Murphy v. Cahill, 2012 ABQB 754

Court of Queen ’ s Bench of Alberta Citation: Murphy v. Cahill, 2012 ABQB 754 Date: 20121210 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 Applicant - and - Margaret Cahill, Christopher Cahill, 1248429 Alberta Ltd., 554168 Alberta Ltd., 1247738 Alberta Ltd., and Canadian Consolidated Salvage Ltd. Respondents _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice J.B. Veit _______________________________________________________

Summary [ 1 ] Christopher Cahill asks for an adjournment of Gerald Murphy ’ s application to appoint a receiver-manager of the CCSL group of companies. Mr. Murphy ’ s application was filed and served on November 30, 2012, and Mr. Murphy ’ s brief was served on December 3, 2012. Mr. Cahill states that he is in Ireland, in connection with litigation in that country involving Mr. Murphy, and that he has not had time to respond to Mr. Murphy ’ s application. [ 2 ] Margaret Cahill asks for an adjournment of Gerald Murphy ’ s application to question the appraiser who has filed a report on November 30, 2012, valuing the company ’ s real estate holdings.

[ 3 ] Instead of complying with the provisions of the Rules of Court on special chambers applications, Mr. Murphy applies for leave to bring his application for the appointment of a receiver-manager on an emergency basis.

He claims that the matter is urgent because: his financial interests are at stake, (the report of a court-appointed Inspector being described as “ explosive ” ), the company in which he is the sole investor is badly mismanaged, his honor as a business person is at stake because the company has been found guilty of offences under the occupational health and safety legislation, and because CCSL, its directors and shareholders are vulnerable to occupier ’ s liability claims. [ 4 ] The Murphy application for leave to proceed on an emergency basis is denied; in light of that decision, the Cahill applications for adjournment are moot. [ 5 ] Mr.

Murphy has not established the existence of an emergency which authorizes a departure from the ordinary requirements of notice and opportunities for preparation inherent in a special chambers application. In particular, although the Inspector ’ s report does identify problems in the operation of the CCSL group of companies, none of the Inspector ’ s comments at this stage of the proceedings justify the characterization of “ looting ” made by Mr. Murphy.

Rather, the problems experienced by the Inspector in getting information from the management of CCSL have been explained; some additional time must be given to allow that information to be produced. Also, although the Inspector ’ s report identifies some management problems those problems were not only well known by Mr. Murphy, but, cumulatively, they do not pose an emergency. Nor, in the circumstances where steps are underway to reassess CCSL ’ s conviction on occupational health and safety charges, can it be said that Mr. Murphy is in urgent need of protection of his business reputation.

Finally, in the circumstances here, there is no demonstrated urgent risk of occupier liability findings against either CCSL or its directors and shareholders. [ 6 ] Given the treatment of Mr. Murphy ’ s application, Mr. Cahill ’ s application for an adjournment is moot. Although effective communication is obviously possible between Alberta and Ireland even without personal attendance, because of the large amount of documentation presented on this application by Mr. Murphy, there is insufficient information before the court to allow it to determine whether, had Mr. Cahill ’ s application not been moot, Mr.

Cahill would have been granted an adjournment in order to adequately prepare to respond to the Murphy application [ 7 ] Given the treatment of Mr. Murphy ’ s application, Ms. Cahill ’ s application for an adjournment is moot. However, had Mr. Murphy ’ s application been properly characterized as an emergency, I would not have granted Ms. Cahill an adjournment to allow her to question the Murphy appraiser since, in any event, the Murphy appraisals establish that Mr. Murphy ’ s original investment in CCSL is adequately secured by the value of CCSL ’ s assets. 1. Background [ 8 ] Mr.

