Court of Queen ’ s Bench of Alberta Citation: Murphy v. Cahill, 2013 ABQB 335 Date: 20130816 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 ] Since 2006, Gerald Murphy has provided all of the capital funding, amounting to millions of dollars, for the CCS group of companies. In this interlocutory application, relying on s. 242(3) of Alberta ’ s Business Corporations Act and on s. 13(2) of the Judicature Act , Mr. Murphy asks for the appointment of a receiver-manager on an interim basis based on evidence of what he describes as mismanagement of the companies by the respondent Margaret Cahill, Mr. Murphy ’ s sister.

The mismanagement complained of is extensive, relating both to relatively large matters - such as the funding by the companies of residences that were then put into Ms. Cahill ’ s name - and to small ones - such as Ms. Cahill ’ s authorization of the purchase of baby clothes for the new-born children of two employees. There is abundant evidence that Mr. Murphy ’ s serious complaints about management raise serious issues to be tried. [ 2 ] In the originating application which commenced these proceedings, in addition to the appointment of a receiver-manager, Mr.

Murphy also asks for rectification of the share register and corporate documents and for related relief. [ 3 ] The respondent Cahills have complaints relating to Mr. Murphy: they assert that Mr. Murphy has failed to recognize their equity interest in the companies and Ms. Cahill ’ s right to manage the companies, including her right to authorize payment to others, including her adult son, for work done on behalf of the companies. The evidence on which the Cahills rely consists of corporate documents which appear to have been executed by Mr.

Murphy, and which state on their face that, despite his sole funding of the companies, Mr. Murphy only has a 50% voting position with respect to the operation of, and an 80% equity stake in, the companies. In addition, according to the Unanimous Shareholders ’ Agreement, also apparently executed by Mr. Murphy, internecine corporate disputes must be arbitrated.

There is abundant evidence that the Cahills ’ complaints raise serious issues to be tried. [ 4 ] The application for an interim receiver-manager is denied. [ 5 ] The court is entitled, in assessing the application, to consider the hearsay information contained in the Inspector ’ s Third Report.

However, in the circumstances of this case, the court does not attach any weight to that hearsay evidence. [ 6 ] The applicants cite Margaret Cahill in contempt for having, in the face of the court ’ s sealing order, provided a copy of the Inspector ’ s Third Report to a non-party, Chris Cahill Jr., who was the focus of much of the information contained in the Third Report.

In the circumstances here, the sealing order was not sufficiently clear and unequivocal so as to constitute an adequate basis for contempt proceedings. [ 7 ] An interlocutory application for the appointment of a receiver-manager of a corporation pursuant either to the oppression provisions of business corporations legislation, such as Alberta ’ s Business Corporations Act , or to the general equitable jurisdiction of a court, such as under Alberta ’ s Judicature Act , (brought by a person other than a security holder who is the beneficiary of an instrument which authorizes the appointment of a receiver on the default of the creditor company), is an application for an extraordinary remedy which should only be granted cautiously and sparingly.

Generally, the applicant for such a remedy must satisfy the so-called “ tripartite test ” for obtaining an interlocutory injunction: the applicant must establish that there is a serious issue to be tried, that it will suffer irreparable damage if the relief is not granted, and that the balance of convenience favours the granting of the relief. [ 8 ] Moreover, the test itself must be interpreted within the court ’ s equitable jurisdiction. One effect of the equitable character of the relief is that the granting of this exceptional relief is discretionary.

Another is that general equitable principles infuse the court ’ s assessment of the positions of the parties on such an application, especially with respect to the balancing of convenience; as one example of the overarching effect of equitable principles in this context, the dictates of fairness may exceptionally be so overwhelming that interim relief is justified even where one or more branches of the tripartite test have not been met. [ 9 ] It can be misleading to express the appropriate test as consisting merely of a requirement that the applicant has established a strong prima facie case of oppression.

In any event, even if the test could be formulated in that way, the applicant has not satisfied that test. [ 10 ] Dealing then with the test as elaborated in the case law, as is agreed by the parties, the first branch of the tripartite test has been met: clearly there are serious issues to be tried.

[11] However, in relation to the second branch of the test, Gerald Murphy has not established that he, or the Trust, will sufferirreparable harm if the relief is not granted. There is no need for immediate corporate action; as the Inspector observes, nothing muchwill change in the companies’ outlook within the next several months. There is no important corporate issue that must be addressed in thenear future. Also, the lowest appraisal of the current market value of the real property owned by the CCS companies establishes that thecurrent value of those properties significantly exceeds the original investment.

If Ms. Cahill has been responsible for financial lossessuffered by the companies, her apparent equity interest in the companies appears to be adequate to compensate the Trust for such losses. [12] Nor, with respect to the third branch of the test, has Mr. Murphy been able to establish that the balance of conveniencefavours the appointment of an interim receiver-manager. The evidence on this application is that Mr. Murphy has considerable financialresources whereas the financial resources of the respondent Cahills are tied to their employment at, and apparent equity position in, thecompanies.

The granting of interim relief which deals with Mr. Murphy’s concerns but not those of the Cahills and which virtually cutsoff the financial ability of the Cahills to advance their apparently legitimate interests would create an inappropriate balance in favour ofMr. Murphy. [13] In considering the equities of the overall application, Mr. Murphy has not established that this is a situation where thedictates of fairness are so overwhelming that they justify the appointment of a receiver-manager. Mr.

Murphy’s legitimate expectationsdo not justify the appointment of a receiver-manager on an interim basis: there has been no material change of management style of theCCS group since Mr. Murphy acquired the companies and put Ms. Cahill in charge of the day to day operations of the companies.Furthermore, the appointment of an interim receiver-manager would presume that Mr. Murphy’s position with respect to the corporatestructure is correct and that he is therefore entitled to present this application.

However, the only evidence on this application withrespect to the corporate structure consists of documents apparently executed by Mr. Murphy which require him to go to arbitration tosolve management disputes rather than to invoke the assistance of courts. Also, in light of the Inspector’s opinion about the current statusof the companies, it is obvious that the appointment of an interim receiver-manager would not deal effectively with the real problemsfacing this group of companies. Also, the appointment of an interim receiver-manager would give Mr.

Murphy the relief which herequests without addressing the fundamental issue of corporate structure. [14] Lastly, the biggest hurdle which Mr. Murphy faces in obtaining this relief on an interim basis is his acknowledgement that hewould be prepared for a final hearing on the merits of his oppression application within months, a timing estimate with which therespondents agree.

In such a situation, especially where the consequences of the appointment of a receiver-manager would be so direfrom the respondents’ perspective, there can be no justification for proceeding with an interlocutory remedy without a full hearing oncontested evidence when a full hearing can finally resolve the crucial factual disputes between the parties. Cases and authority cited [15] By the Applicants: Murphy v. Cahill, 2012 ABQB 220; R v. Canadian Consolidated Salvage Ltd., 2012 ABPC 133;Murphy v. Cahill, 2012 ABQB 446; Murphy v. Cahill, 2012 ABQB 530; Murphy v. Cahill, 2012 ABQB 531; Murphy v.

Cahill, 2012ABQB 793; Murphy v. Cahill, 2012 ABQB 754; Business Corporations Act, R.S.A. 2000, c. B-7, s. 242(3)(

b) and

Part 8; HSBC CapitalCanada Inc. v. First Mortgage Alberta Fund (

V) Inc., 1999 ABQB 406; BCE Inc. v 1976 Debentureholders, 2008 SCC 69; Seidel v. Kerr, 2003 ABCA 267; Judicature Act, R.S.A. 2000, c. J-2, s. 13(2);Paragon Capital Corporation Ltd. v. Merchants & Traders Assurance, 2002 ABQB 430; Kumra v. Luthra, 2010 ABQB 772; CitibankCan. v. Calgary Auto Centre (1989), (AB KB), 98 A.R. 250; MTM Commercial Trust v. Statesman Riverside QuaysLtd., 2010 ABQB 647; Chow v. Bresea Resources Ltd. (1997), 1997 ABCA 386 , 209 A.R. 284 (C.A.); Garratt v. Charlton etal, 2012 ONSC 1129; Fernando v. 2023928 Ontario Inc., [2007] O.J.

