robertson on my Order which prevented the discovery being held in 2006. If it had been held at that time the evidence of Robertson would have been preserved for the parties and the CRA in particular.

Further there was no evidence placed before me to demonstrate that Robertson lacked documentation made at the time of the events and which lack of documentation would prevent him from refreshing his memory. Finally this is not a case involving complicated facts nor does the evidence put before me on this application demonstrate any material witnesses will not be available for trial. [ 51 ] The CRA further argued that, while this action is extant, it suffers significant prejudice in that it cannot pursue the corporate directors for the corporation’s tax liability.

That argument presumes the CRA will be successful at trial and further the corporate directors might be unsuccessful on any appeals of their assessments by the CRA for such possible corporate tax liability. At this point the CRA’s argument in this area is speculative and does not demonstrate any current significant prejudice. [ 52 ] Accordingly the CRA’s application to dismiss this action is dismissed. [ 53 ] However, the CRA alternatively asked in its Notice of Motion for an Order imposing terms and conditions and time limits on the carriage of this action.

In that connection I will make an Order under subdivision 3 of the Rules of Court for questioning of all witnesses to be completed by June 30, 2012. If that Order poses difficulty to either party by way of the availability of a witness or of counsel before June 30, 2012 the parties can appear before me seeking to vary my Order. Further the parties can

schedule a further case management meeting or meetings before me with proposed standard litigation plans provided in order that this action can proceed expeditiously to trial hereafter. [ 54 ] Counsel may make an appointment with me to speak to costs if necessary.

Heard on the 13 th day of December, 2011 and the 17 th day of January, 2012. Dated at the City of Calgary, Alberta this 17 th day of April, 2012. A. G. Park J.C.Q.B.A. Appearances: G. Brian Davison, Q.C. for the Receiver of Samsports.com Inc. Wendy Bridges for the Department of Justice Canada, Prairie Region Tax Law Services for the Applicant