Murphy is the sole original investor in a group of companies operated under the control of the flagship company, Canadian Consolidated Salvage Ltd.; Mr. Murphy invested approximately $10.73 million in this operation in 2006. [ 9 ] Mr. Murphy ’ s main argument in relation to his request for leave to depart from the usual rules of practice relating to special chambers applications is that the report of the Inspector, appointed in earlier proceedings in this court, contains “ explosive ” information, albeit couched in the staid language of accountants. The Inspector ’ s report contains the following

summary: REQUEST FOR ADVICE AND DIRECTION IN THE CIRCUMSTANCES 172. As evident from the content of this report, the Inspector continues to struggle to obtain information from the CCS Group in a timely fashion as a result of any number of reasons which may, or may not, be outlined in this report. The Inspector is concerned that in order to comply with its mandate at the current pace with which information is being received will simply result in a very

lengthy, costly process without any real progress. Furthermore, the Inspector is not entirely convinced that all of the information it requires to fulfill its mandate under the Order is available, or will ever be provided. 173. In the Inspector's experience, the financial records of the CCS Group are disorganized, lack sophistication, are incomplete, or have been reported as unavailable (simple examples include the lack of T4s and T4 Summaries on hand, the lack of completed bank reconciliations, the lack of posting year-end adjusting journal entries to the general ledger, etc). 174.

Out of consideration for all the Parties, the Inspector is seeking the advice and direction of the Court (perhaps in conjunction with discussions with the Parties) as to what course of action the Inspector should take from this point forward. Alternatively, it may be necessary to specify to the CCS Group the time requirements and information to be provided to assist the Inspector in addressing its mandate. 175.

There may be other alternatives available in the circumstances as well, and the Inspector is open to any ideas or options in this regard. [ 10 ] In addition to the concluding comments in its report, the Inspector makes other comments which are useful to the court in the determination of whether there is urgency in Mr. Murphy ’ s application.

For example, at para. 12 of the report, the Inspector notes: It is important to advise the Court that there does appear to be some merit to the concerns raised by Management of the CCS Group as outlined above, as the Inspector has attended the premises on numerous occasions and witnessed some of the concerns raised by Management first hand. [ 11 ] Also, the Inspector fairly notes that the delay it experienced in receiving records previously obtained by Deloitte & Touche, which had earlier been appointed - by consent - to investigate the companies ’ operations, contributed to the delays which the Inspector encountered.

Indeed, the Inspector advises the court that it was “ hesitant to try and continue the review without first having access to, and reviewing the information previously provided to Deloitte ” and that the Inspector only received this information on October 10, 2012. The Inspector ’ s “ cut-off date ” for receiving information on which to base its first report to the court was October 23, 2012.

This cut-off date for receiving information did not leave very much time for the management of CCSL to respond to the Inspector ’ s questions. [ 12 ] The “ significant ” matters addressed by the Inspector include a “ drastic drop ” in accounts receivable, (which drop was satisfactorily explained to the Inspector), the income tax recoverable amounts, (which item was satisfactorily explained by CCSL ’ s external accountant - Ernst & Young), the $1 million fluctuation in inventory (which the Inspector has not yet been able to accurately track because of a power outage that affected CCSL ’ s computer network), the deposits and prepaid expenses Iwhich the Inspector has not yet been able to confirm because the asset listing provided by E&Y was provided late), property and equipment purchases (which also must be investigated now that the Inspector has received the asset listing), an as-yet unexplained increase in the accounts payable - including payments to Margaret Cahill and Chris Cahill Jr. of a total of approximately $417,000.00, the possibility that there is a balance owing to Canada Revenue Agency for GST in fiscal 2012, a drastic decline in sales since 2008 (allegedly due to a number of reasons which the Inspector must investigate), a drastic increase in building maintenance expenses for 2009 (including payments to the Cahills of approximately $38,000.00), the nature of consulting fees, a decrease in insurance, some specific concerns relating to management remuneration (although at this stage these appear to be accounting adjustments), office expenses and professional fees, rent expense as well as taxes/licenses expense, as well as investigation of specific issues in the holding companies which form part of the CCSL Group.

The Inspector ’ s report details the responses which it has received in relation to its various inquiries, and the work which the Inspector

advises must still be done in order to be in a position to complete its report. [ 13 ] In assessing Margaret Cahill ’ s management ability, it must be taken into account that CCSL has largely operated without any banking line of credit. [ 14 ] Mr. Murphy has provided appraisals of various properties owned by the CCSL Group; those appraisals total $14.6 million. In an earlier application by Mr. Murphy for a receiver-manager, Ms.