No. 1644, 2007 CarswellOnt 2619; 781952 Alberta Ltd. v.781944 Alberta Ltd., 2003 ABQB 980; Deluce Holdings Inc. v. Air Canada, (ON SC), 1992 CarswellOnt 154, 98D.L.R. (4th) 509; Simonelli v. Ayron Developments Inc., 2010 ABQB 565; Connelly v. Connelly-McKinley Limited, 2010 ABQB 515;Seymour Resources Ltd. v. Hofer, 2004 ABQB 303; 719946 Alberta Ltd. v. Alberta's B.E.S. T. Inc., 2005 ABQB 771; Such v. RW-LBHoldings Ltd., (AB KB), 15 Alta L.R. (3d) 153; Stech v. Davies (1987), (AB KB), 80 A.R. 298(Q.B.); Excise Tax Act, R.S.C. 1985, c.

E-15, as amended, ss. 96(3), 323(1) and 330; Income Tax Act, R.S.C. 1985, c. 1 (5th Supp), asamended, s. 227.1; Workers’ Compensation Act, R.S.A. 2000, c. W-15, s. 128; Alpha Investments & Agencies Ltd. v. Maritime LifeAssurance (1978), 23 N.B.R. (2d) 261 (C.A.); J.P. Capital Corp, (Trustee of) v. Perez (1996), 38 C.B.R. (3d) 301 (Ont. Gen. Div.);Farallon Investments Ltd. v. Bruce Pallett Fruit Farms Ltd. (1992), 31 A.C.W.S. (3d) 1283 (Ont. Gen. Div.); Weaver v. Cahill, 2011ABCA 290; R. v. Cahill, 2006 ABCA 119. [16] By the Respondent, Margaret Cahill: Paragon Capital Corporation Ltd. v.

Merchants & Traders Company, 2002 ABQB430; Bennett on Receiverships, Second Edition, pages 130-132; Bennett on Receiverships, Second Edition, pages 138-140; MTMCommercial Trust v. Statesman Riverside Quays Ltd.

(2010) ABQB 647; Murphy Oil Co. v. Predator Corp. (2003) 2002 ABQB 403, 7 Alta LR (4th) 369; Spartan Drilling Ltd. v. Snowhawk Energy Inc. (1986) (AB KB), 46 Alta LR (2d) 67;

Kumra v. Luthra, [2010] A.J. No. 1581 (Q.B.); Citibank Canada v. Calgary Auto Centre, [1989] A.J. No. 347 (Q.B.); Alberta HealthServices v. Networc Health Inc., [2010] A.J. No. 627 (Q.B.); BG International Ltd. v. Canadian Superior Energy Inc., 2009 ABCA127, 2009 CarswellAlta 469 (para 18); MTM Commercial Trust v. Statesman Riverside Quays Ltd., [2010] A.J. No. 1189; BGInternational Ltd. v. Canadian Superior Energy Inc., [2009] A.J. No. 358, 2009 CarswellAlta 469 (Alta. CA) at paras. 16 & 17; BGInternational Ltd. v. Canadian Superior Energy Inc., [unreported, February 9, 2009] (Alta.

Q.B.) para 9; RJR- MacDonald Inc. v. Canada (Attorney General), (SCC), [1994]1 S.C.R. 311 at paras. 47-48, 62- 64, (SCC), 111 D.L.R. (4th) 385; Goebel v. Edmonton (City), [2004] A.J. No. 193 (CA); Monco Holdings Ltd. v.B.A.T. Development Ltd., [2005] A.J. No. 1218 (Q.B.); Lindsay Estate v. Strategic Metals Corp., [2008] A.J. No. 1076 (Q.B.);Principal Group Ltd. (Trustee of) v Principal Savings & Trust Co. (1993) (AB KB), 11 Alta. L.R. (3d) 222 (Q.B.). [17] By the Respondent, Christopher Cahill (Sr.): BG International Ltd. v. Canadian Superior Energy Inc., 2009 ABCA 127;RJR- MacDonald Inc. v.

Canada (Attorney General), (SCC), [1994]1 S.C.R. 311. [18] By the Inspector: Envirodrive Inc. V 836442 Alberta Ltd. 2005 ABQB 446. Consolidated Enfield Corp. v Blair 1995CarswellOnt 1067 (Div. Ct.); Catalyst Fund General Partner 1 Inc. v Hollinger Inc. 2005 CarswellOnt 2193 (Sup. Ct. of J.) [19] By the court: Leggat v Jennings 2013 ONSC 903; Nicolas c. Perrier 2012 QCCA 99; 176283 Canada Inc. c. St-Germain2011 QCCA 608; Cassels, Brock & Blackwell LLP v 1578838 Ontario Inc. 2013 ONSC 4194; F.

Bennett, Bennett on Receiverships, 3rd ed., 2011, Carswell Appendix A: Sections 242 and 243 of Alberta’s Business Corporations Act Section 13(2) of Alberta’s Judicature Act 1. Background

a) Factual [20] In March, 2012, under the authority of ss. 242 and 244 of Alberta’s Business Corporations Act and s. 13 of Alberta’sJudicature Act, and claiming oppression, Gerald Murphy brought an originating application in his personal capacity and in his capacityas trustee of the Gerald Murphy’s Children’s Parallel Life Interest Settlement Trust, hereafter “the Trust”, to appoint a receiver-managerof the CCS Group of companies, to rectify the registers and records of the CCS Group to reflect that Murphy is the sole shareholder ofthe CCS Group, and to compensate himself for loss caused by the oppressive conduct of the respondents.

This special chambersapplication is for the appointment of an interlocutory receiver-manager in these proceedings. [21] Between 2006 and 2008 the Trust invested between $9 and $16 million dollars in an Alberta group of companies, the CCSGroup. The exact amount of the investment is known to the parties but is not repeated here because of privacy issues relating to thepotential marketing of the properties. The money invested in the CCS Group was part of the proceeds of the sale by Gerald Murphy ofhis interest in a family-run salvage business in Ireland.

Gerald Murphy is the sole funder of the Trust and the Trust is essentially the solecapital funder of the CCS Group. [22] Margaret Cahill, Gerald Murphy’s older sister, had emigrated to Canada with her family in the late 1970s. In 2006, she hadno experience in the management of a junk yard or a salvage yard, and, indeed, no experience in the management of a large commercialenterprise. She is, nevertheless a woman of ability, having trained as a nurse. [23] Margaret Cahill’s husband, Christopher Cahill Sr., read law at Trinity in Dublin.

However, there is no evidence that he wasever admitted to the practice of law either in Ireland or in Canada. [24] Although Gerald Murphy, or his representatives and agents, has visited the Edmonton business on a few occasions, Gerald

Murphy continues to reside in Ireland. [ 25 ] In 2006, Gerald Murphy, an adult person with no disabilities, executed documents which established a share structure in the CCS Group in which Margaret Cahill, Gerald ’ s sister, and Christopher Cahill Sr., Margaret ’ s husband, each owned 10% of the equity shares and the Trust owned the remaining 80% equity shares, but Margaret and Gerald together owned 50% of the voting shares and the Trust owned the remaining 50%. Amongst the various documents Mr.

