Murphy v. Cahill, 2012 ABQB 530

Court of Queen ’ s Bench of Alberta Citation: Murphy v. Cahill, 2012 ABQB 530 Date: 20120823 Docket: 1203 04666 Registry: Edmonton Between: Gerald Murphy, 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 Re BDO Canada _______________________________________________________ [ 1 ] In my written Reasons for Judgment issued on July 9, 2012 now reported at Murphy v. Cahill 2012 ABQB 446 , I appointed an Inspector. Prior to those written reasons BDO Edmonton ’ s Office was contacted about its willingness to act as an Inspector pursuant to

Part 18 of the Business Corporations Act RSA 2000

Chapter B-9, by the Applicants. The Respondents, Christopher Cahill and Margaret Cahill, now object however to the BDO ’ s Edmonton office acting as the Inspector in this matter due to the historical and ongoing business relationship between the Applicants and BDO Ireland. The Respondents have a common concern about the objectivity of BDO Canada and its role as the Inspector, and question whether an independent evaluation can be performed given the close connection between Mr. Murphy and BDO Ireland.

It is suggested that Mr. Allan Thom of Ernest and Young could be appointed as the Inspector given that they are the accountants for the companies presently. [ 2 ] While neither of the Respondents question the professional abilities of BDO Edmonton or BDO Canada, the spector of a potential exchange of confidential information, and the influence of BDO Ireland could they argue affect not only the proceedings before this court, but the ongoing legal proceedings that are taking place with respect to these companies in Ireland.

It is submitted that the appointment of BDO Canada causes unnecessary difficulties that can be avoided by the appointment of a firm with no apparent ties to any of the parties, particularly given the contentious nature of the applications presently before this court. Gerald Murphy has commenced five related actions against the Respondents, including a foreclosure application, an application for the appointment of a Receiver Manager, and an oppression application. It is submitted that an outsider would have difficulty differentiating between BDO an Inspector in Canada from BDO the accountants in Ireland.

It is submitted that their relationship is akin a franchise agreement as described herein directly from the BDO Canada website: BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by a guarantee, and forms part of the international BDO network of independent member firms. [ 3 ] Counsel for BDO ’ s Edmonton office points out that BDO Canada LLP is, as is the case in every other BDO International firm, its own separate distinct legal entity.

Billing practices, client information and practice management are dealt with by each BDO member in their own respective markets. There is no profit sharing or shared ownership arrangements between BDO Canada and BDO Ireland, or between BDO Canada and any other International BDO member. [ 4 ] If BDO Edmonton is named in this matter as the Inspector, Mr. Matt McCullough of the Edmonton office, Chartered Accountant and Licensed Trustee, will be the individual in charge. Mr.

McCullough, who is also a partner of BDO Canada LLP, a Canadian Limited Liability partnership, advises that BDO Canada LLP is simply a member of BDO International Limited which is the UK company made up of many BDO independent member firms including BDO Ireland. It is Mr. McCullough ’ s understanding that BDO International Limited is an entity used to coordinate for the member firms such matters as studies and trends in the financial industries, but it is not an entity involved in any individual file work of the BDO member firms.

BDO Canada LLP is therefore its own separate and distinct legal entity, as is every other BDO International firm and Mr. McCullough has confirmed that BDO Ireland will have absolutely no involvement in the Inspector ’ s duties should BDO ’ s Edmonton office be named as the Inspector.

The Law [ 5 ] According to counsel there does not appear to be any relevant reported case law addressing the issue of the perceived biased of an Inspector, but there have been some decisions with respect to the issue of the impartiality of trustees in bankruptcy, receivers and monitors as described for example in Re Klapstein 2004 ABQB 341 . [ 6 ] In this regard

section 13.3 of the Bankruptcy and Insolvency Act RSC 1985

Chapter B-3, discusses when a trustee is not qualified to act. It reads as follows: 13.3(1)(

a) where the trustee is, or at any time during the two preceding years was, (

i) a director or officer of the debtor, (ii) an employer or employee of the debtor or of a director or officer of the debtor, (iii) related to the debtor or to any director or officer of the debtor, or

(iv) the auditor, accountant or legal counsel, or a partner or an employee of the auditor, accountant or legal counsel, of the debtor. [ 7 ] If one were to apply

section 13.3 of the Bankruptcy and Insolvency Act which applies to bankruptcy and trustees and whether they are in a position to act in relationship to the estate of the debtor, BDO Canada LLP is not disqualified. [ 8 ] It is also noted that while the Inspector is an officer of the Court appointed to assemble and report on the past and present financial operations and position of the subject companies before the court and the parties, the Inspector is not acting as a judge granting any orders arising from this report.

Conclusion [ 9 ] The test when assessing the question of impartiality of an Inspector is the same one used when considering the question of whether a trustee is biased.

It is the objective conclusion of the Court and not the parties ’ subjective opinion that matters. [ 10 ] Similarly the question of the appointment in this matter of BDO Canada ’ s Edmonton office will not be determined on the basis of the subjective perceptions of the Respondents, but on determinations made objectively by the Court. [ 11 ] After reviewing the submissions received in this matter it is clear that BDO Canada and BDO Ireland are two distinct corporate entities that do not share profits, management or administrative staff so therefore these independent firms only share a common brand name for certain purposes.

Accordingly there is no actual conflict of interest, and objectively there cannot be a reasonable apprehension of bias at the appointment of BDO Canada as Inspector. [ 12 ] There is also the real and possible risk of substantial prejudice to the Applicant should the Court accede to the Respondent ’ s objection, as there are a limited number of local firms with the relevant experience necessary to act as an inspector. There is also no reasonable prospect of an alternate firm to BDO Canada at this time given the lack of consensus between the parties in that regard.

Accordingly there could be a significant further delay in selecting an acceptable alternative to BDO Canada, and as this matter has already been extensively litigated. [ 13 ] Accordingly, I conclude that BDO Canada ’ s Edmonton office is appointed to act as an Inspector pursuant to

Part 18 of the Business Corporations Act . Costs [ 14 ] The Applicants seek enhanced costs as against the Respondent ’ s in this application because they believe that their objection had little or no merit to begin with, their objection was late, and it was part of a pattern of delay on their part. The alleged pattern of delay by the Respondents has yet been adjudicated upon as it is part of another pending application. While the Respondent ’ s objection was somewhat late, there was a legitimate issue to be adjudicated on, so the Applicants will receive their normal party and party costs only.

Heard on the 8th day of August, 2012. Dated at the City of Edmonton, Alberta this 22 nd day of August, 2012.

Donald Lee J.C.Q.B.A. Appearances: Sandeep K. Dhir Lindsey Miller Katherine E. Palmer Field LLP for the the Applicants Rostyk Sadownik Wheatley Sadownik for the Respondent Margaret Cahill Terrence Warner Miller Thomson for the Respondent Christopher Cahill Daniel R. Peskett Brownlee LLP for the Inspector BDO Canada