Cahill had submitted an opinion from a real estate agent indicating that, in his opinion, the real estate property owned by CCSL was worth considerably more than the value attributed by Mr. Murphy ’ s appraiser. [ 15 ] Margaret Cahill advises, through her lawyer who reports a conversation with the lawyer who is dealing with the occupational health and safety charges that, although convictions have been registered and the proceedings have been adjourned to January for sentencing, CCSL is making an application for a mistrial of the proceedings, which application will be heard in January, 2013. [ 16 ] Mr.

Murphy describes as “ squatters ” two groups of people who have been permitted by CCSL to reside, without paying rent, on two properties owned by the company in exchange for providing minimal security services on those properties. In addition, on one of the properties, there is a building on which the most important external door has been damaged such that the door either cannot be closed or cannot be locked.

The respondents advise that nothing of value is located in this building; moreover, they state that one of the “ squatters ” has been allowed to park a travel trailer inside the building, and to live in that travel trailer, thereby providing minimal security for the building itself and for the surrounding property. [ 17 ] Mr. Murphy was aware, when he authorized his sister Margaret Cahill to operate the CCSL Group when CCSL was acquired by him in 2006 that his sister had no experience in the operation of a salvage operation and little business experience of any kind. Mr.

Murphy was aware that the transition team from the salvage business which operated the company when he acquired it was only in place for a period of approximately 3 months. [ 18 ] Some of the problems experienced by the Inspector in obtaining information appear to have arisen as a result of the absence, until recently, of a qualified in-house accountant who can usefully organize CCSL ’ s financial records and answer questions concerning CCSL ’ s accounting practices. [ 19 ] Information was provided to the court at the hearing on December 7 that, although Christopher Cahill was in Ireland, and perhaps attending on a dying sibling, he had not attended - as expected - at a management meeting relating to Irish legal proceedings.

In the last year or two, Christopher Cahill has spent approximately one month a year outside of Canada; in the years immediately preceding those years, Christopher Cahill was in the habit of spending approximately 6 months of the year in Ireland. Christopher Cahill is a shareholder in CCSL, but is not a director of the companies. [ 20 ] Ms. Cahill served affidavits answering certain questions posed by the Inspector on Mr. Murphy on the morning of December 7 th , immediately prior to the hearing. [ 21 ] In a previous application in these proceedings, Mr.

Murphy asked the court to strike affidavits filed to that point by Margaret Cahill and to redact affidavits filed by Christopher Cahill and Alice Wilson. The decision on that application is still under reserve. Despite having that decision on reserve, having been advised by Mr. Murphy that his application for a receiver-manager should be dealt with on an emergency basis, the court scheduled a hearing at the earliest opportunity in order to determine whether an emergency existed. 2. Has Mr.

Murphy established an emergency justifying a departure from the usual rules of practice applying to special chambers applications? [ 22 ] Although Mr. Cahill ’ s application for an adjournment was the first preliminary matter raised, the court has concluded that it should deal first with Mr. Murphy ’ s request for relief from the rules of practice: Mr. Cahill ’ s application for an adjournment becomes moot if Mr. Murphy cannot bring his application on without complying with the court ’ s rules relating to special chambers applications.

Similarly, Ms. Cahill ’ s application for an adjournment, made during the course of the hearing on December 7 th , is moot unless Mr. Murphy can establish that his application must be heard on an emergency basis. [ 23 ] In considering whether Mr. Murphy ’ s application is an emergency, I will deal with all four aspects of Mr. Murphy ’ s position, even though his reliance on the Inspector ’ s report constitutes the main support for that contention.

a) Does the Inspector ’ s report document an emergency? [ 24 ] The Inspector ’ s report does not document an emergency. [ 25 ] That report asks for approval of its costs and fees to date, and for advice and direction about where it should go from here. It does not establish that the Cahills are “ looting ” CCSL “ on a major scale ” . On the contrary, it identifies some serious problems which it has encountered in obtaining information from the Cahills, and explains why some of those problems arose and fairly states that these problems are not entirely of the Cahills ’ making.