Murphy executed when the company structure was set up was a Unanimous Shareholders Agreement which, among other terms, required the parties to arbitrate disputes: 8.02 Arbitration If at any time during the continuance of the Corporation or after the dissolution or termination thereof, any dispute, difference or question shall arise between the Shareholders touching the Corporation, or the amounts or transactions thereof, or the dissolution or winding up thereof, or the construction, meaning or effect of these presents or anything herein contained, or the rights or liabilities of the parties under this agreement or otherwise in relation to the premises, then every such dispute, difference or disagreement shall be referred to a single arbitrator, if the parties agree upon one, but should the parties be unable to agree upon the identity of such single arbitrator, then each such dispute, difference or disagreement shall be referred to a single arbitrator, to be appointed by a Judge of the Court of Queen ’ s Bench of the Province of Alberta pursuant to The Arbitration Act of Alberta and every award or determination thereof shall be final and binding.

Any arbitrator under this clause shall not be bound by legal precedent, nor by the rules of evidence or procedure.

He shall be bound to impose the solution which is most equitable, having regard to the terms hereof, under the circumstances, and every award or determination so imposed shall be final and binding. [ 26 ] Gerald Murphy swears that he did not read any of the documents he signed, that he was not aware of their contents, and that in signing every document that was put before him he was relying on his lawyers and on his brother-in-law, Christopher Cahill Sr. - as a person who had represented to him that he was a practising lawyer, as a fellow trustee of the Trust, and as a member of the family. Mr.

Murphy maintains that the documents were not explained to him by his then law firm, that he did not retain copies of the documents that he signed and that he never received the advice of the Trust ’ s Irish lawyers with respect to those documents. Because he asserts that the USA is not binding on him, he has declined to access the arbitration provisions of the USA to resolve any corporate disputes he had with the Cahills. [ 27 ] Mr. Murphy swears that he first became aware of the share structure in the CCS Group in 2008.

In that year, his relationship with his sister changed from one of trust to one of contestation. For example, in the original corporate records, Mr. Murphy agreed to dispense with an auditor and with an annual meeting and also waived receipt of financial statements; by 2008, Mr. Murphy was demanding financial disclosure. Mr.

Murphy initiated proceedings with respect to the share structure of the Group in 2010; he asserts that the period between 2008 and 2010 was taken up with settlement negotiations between himself and the Cahills. [ 28 ] After the relationship with his sister became acrimonious, the CCS Group received an unsolicited offer to purchase one of the three groups of real properties owned by them. The amount of the offer was for one property and, had the offer been accepted, it would have equalled more than half of the total amount of money invested by Mr. Murphy in the companies. Mr.

Murphy refused to accept the offer. [ 29 ] In 2011, the parties agreed to the appointment of Deloitte, as a consultant to Mr. Murphy, and became vested with the role of making inquiries into various matters relating to the companies. The type of information requested by Deloitte included financial statements, real estate appraisals, corporate income tax returns, general ledgers, HR information about management and employees, inventory, insurance coverage, management fees, etc. From the beginning, there were difficulties in obtaining the requested information.

For example, as a result of water damage to the premises in February 2011, it was not possible for Deloitte to actually work at the premises occupied by the companies. Deloitte eventually reported that it had not been able to obtain all of the information which it had requested. [ 30 ] In August, 2012, Mr. Murphy asked the court for additional relief, including the appointment of an interim receiver-manager.

Although that relief was denied, the court did appoint an Inspector, BDO Canada Ltd., whose task was defined, in general terms, as reviewing and assessing the CCS companies ’ current and historical financial position and historical operating results; reviewing and assessing the group ’ s accounting and control procedures with respect to accounts receivable, accounts payable, inventory, and in general; and, attempting to address the questions and issues arising from the Deloitte report. One of the terms appointing the Inspector provided that the Inspector ’ s reports would be sealed.

The Inspector ’ s First Report was presented to the Court on November 22, 2012. That report

stated that, despite often repeated requests for information, the information had “ generally been slow in delivery, and a significant amount of information remains outstanding as at the Cut-Off Date ” : para. 11.

The report also continues, in para. 12, however, that “ there does appear to be some merit to the concerns raised by the Management of the CCS Group ” ; those concerns were identified by the management as: shortage of staff, limited knowledge/expertise in the area of accounting; the use of an external accounting firm for some aspects of the information requested, including compilation of financial statements and preparation of tax returns; pressures on existing personnel to comply with information requests in relation to the ongoing legal dispute; a power outage in the week of October 9, 2012 which caused the group ’ s computer network to crash and delayed matters for approximately one week; and, the demands of ongoing management.

In addition, the Inspector fairly observed that, despite requests made by it to Deloitte to obtain from Deloitte the information which it had already received from the management of the companies, the Inspector only received the information from Deloitte on October 10, 2012. The Inspector was “ hesitant to try and continue the review without first having access to, and reviewing the information previously provided to Deloitte ” .

Nevertheless, the Inspector attempted to retrieve information from the management of the group which it had previously provided to Deloitte; this “ required a tremendous amount of time and effort by both the Inspector and the CCS Group ” : para. 13. Nor surprisingly, the CCS Group was “ not pleased with the Inspector ’ s numerous requests to provide information that they indicated had been provided previously. ” : para. 14. As a result of these experiences, the Inspector instituted a “ Cut- Off Date ” of October 23, 2012.

Its First Report was based on information received from the CCS Group up to and including the Cut-Off Date. [ 31 ] On January 31, 2013, this court granted an order that required the Inspector to provide the CCS Group by February 4, 2013 with a comprehensive written list of outstanding issues from the Inspector ’ s own work and from the work undertaken by Deloitte; that authorized the Inspector to attend the Group ’ s premises on February 5, 2012 to attempt completion of the outstanding internal control testing and documentation referred to in the First Report, and that required the CCS Group to provide responses to the Inspector by February 14, 2013.

In the event, the Inspector granted some short extension to the time allowed to the CCS Group to answer the Inspector ’ s queries. In its Second Report, tendered on March 8, 2013, the Inspector commented: 20. Generally speaking, despite the efforts of the CCS Group, and the extension of time granted by the Inspector, there still remains a significant amount of information outstanding and questions to be addressed/resolved as of February 19, 2013, (hereinafter referred to as the “ Second Cut-Off Date ” ).

Furthermore, the information supplied by the CCS Group up to the Second cut-Off Date as not materially altered the information previously reported to the Court by the Inspector to date. [ 32 ] The Second Report states that the bulk of the information requested in the Deloitte Report has been provided: see para. 36. [ 33 ] At paras. 22 and 23 of the Second Report, copies of which are in the hands of each of the parties, the Inspector sets out three key facts and an opinion with respect to the issues which it was asked to address.

Because of privacy concerns relating to the market position of the companies, the court will not reproduce the Inspector ’ s identification of key facts or its opinion. However, it is crucial to note that the Inspector identifies systemic problems rather than problems attributable solely to Margaret Cahill. Indeed, Margaret Cahill is not in a position to unilaterally remedy the problems identified by the Inspector.

On the contrary, one of the main problems identified by the Inspector is a problem to which Margaret Cahill proposed a solution some time ago, but which Gerald Murphy declined to accept. [ 34 ] The Inspector ’ s Concluding Comments in the Second Report include the following: Notwithstanding the significant volume of information that remains outstanding as at the Second Cut-Off Date, at this stage in the proceedings, the Inspector feels that continued work and expense under its current mandate will not result in any additional benefit to the Court or the Parties as it is clear that . . . . . . [ 35 ] For the privacy reasons mentioned earlier, the court does not reproduce all of the Inspector ’ s Comments.

Nonetheless, it is clear that one of the problems identified by the Inspector is the significant weakness in the Companies ’ internal controls. The cause of that weakness is not spelled out and is not attributed to delinquency on the part of Margaret Cahill. [ 36 ] In addition to the current proceedings, there has been parallel litigation involving the same parties involving, on the one hand, an apartment building in Edmonton, and, on the other, debt actions alleging a failure of the CCS Group to repay a debt owing to the Trust. In July 2012, Mr.

Murphy made a first receivership application, which was dismissed: see 2012 ABQB 446 . The existence of parallel proceedings can legitimately be taken into account when assessing the ability of the respondents to answer requests for information from Mr. Murphy at the same time as it was defending other lawsuits.

b) Legislative [ 37 ] The oppression provisions of the Business Corporations Act and the authority under the Judicature Act to appoint a receiver or receiver manager are set out in Appendix A. 2. How should the material contained in the Inspector ’ s Third Report be treated? [ 38 ] On June 11 th , 2013, i.e. 5 days after the conclusion of the three day special chambers application in the month of June, the Inspector was advised by Mr. Murphy that Mr. Murphy had become privy to new information relative to the affairs of the companies which was relevant and material.

The Inspector contacted my office stating that the new information raised serious concerns with respect to the information previously provided by the Inspector. Discussions then ensued with all the parties relating to this development. [ 39 ] Although there is not yet any evidence before the court with respect to the exact circumstances concerning the tendering of this new information, it appears that the individual who brought the information to Mr.

Murphy had been, from some date which is not yet clear on the information before the court up to the time of the special chambers hearing in early June, employed on a contract by the CCS companies to assist in answering various queries from the Inspector, especially with respect to the period during which she had been employed by the companies. It may be that, shortly after the June special chambers meeting, she had had a meeting with the lawyer for Ms. Cahill and that a difference of opinion had arisen between them. In any event, the individual shortly after June 6 attended at the offices of the lawyers for Mr.

Murphy. [ 40 ] On June 12, 2013, this individual entered into an agreement of indemnity with Gerald Murphy ’ s Children ’ s Parallel Life Interest Settlement Trust pursuant to which the individual requested, and the Trust agreed to provide: the costs of fully furnished accommodation for a period which has been redacted from the agreement included in the Third Report, must which term “ may be extended as necessary depending on the status of the lawsuit and upon the request of the Indemnified Party to the Indemnifier; the costs of a rental vehicle for a term similar to the term relating to the accommodation; all costs and damages which may be incurred by the Indemnified party related to any lawsuit commenced by any of the Cahills relating directly to the provision of the information; and, all legal fees and disbursements for the provision of independent legal advice to the Indemnified party.

The solicitors for the Trust in these proceedings executed the agreement on behalf of the trust. [ 41 ] The solicitors for Mr. Murphy and the Trust have advised this court that they asked the individual to present her information to the Inspector direct, rather than through the law firm representing Mr. Murphy, because they were concerned that Rule 4.03 of the Law Society of Alberta ’ s Code of Conduct may have prevented them from interviewing the witness themselves.

In particular, the law firm was concerned about the Commentary to the rule which highlights the fact that, although there is generally no property in a witness, there are certain recognized exceptions to that rule.

Interviewing witnesses 4.03 Subject to the rules respecting communication with a represented party set out in Rule 6.02 (8-10), a lawyer may seek information from any potential witness, whether under subpoena or not, but the lawyer must disclose the lawyer ’ s interest and take care not to subvert or suppress any evidence or advise or encourage a witness or potential witness in a matter to refrain from communicating with other parties involved in the matter. Commentary There is generally no property in a witness.

To achieve the truth-seeking goal of the justice system, any person having information relevant to a proceeding must be free to impart it voluntarily and in the absence of improper influence. The rule does not, however, prevent a lawyer from responding in the negative if a witness specifically asks if it is mandatory to talk to opposing parties. In Alberta, there are certain recognized exceptions to the rule: . . . .

(

b) Decision makers within a corporate client. Since a corporation must act through human agents, it is necessary to identify those within a corporate client having authority to act on its behalf. Generally, all directors and officers, as well as management level personnel with decision-making authority, have sufficient identity with the corporation to be considered equivalent to the client for the purposes of this Rule. [ 42 ] In this context, it is potentially useful to note that the person who presented herself to Mr. Murphy ’ s lawyer had been, until 2011, employed as a book-keeper for the companies.

She had never been a director or officer of the companies. On the other hand, on an undated letter sent some time after December 3, 2010 but prior to the termination of her initial employment, she had sent a letter on CCS letterhead in which she had signed herself “ Executive Assistant ” . Also in this context, it might be useful to note that the Inspector referred to the management team with whom it met as being composed of Margaret Cahill and Mr. Filipiak who, in August 2011, appears to have assumed the position previously occupied by the individual who went to Mr. Murphy ’ s lawyer.

It will be seen, therefore, that the concern expressed by Mr. Murphy ’ s lawyer in dealing with this potential witness was understandable. [ 43 ] On July 16 th , 2013, the Inspector provided to the court and to the parties a Third Report consisting of allegations made by a former book-keeper of CCS, whose employment with the companies had ceased in 2011. Recently, the individual had been retained by Margaret Cahill, on a contract basis, to answer the various questions put to the management of the CCS companies by the management.

That individual told the Inspector that while she had not provided erroneous information to the Inspector in her previous dealings with them, she had deliberately withheld relevant and material information, in part at the request of Margaret Cahill and Chris Cahill Jr. [ 44 ] The Inspector prudently advised the court that it had not had either the time or the opportunity to test the allegations made by the former book-keeper.

Indeed, in response to the court ’ s questions at the August 6 hearing, the Inspector candidly advised that there was relatively little that it could do in the relatively short term to assess the validity of the allegations made by the former book-keeper. [ 45 ] It goes without saying that the Inspector acted in an entirely appropriate fashion in ensuring that the court had access to the hearsay material with a view to determining what use should be made of that material. [ 46 ] As to the use which the court should make of the Third Report, Ms.

Cahill acknowledged, on the authority of Principal Group Ltd. , that even though information in an Inspector ’ s report was, typically, hearsay, it was the kind of hearsay which could be tendered in evidence and considered by the court. [ 47 ] This raises a procedural issue that is relevant to the issue of contempt which must be addressed by the court. The Principal Group Ltd. decision emphasizes that an Inspector ’ s report, albeit hearsay, can become evidence.

While Canadian case law generally holds that Inspectors, as court officers, are to be shielded from cross-examination on their reports - see, for example, Consolidated Enfield Corp. , that does not mean that the reports should not be filed as court exhibits. Here, because of an earlier decision in these proceedings which provided for the sealing of the Inspector ’ s reports, the Reports have not in fact been introduced as exhibits.

The court hereby orders that each of the three reports shall forthwith be entered as exhibits in the proceedings, and, according to the order of Lee J., shall be sealed until further order of the Court. [ 48 ] Although the respondents do not object to the Court ’ s consideration of the Inspector ’ s Third Report, they ask the court to consider the content of the report to be mere hearsay, even contested hearsay, and to give it no weight. [ 49 ] Mr. Murphy asks the court to give full weight to the hearsay evidence contained in the Inspector ’ s report.

He states that the court has not required other individuals to provide sworn evidence before it could be considered by the Inspector. [ 50 ] I have concluded that, because they are not sworn and been subject to cross-examination, I should give no weight to the allegations made by the CCS ’ s former book-keeper. Although an Inspector ’ s report is admissible, even if it contains hearsay, the court retains the discretion to give the hearsay content of the report little weight: Envirodrive Inc. , at para. 38 . [ 51 ] In coming to that conclusion, I have taken the following into account:

- although it is obvious that the Inspector has not required all individuals who have provided information used as the basis for theFirst and Second Reports to provide that information by way of affidavit or equivalent. However, much information in theseproceedings, and certainly most of the information which is contested, has in fact been provided by affidavit or equivalent and there hasbeen the opportunity to cross-examine on that evidence. Both Mr. Murphy and Ms.