It does not suggest that, given the appropriate time, answers to most of its questions will not be forthcoming; on the contrary, it establishes that a good part of the delay was caused by the failure of Deloitte to turn over information which it had already received from the Cahills, thereby causing not only annoyance on the part of the Cahills, but delay in the Inspector ’ s ability to assess CCSL ’ s situation.

The Inspector ’ s report does foreshadow the possibility that some questions may never be answered as a result of corporate record-keeping; what it does not establish is the relative importance of the missing answers to the overall claim of oppression.

It does suggest that CCSL will have to determine whether it has a beneficial and equitable interest in 4 properties on which it is paying what amounts to the mortgage; there is no suggestion in the Inspector ’ s report that the four properties do not have sufficient equity to allow any necessary correction in the title of the properties required to reflect CCSL ’ s involvement in the properties. Moreover, the parties agree that Mr. Murphy approved of a CCSL initiative to “ incentivize ” staff by providing staff housing at subsidized rates, even though it appears that Mr.

Murphy was not informed about the mechanism adopted in relation to these four properties. All of these questions will undoubtedly have to be answered, but even assessed cumulatively, the problems identified by the Inspector do not constitute an emergency which should deprive the respondents of due process. [ 26 ] The issue of obstructionism which has been raised by Mr. Murphy in relation to the Cahills ’ pattern of conduct in these proceedings is one of the issues which is under reserve in the application brought recently by Mr. Murphy in relation to the Cahill and Wilson affidavits.

That concern will be addressed in the forthcoming decision.

b) Is the CCSL badly mismanaged and does that constitute an emergency? [ 27 ] The Inspector ’ s report does document some serious concerns about management. However, those concerns do not constitute an emergency. On the contrary, those problems with management have existed almost from the outset of Mr.

Murphy ’ s acquisition of the business and the cumulative nature of the problems does not establish that there is an emergency of a financial or any other nature. [ 28 ] In particular, even based on the Inspector ’ s current report, and even if there were $450,000.00 of inappropriate transfers to the Cahills, in light of the appraisals which Mr. Murphy himself has obtained and which do not purport to value the materials on the properties, Mr. Murphy ’ s interest in CCSL could still be made whole by way of a transfer of shareholdings from the Cahills to himself.

c) Is Mr. Murphy ’ s business reputation at stake? [ 29 ] Mr. Murphy ’ s business reputation is not at stake in an emergency fashion. [ 30 ] Mr. Murphy was apparently never informed that CCSL was facing occupational health and safety charges; he is concerned by the way in which the matter was handled, even though the defence of CCSL was undertaken by experienced defence counsel. Even assuming, for the purpose of this application, that Mr.

Murphy ’ s business reputation is at stake as a result of the conviction of CCSL on occupational health and safety charges, the information before the court on this application is that the convictions themselves will be the subject of a further application which is scheduled to be heard shortly; therefore, Mr. Murphy ’ s concern is premature.

[ 31 ] Moreover, even if the OH&S convictions stand, it cannot be said that the penalty that is likely to be imposed poses an emergency for either CCSL or its directors and shareholders: a co-accused who has pleaded guilty to one of those charges was fined $5,000.00. Penalties in that range will not significantly damage CCSL ’ s financial viability.

d) Is Mr. Murphy, as a significant shareholder of CCSL, at urgent risk of occupier ’ s liability? [ 32 ] Neither Mr. Murphy nor CCSL is at significant, emergency, risk of occupier ’ s liability findings either as a result of the presence on CCSL property of individuals who are receiving free rent in exchange for minimal security services nor on the basis that there is a door missing on one of the buildings on one of the properties.