Cahill have been subject to questioning with respectto the affidavits they have provided; - the evidence before the court on this application establishes that there was a personal relationship between the former book-keeper and Chris Cahill Jr. which may provide an explanation for the former book-keeper’s current information. This is not a situationwhere the source of the new information is disinterested; - on the basis of the very information provided by the former book-keeper to the Inspector, that individual has acknowledged that,in the past, she has not been forthright with the Inspector.

When a witness admits to having deliberately withheld evidence in the past,that individual’s current statements must be assessed in light of her acknowledged past lack of candour. It is reasonable to require thenew information to be provided under oath and to be subject to questioning. 3. Should Ms.

Cahill, or her lawyer, be found in contempt, and sanctioned, for having disclosed to Chris Cahill Jr. the contentsof the Inspector’s Third Report which dealt principally with allegations against Chris Cahill Jr.? [52] I have concluded that, in the circumstances here, no finding of contempt should be made with respect to the distribution toChris Cahill Jr. of the Inspector’s Third Report. [53] The hearsay information which constitutes the content of the Inspector’s Third Report centers on Chris Cahill Jr.

It appearsthat the individual who provided the information to the Inspector had had at the very least an emotional, as opposed to a purelyprofessional, relationship with Chris Cahill Jr. Although the information provided to the Inspector relates in part to Margaret Cahill, thefocus of the disclosure is on Chris Cahill Jr. and the allegations against him of assault and of other personal impropriety as well as ofbusiness impropriety.

Clearly, Margaret Cahill provided her son with a copy of the Third Report; indeed, Chris Cahill Jr. - who isidentified in the materials before the court as part of the management team of the CCS Group - has filed affidavits responding to theallegations made in the Third Report. The fact that a person affected by a sealing order would likely have obtained disclosure of thesealed document in the interests of fairness had an application been made to lift the order does not resolve the issue of whether acontempt of the order has occurred, although such a background may affect the sanction imposed for contempt.

However, before gettingto that issue, the court must begin by determining whether the circumstances here justify a contempt citation. [54] The test for contempt has recently been articulated by Quinn J. in Cassels Brock & Blackwell LLP - a decision chosen onlybecause of its recency - in a format which, in my view, represents the weight of the jurisprudence on the issue: 60 In Prescott-Russell Services for Children and Adults v.

G. (N.) (2006), (ON CA), 82 O.R. (3d) 686 (C.A.), atpara. 27, a three-pronged test for contempt was articulated: (1) "the order that was breached must state clearly and unequivocally whatshould and should not be done"; (2) "the party who disobeys the order must do so deliberately and wilfully"; (3) "the evidence mustshow contempt beyond a reasonable doubt." . . . (

c) is the Order for Assessment clear and unequivocal? 62 The following legal principles are two of the more obvious ones that apply when considering whether an order is clear andunequivocal:

"It must be clear to a party exactly what must be done to be in compliance with the terms of an order": see Bell ExpressVu LimitedPartnership v. Torroni (2009), 2009 ONCA 85 , 94 O.R. (3d) 614 (C.A.), at para. 22, citing Hobbs v. Hobbs (2008), 2008ONCA 598 , 54 R.F.L. (6th) 1 (Ont. C.A.), at paras. 26-28. "The person who is alleged to be in contempt is entitled to the most favourable

interpretation of the order": see Melville v. Beauregard,[1996] O.J. No. 1085 (Gen. Div.), at para. 13. [55] In the circumstances of this case, I have concluded that the sealing order was not sufficiently clear and unequivocal so as toprovide a basis for a contempt finding. As I understand it - in the absence of a transcript of the proceedings that led to the making of thesealing order - the sealing clause of the order appointing the Inspector was not the subject of real discussion amongst the parties.

Nonotice of the application to request a sealing order was brought pursuant to the provisions of R. 6.29 for a restricted court access order;therefore, there was no elucidation on the record of the intended objective of the sealing order. In those circumstances, the parties mayunderstandably have been of the view that the obligation to prevent disclosure of the order and its terms rested essentially on theInspector. Such an

interpretation would have been reasonable, given the type of information which the Inspector was to uncover,relating for example to real estate appraisals; such information, if publicly disclosed, might have put the companies at a disadvantage indealing with the properties and the corporate disadvantage would have had negative consequences for all the shareholders. [56] Incidentally, the existence of the sealing order would also limit the Inspector’s ability to approach outside sources forinformation.

That reality is reflected in the Inspector’s answer to the court’s query about which, if any, of the allegations made in theThird Report could be effectively assessed by the Inspector: the Inspector could not, as suggested by Mr. Murphy, merely go to a lawyerand ask that lawyer if s/he is driving a vehicle leased to the companies, and, if so, under what authority. 4. What test applies to a request for the appointment of an interim receiver-manager? [57] Mr.

Murphy asserts that a strong prima facie case of oppression constitutes a sufficient basis for the appointment of aninterim receiver- manager under the Business Corporations Act and that a test comparable to the tripartite test for interlocutory injunctiverelief is the test that should be applied in relation to the Judicature Act application. Mr.

Murphy adds that deadlock is sometimesmentioned as a justification for the appointment of a receiver-manager and that Lee J. has, in these very proceedings, made a finding ofdeadlock even though that finding did not result in Lee J.’s acquiescence to the request for the appointment of an interim receiver-manager. [58] The respondents assert that the test for the appointment of an interim receiver-manager under the Business Corporations Actis akin to the test for the issuance of an interlocutory injunction, i.e. the tripartite test set out in RJR-MacDonald Inc. [59] In essence, the difference between the parties on this issue is whether proof of irreparable harm is a necessary hurdle for anapplicant requesting the relief requested here. [60] In my view, the respondents are more nearly correct on this issue than is the applicant: as the applicant himself recognizes,this court has, in MTM Commercial Trust, noted with approval the decision in Anderson v Hunking which stated, among other things,that “the test for the appointment of a receiver is comparable to the test for injunctive relief”.

Indeed, it may be useful to quote from thatdecision more extensively: 15

Section 101 of the Courts of Justice Act provides that the court may appoint a receiver by interlocutory order "where it appears to ajudge of the court to be just or convenient to do so." The following principles govern motions of this kind: (

a) the appointment of a receiver to preserve assets for the purposes of execution is extraordinary relief, which prejudges the conduct of alitigant, and should be granted sparingly: Fisher Investments Ltd. v. Nusbaum (1988), 31 C.P.C. (2d) 158, 71 C.B.R. (N.S.) 185 (Ont.H.C.); (

b) the appointment of a receiver for this purpose is effectively execution before judgment and to justify the appointment there must bestrong evidence that the plaintiff's right to recovery is in serious jeopardy: Ryder Truck Rental Canada Ltd. v. 568907 Ontario Ltd.(Trustee of) (1987), 16 C.P.C. (2d) 130, [1987] O.J. No. 2315 (H.C.);

(

c) the appointment of a receiver is very intrusive and should only be used sparingly, with due consideration for the effect on the partiesas well as consideration of the conduct of the parties: 1468121 Ontario Limited v. 663789 Ontario Ltd., [2008] O.J. No. 5090, (S.C.J.), referring to Royal Bank v. Chongsim Investments Ltd. (1997), (ON SC), 32 O.R. (3d) 565,[1997] O.J. No. 1391 (Gen. Div.); (

d) in deciding whether to appoint a receiver, the court must have regard to all the circumstances, but in particular the nature of theproperty and the rights and interests of all parties in relation thereto: Bank of Nova Scotia v. Freure Village of Clair Creek (1996), 40C.B.R. (3d) 274, (Ont. S.C.J.); (

e) the test for the appointment of an interlocutory receiver is comparable to the test for interlocutory injunctive relief, as set out inRJR-MacDonald Inc. v. Canada (Attorney General), (SCC), [1994] 1 S.C.R. 311 at paras. 47-48, 62-64, 111 D.L.R.(4th) 385; (

i) a preliminary assessment must be made of the merits of the case to ensure that there is a serious issue to be tried; (ii) it must be determined that the moving party would suffer "irreparable harm" if the motion is refused, and "irreparable" refers to thenature of the harm suffered rather than its magnitude - evidence of irreparable harm must be clear and not speculative: Syntex Inc. v.Novopharm Ltd. (1991), 36 C.P.R. (3d) 129, [1991] F.C.J.

No. 424 (C.A.); (iii) an assessment must be made to determine which of the parties would suffer greater harm from the granting or refusal of the remedypending a decision on the merits - that is, the "balance of convenience": See 1754765 Ontario Inc. v. 2069380 Ontario Inc. (2008), (ON SC), 49 C.B.R. (5th) 214 at paras. 7 and 11, [2008] O.J. No. 5172 (S.C.); (

f) where the plaintiff's claim is based in fraud, a strong case of fraud, coupled with evidence that the plaintiff's right of recovery is inserious jeopardy, will support the appointment of a receiver of the defendants' assets: Loblaw Brands Ltd. v. Thornton (2009), 78 C.P.C.(6th) 189, [2009] O.J. No. 1228 (S.C.J.). (Emphasis added) [61] However, I don’t disagree with the applicant’s overall position concerning the applicable test, assuming that that positionincludes acceptance that irreparable harm must usually be established.

Nor would I disagree with the applicant’s overall positionassuming that the position recognized that the test under the Judicature Act is not markedly different from that which applies under theBusiness Corporations Act: in my view, since the specific provisions of the Business Corporations Act overtake the general provisions ofthe Judicature Act where the request is for the appointment of an interim receiver of a corporation. [62] I have concluded that requiring an applicant for the appointment of a receiver-manager of a business corporation to satisfyeach of the requirements the tripartite test may, in some exceptional circumstances, be relaxed.

Along with Clackson J., and recognizingthat the application in the Ontario case related “only” to an interim order “prohibiting the respondents from proceeding with the proposedpurchase transaction with Luna Tech without obtaining shareholder approvals as set out in the USA and an interim order prohibiting therespondents from continuing to operate the business and manufacturing facility of Luna Tech pending the closing of the Luna Techtransaction and requiring them to immediately cease all such activity and to remove any and all of their assets from the Luna Techfacility” rather than to the more comprehensive remedy of appointment of an interim receiver-manager, I endorse the view of Pepall J. inLe Maitre Ltd. v Segeren: 30 It seems to me that generally the principles for the granting of interlocutory injunctive relief should be applicable to section 248(3)interim relief that is in the nature of an injunction.

This is in the interests of predictability and certainty in the law. As such, typically, amoving party should not expect to obtain interlocutory injunctive relief unless it is able to successfully address the factors to beconsidered on such a motion. That said, there may be some circumstances where interim relief pursuant to section 248(3) is meritedabsent all of the traditional considerations associated with an interlocutory injunction.

The dictates of fairness may be so overwhelmingthat it may be appropriate to forego compliance with any one or all of the balance of convenience, irreparable harm or an undertaking asto damages. In my view, such an approach is consistent with the broad nature of the oppression remedy, the language of section 248(3),and with cases such as Deluce Holdings Inc. v. Air Canada,10 M. v. H.,11 UPM-Kymmene Corp. v. UPM-Kymmene Miramichi Inc.,12Ellins v. Coventree13 and RV&S Ltd. v.

Aiolos Inc.14 (Emphasis added) [63] I note that two relatively recent Quebec Court of Appeal decisions, Nicolas and 176283 Canada Inc., have usefullyemphasized that the situations in which the “dictates of fairness are so overwhelming” that the traditional tripartite test can be ignoredwill be few and far between. [64] In order to provide as straightforward as possible an expression of the legal test applicable here, I would slightly reframe the

[64] In order to provide as straightforward as possible an expression of the legal test applicable here, I would slightly reframe thetest in this way: An interlocutory application for the appointment of a receiver-manager of a corporation pursuant either to the oppressionprovisions of business corporations legislation, such as Alberta’s Business Corporations Act, or the general equitable jurisdiction of acourt, such as under Alberta’s Judicature Act, brought by a person who is not a security holder who is the beneficiary of an instrumentwhich authorizes the appointment of a receiver on the default of the creditor is an application for an extraordinary remedy which shouldonly be granted cautiously and sparingly.

Generally, the applicant for such a remedy must satisfy the tripartite test for obtaining aninterlocutory injunction: it must establish that there is a serious issue to be tried, that it will suffer irreparable damage if the relief is notgranted, and that the balance of convenience favours the granting of the relief.

Exceptionally, the dictates of fairness may be sooverwhelming that interim relief is justified even where one or more terms of the tripartite test have not been met. [65] In coming to the above-noted formulation of the test, I begin with the view that the fact that what is requested in interlocutoryrelief, i.e. relief without hearing the substantive application on the merits, is a key factor which cannot be ignored. [66] Next, I emphasize that the remedy requested by the applicant is an important component of the test which the applicant has tomeet: what must be proved in order to obtain the appointment of an inspector can, in my view, differ from what is necessary to obtain theappointment of a receiver-manager.

Indeed, because the role of an Inspector is so markedly different from that of a receiver-manager, theevidence required for the appointment of an Inspector can legitimately, as Lee J.’s decision in this very case has already demonstrated, bematerially less than the evidence required for the appointment of a receiver-manager. [67] Nor, in my view, should a court generally explore on its own whether a remedy set out in s. 242(3) other than the remedyrequested by the applicant should be awarded: the parties opposite only have notice of, and can only be expected to respond to, a specificapplication.

It would be unfair to the respondents to consider granting relief which had not, at least impliedly, been requested. Moreover,if a court were, for example, to appoint a Monitor where an applicant had requested the appointment of a receiver-manager, the courtmight only be imposing an onerous expense without any commensurate benefit on the applicant. [68] It is true that, in HSBC Capital Canada Inc., the court described the test under then s. 234 of the Business Corporations Actas “a strong prima facie case”: para. 44.

There was no consideration in that case of irreparable harm or of the balance of convenience.However, to my mind a crucial difference between the situation in that case and the one here is that, in that case, the actual reliefrequested was “only” the appointment of an Inspector. In other words, the relief that was granted in that case was exactly the relief whichhas already been granted in this case prior to the bringing of this application. The decision in that case cannot, therefore, serve asjustification for the appointment of an interim receiver-manager in this case.

The difference is that the applicants now want additionalrelief - the appointment on an interim basis of a receiver-manager, and the question is whether the same test that applies to theappointment, on an interim basis, of an inspector also governs the appointment of an interim receiver-manager.

In my view, the answer isno. [69] In concluding that the nature of the relief requested is a factor in determining the test that must be met, I also take comfort inMcDonald J.’s decision in Citibank Can., where the court again referred to Bennett as authoritative, but added the following at para. 31: In the present case, I think that, again bearing in mind that the limited order which I intend to make is only to preserve the rents andprevent the sale of the property by Burnco for taxes, the order will not irreparably harm the interests of the defendants. (Emphasis added) [70] Similarly, in Leggat, a recent Ontario court decision, Coats J.outlined the varying circumstances which must be taken intoaccount in determining what test the applicant must meet to justify the relief: 24 The Respondents have filed several cases with respect to the test to be applied for interim relief.