It is not clear how long these arrangements with the two groups of individuals have been in place; in any event, however, there is no suggestion that the individuals themselves have not accepted the risks inherent in the kind of arrangement in which they are participating. Nor is there any evidence that the risk to the properties owned by CCSL is material, in light of the value of the CCSL properties.

e) Conclusion [ 33 ] In the result, therefore, although the Inspector ’ s report establishes that there are still serious questions to be answered, it does not establish that there is an emergency facing CCSL, its directors and shareholders. Whether the Inspector ’ s report, together with other matters such as the behaviour of the Cahills in these proceedings and any other matters on which Mr. Murphy intends to rely, justify the appointment of a receiver-manager is a question which should, and will, be answered in a regular special chambers procedure which will afford the respondents due process. 3. Has Mr.

Cahill established an entitlement to an adjournment based on his absence from Alberta? [ 34 ] Mr. Cahill states that he requires an adjournment because he is not physically present in Alberta and therefore unable to prepare an adequate response to Mr. Murphy ’ s application. Mr. Murphy rejects that contention on three main grounds: the first being that communication is easily possible between Alberta and Ireland, the second being that if Mr. Cahill has chosen to absent himself from Alberta, his choice should not prevail over the needs of litigation, and the third being that Mr.

Cahill has no direct involvement in the management of CCSL and therefore he cannot bring any useful information to the court on the underlying application. [ 35 ] Mr. Cahill ’ s application for an adjournment is moot. [ 36 ] I will only add the following: - although the potential for effective communication between Alberta and Ireland exists, as has been demonstrated by Mr. Murphy ’ s ability to bring his application without personal attendance in Alberta, it is not clear whether the voluminous written material required to be considered on this application was in fact available to Mr.

Cahill prior to his departure from Alberta. I understand, for example, that although the court just received the Inspector ’ s report recently, the report may have been available to the parties closer to November 22 nd , 2012, the date on which it was signed. However, unless that report was served on Mr. Cahill before he left Alberta, it would not have been easy to have provided a copy of the report to him by electronic means; - even if Mr. Cahill were not, during his current visit to Ireland, actively involved in legal proceedings relating to Mr. Murphy, it appears that Mr.

Cahill may have been involved in a family obligation involving the poor health of a sibling, and therefore, not able to concentrate on this particular application; and, - although Mr. Cahill is not an officer of, and apparently has no role in the management of, CCSL, it is not impossible that he has observations to make with respect to some of the issues raised by the Inspector. In any event, in his capacity as a shareholder, Mr. Cahill has an interest in the decision about whether an inevitably costly receiver-manager should be appointed; that interest is not limited to submissions without evidence.

4. Has Ms. Cahill established an entitlement to an adjournment based on her wish to provide additional affidavits from herself and her wish to question Mr. Murphy ’ s appraiser? [ 37 ] Ms. Cahill asks for an adjournment to present an affidavit responding to one of the Inspector ’ s concerns relating to an alleged closing of a bank account and the transfer of $100,000.00 to herself in which Ms.

Cahill proposed to state that there was a typographical error in information presented to the Inspector causing the misunderstanding reported and the resulting concern and suggesting that the concern can be easily dispelled. In addition, she asks for an adjournment in order to question Mr. Murphy ’ s appraiser. [ 38 ] Ms. Cahill ’ s application for an adjournment is moot. [ 39 ] I will only add the following: - I would not have adjourned Mr. Murphy ’ s application if it were an emergency in order to allow for questioning on the appraisal affidavits because those affidavits establish, at the least, that Mr.

Murphy ’ s initial investment in CCSL continues, as Lee J. found in earlier proceedings, to be protected. 5. Costs [ 40 ] If the parties are not agreed on costs, I may be spoken to within 30 days of the release of this decision. Heard on the 7 th day of December, 2012. Dated at the City of Edmonton, Alberta this 10 th day of December, 2012. J.B. Veit J.C.Q.B.A. Appearances: Sandeep K. Dhir, Lindsey E. Miller, Field LLP for the Applicant, Gerald Murphy Rostyk Sadownik, Wheatley Sadownik

for the Respondent, Margaret Cahill Terrence Warner, Miller Thomson LLP for the Respondent, Christopher Cahill Daniel Peskett/Michael Coombs, Brownlee LLP for BDO Canada, the Inspector