In my view, none of these cases areof assistance in the determination of the issues before me. In 1384034 Alberta Ltd. v. 1180263 Alberta Ltd, 2011 ABQB 599, the Courtgranted some interim relief, including access to financial statements of the corporation consisting of weekly accounting reports andmonthly financial statements. No test for interim relief was articulated. In Dee Ferraro Ltd. v. Pellizzari, 2010 ONSC 3013, again no testfor interim access to financial records was set out. On a short motion list it was not possible to make such a determination.

In Padda v.2074874 Ontario Inc., 2010 ONSC 2872, the interim relief requested was the appointment of a receiver. This is completely different thana request for a declaration enforcing a statutory right to access to books and records. I do note that in Padda v. 2074874 at para. 20 it isclear that Justice Gray had ordered as a term of the previous adjournment that business records in the possession of either party were tobe provided to the other party forthwith. In Le Maitre Ltd. v. Segeren, (ON SC), [2007] O.J. No. 2047 (SCJ) the

interim relief sought was to restrain the Respondents from concluding a transaction. The relief sought before me is completely different. The Applicants are not seeking interim relief under the oppression remedy

section at this stage of the proceeding. The Applicants are seeking a declaration permitting access to books and records, documents to which Mr. Leggat as a director has a statutory right to access. The relief is available under s. 247 of the CBCA and this issue easily lends itself to

summary disposition. The primary issue before me is not in the nature of an injunction. In PADP Holdings Inc. v. Information Balance Inc., [2006] O.J. No. 5518 (O.S.C.) , the primary interim relief sought was the reinstatement of employment and the standard test for injunctive relief was applied. Once again, the primary issue before me is not of an injunctive nature. [ 71 ] In Paragon , adopting a list established in Bennett on Receiverships, 2 nd ed., the court approved some factors which a court may consider in determining whether it is appropriate to appoint a receiver.

At least three points can be made in relation to that decision: first is that the reference to Bennett, which is undoubtedly useful, should be updated to the 3 rd ed, 2011, where the comparable list is found starting at p. 156.

There are a few additional comments made in the third edition which may be of interest here: the current edition of Bennett emphasizes, in relation to the second factor, the risk to the security holder, that “ the court may not consider this factor to be important if there is no danger or jeopardy to the security holder or in other words, there is a substantial equity that will protect the security holder ” . From that perspective, the factor appears to be an example of what might not constitute irreparable damage.

One factor which is not mentioned in the Paragon list is “ the rights of the parties [to the property] ” . Similarly, in relation to the factor of the effect of the order on the parties, the current edition of Bennett adds “ If a receiver is appointed, its effect may be devastating upon the parties and their business and, where the business has to be sold, the appointment of a receiver may have a detrimental effect upon the price ” .

Along the same lines, in relation to the length of the order, the current edition of Bennett adds “ . . . where a claimant moves for an order appointing a receiver for a short period, say six weeks, the court is reluctant to make such an appointment as it has devastating effects on the parties ” . Finally, the current edition of Bennett adds the following factor: “ (18) the secured creditor ’ s good faith, commercial reasonableness of the proposed appointment and any questions of equity ” .

In reviewing the 18 factors currently mentioned in Bennett, I have concluded that each of those factors, other than factor 10 which emphasizes that the appointment of a receiver is extraordinary relief which should be granted cautiously and sparingly and part of factor 18 which refers to the principles of equity, can be seen as a particularization of one of the three branches of the tripartite test; factor 10 and part of factor 18, while not part of the tripartite test constitute the often only implied basis for granting equitable relief such an the appointment of an interlocutory receiver.

As to the remainder of the factors, irreparable harm is not only mentioned as the first factor, but is also explicitly addressed in factors 2 and 5. The balance of convenience is not only an explicit factor on its own, but also constitutes the substance of factors 11, 12, 14, 15, 16 and 17. [ 72 ] Second, it must be noted that, in Paragon , the application before Romaine J. was brought by a security holder in reliance on its explicit right in the security documents to have a receiver appointed, a situation which does not apply here.

Bennett emphasizes that, where a security holder ’ s instrument provides for the appointment of a receiver, the security holder is prima facie entitled to that relief on proof of the required default. [ 73 ] Third, Bennett does address the type of situation which has arisen here, i.e. one where the applicant is not a security holder relying on an instrument.

At page 159 of the third edition, the learned author states: If the creditor who applies for the appointment of a receiver is neither a judgment creditor nor a secured creditor, the court will be more cautious in reviewing the factors listed above as they may not readily apply. As has been pointed out in case law, the appointment of a receiver is intrusive and can have disastrous effects on the debtor. The creditor must show that there is a serious issue to be tried, that irreparable harm will occur if an appointment is not made, and that the balance of convenience must be in the creditor ’ s favour.

In effect, the court focuses on the test set out in RJR-MacDonald Inc. v Canada (Attorney General) . [ 74 ] The reference at p. 159 to “ creditor ” can, in light of the case law , for example Segeren which is discussed herein, apply to a person with Mr. Murphy ’ s status. This conclusion does, however, raise another issue: the reference in the Bennett text at the locations indicated above refer essentially to the appointment of a receiver at the request of a security holder. Indeed, most of that text deals with the security holder situation.

However, some comments about the appointment of a receiver under business corporations legislation can be found commencing at p. 823 of the text. In dealing with the grounds of appointment of a receiver under business corporations legislation, the text states: “ The test . . . requires the applicant to have a strong prima facie case but not to the same degree as in the test for a Mareva injunction. Much of the case law relating to situations where a liquidator would be appointed can be considered in an application under

section 241 (of the

Canada business Corporations Act ). For example, ‘ deadlock companies ’ may be considered unfairly prejudicial to each side, such that a court may appoint a receiver for the protection of all parties. ” There is no mention at that point in the text of the BCE oppression decision of the Supreme Court; indeed, it might be fairly said that the Bennett text does not focus on receiverships under business corporations legislation. [ 75 ] In Kumra , a similar, albeit shortened, set of Bennett factors is set out at para. 61.

[ 76 ] The decision of our Court of Appeal in Chow merely confirms the appointment of a receiver-manager without analysis of the justification for that appointment because justification was not necessary in the appeal decision. Similarly, the decision in Alberta ’ s B.E.S.T.

Inc. is not of assistance in determining the appropriate test because that decision does not deal with the appointment of a receiver-manager and that decision relies on a decision of our court in a case management situation where the case manager ordered 5 representative claims to be tried - a situation which is in no way comparable to the situation here. [ 77 ] The legal analysis in the Such decision on which the applicant relies heavily has been overtaken, so far as the legal content of oppression is concerned, by the Supreme Court of Canada decision in BCE .

Insofar as the interlocutory nature of the remedy is concerned, the judge in that case did not analyse the requirements for obtaining an interlocutory remedy; it seems likely, given the analysis that was made, that the judge merely came to the conclusion that, in contemporary terms, the dictates of fairness were overwhelming.

In other words, that decision is important insofar as it is fact-driven, not for the legal analysis of the remedies available. [ 78 ] In my view, in light of the evidence in this particular case which will be reviewed shortly, it is not necessary to determine whether or not the existence of deadlock is a sufficient basis for the appointment of an interim receiver-manager if the tripartite test cannot be satisfied. [ 79 ] Finally, I note that - for reasons that are obvious - an undertaking in damages is typically required on applications for interlocutory injunctions in commercial matters.

I agree with Romaine J ’ s approach in MTM Commercial Trust that it is equally useful to establish such a standard with respect to the interim application for a receiver-manager in a corporate context. 5.

How does the test apply in the circumstances here? [ 80 ] Before commencing an analysis of each branch of the tripartite test and of the dictates of fairness in the situation here, I remind myself that the remedy requested is equitable relief, in other words that the court has a discretion to grant the relief requested - rather than an obligation to grant the relief upon proof of the underlying requirements - although that discretion must, of course, be exercised judicially.

I also remind myself that the relief requested here is interlocutory in nature, i.e. it is requested prior to the trial of highly contested factual issues.

a) The tripartite test (

i) Is there a serious issue to be tried? [ 81 ] There are two main issues that must be tried here: has Mr. Murphy been oppressed by the respondents in the way in which they have conducted the CCS business and has he been oppressed by the respondents in the way in which the share register and corporate documents have been executed.. [ 82 ] All parties agree that there are serious issues to be tried. [ 83 ] The point of this branch of the test is to weed out applicants for interlocutory relief who don ’ t have a serious claim to the final relief which they are seeking.

This case is somewhat unusual in that, although it is clear that Mr. Murphy has serious grievances which must be explored relating to the way in which his multi-million dollar investment is being managed, it is equally clear that the respondents have serious grievances which must be explored relating to the way in which the corporate structure is being used. The application is ironic: Mr. Murphy complains, essentially, about the lack of record keeping by Margaret Cahill and her management, whereas Margaret Cahill complains that Mr.

Murphy refuses to recognize the corporate records which are extant. [ 84 ] What is also clear is that this is not a case like Seymour Resources Ltd., cited by the applicant, where the court is able to make determinations on the basis of affidavit evidence. On the contrary, the affidavit evidence here is highly contested.

[ 85 ] As explained above, in my opinion contemporary Canadian corporate law does not suggest that an applicant who establishes a strong prima facie case of oppression can expect that a court will grant the request for the appointment of an interim receiver-manager. On the contrary, for the reasons given above, I am of the view that the real test is, on the one hand, a lesser one than the one advanced by the applicant: an applicant need only prove that there is a serious issue to be tried, not that the applicant need prove a strong prima facie case of oppression.

On the other hand, however, the real test is more onerous than the one advocated by the applicant: in addition to the serious issue branch, an applicant must also prove irreparable harm and the balance of convenience. [ 86 ] The applicant has greatly emphasized the evidence which he asserts constitutes a strong prima facie case of oppression. Because of the view which I have taken of the applicable law, I will not exhaustively review the applicant ’ s argument in support of his strong prima facie case argument. As I have said, Mr. Murphy has amply established that there are serious oppression issues to be tried.

Really, no more needs to be said with respect to the first branch of the tripartite test. Nevertheless, I will add that all of the evidence advanced by Mr.

Murphy in relation to the establishment of oppression - the failing to hold formal shareholder meetings, the failure to provide information, the loss of money, the misuse of corporate assets, the way in which private residences were acquired, the payment of professional fees which may not relate to corporate business, incurring penalties for late payment of taxes, shoebox accounting generally, etc., etc. - does not constitute in the circumstances here, a strong prima facie case of oppression.

Rather, in light not only of the affidavit evidence provided by the respondents but also the comments of the Inspector with respect to the Inspector ’ s assessment of the respondents ’ responses, the court is left with only the realization that the oppression issue must be tried because there are serious credibility issues on both sides. To take one small example: Mr. Murphy complains about his inability to get financial information about the companies.

However, he does not acknowledge the fact that he originally was content to receive only the barest possible information about the operation of the companies and that when his change of attitude arose he often made it impossible for the shareholders to act and for there to be effective interaction between the directors.

To take another small example: even if it were true that the companies initially paid for some expenses that were later properly characterized as personal rather than corporate expenses, the initial recording of expenses as corporate does not, by itself, constitute prima facie evidence of oppression. It only constitutes evidence of possible oppression which must be tried. [ 87 ] In the end, however, having recognized that there are serious issues to be tried, Mr. Murphy cannot expect to receive the relief which he seeks unless he satisfies the remaining two branches of the tripartite test. (ii) Will Mr.

Murphy, or the Trust, suffer irreparable consequences if an interim receiver-manager is not appointed? [ 88 ] Mr. Murphy argues that he and the trust are at risk of irreparable harm if an interim receiver-manager is not appointed. [ 89 ] I cannot accept that argument. [ 90 ] The first aspect of this issue is the risk of need for immediate corporate action. No such need is apparent on this application.

The companies have neither initiated actions nor are being compelled to take action in the relatively near future, and certainly not before the triable issues could be fully heard on their merits. [ 91 ] In this context, I note that the applicant has complained of the lease proposal authorized by Margaret Cahill in relation to some of the lands owned by the companies.

The applicant strongly objected to the leasing initiative, even though he placed Margaret Cahill in charge of the day to day operation of the companies, even though the leasing of the property would presumably conform to the overall objective when the applicant first invested money in the Edmonton properties, and even though the applicant refuses to take the steps set out in the USA to resolve disputes between himself and Margaret because he denies the validity of the USA which he appears to have signed. At his request, this leasing initiative has now been abandoned.

Nothing of importance is therefore on the horizon in terms of the need for corporate decision making. [ 92 ] The second aspect of this issue is the risk of financial loss if the relief requested is not granted. Mr. Murphy has not established that he or the Trust will suffer irreparable financial harm unless an interim receiver-manager is appointed. In coming to that conclusion, I rely on the following: - Mr. Murphy ’ s objective in funding the Edmonton investment is disputed. As strange as it may appear, it may be that Mr.

Murphy was not concerned with an operating profit from the salvage business but was, instead, intent upon making a profit as a result of the increase in the value of the real property in which he invested. The evidence available on this application is not overwhelming on one side or the other of the objective issue. On the one hand, Mr. Murphy put his older sister who had no experience in the management of an operating salvage business in charge of the day to day operations of the business and invested heavily in land, but did not invest heavily in operating capital. On the other hand, Mr.

Murphy did invest in acquiring machinery presumably for the better operation of the business. In any event, however, the opinion of the Inspector is that the business outlook for the companies is at least as dependent on the actions of Mr. Murphy as on the actions of Ms. Cahill. For example, the problem identified at para. 22(

b) of the Second Report is, as to the first half of the sentence, something which may be attributable in part to Ms. Cahill, but, as to the second half of the sentence, is attributable to Mr. Murphy; - the various real property appraisals provided by the parties establish that, even using the lowest appraisals, the lands have appreciated considerably in value since the date of investment. Indeed, an unsolicited offer for the purchase of one of the three property groups establishes that the appraisals are, generally, reliable; had Mr.

Murphy accepted the offer for the one property, the companies would have recovered a little over half of the original investment. There is no suggestion in any of the materials before me that the land values are likely to decrease in the foreseeable future; - given the increase in the value of the property owned by the companies, and the apparent equity interest of Margaret Cahill as shown on the face of documents apparently executed by Mr. Murphy, Ms.

Cahill ’ s equity stake in the companies is high enough that, if it were eventually found that she has caused financial harm to the companies, the damages found against her could be offset from her equity interest. Mr. Murphy suggests that an analysis of this sort is tantamount to condoning theft from the company; with respect, I disagree. I don ’ t disagree with the principle that theft should not be condoned merely because the thief has the financial resources to repay the theft; the whole of the criminal law relating to theft and fraud makes that abundantly clear.

The point on which I disagree is whether theft has been proved here. The evidence available on this application does not establish theft by Ms. Cahill from the company. I accept that the salvage business is a cash business and that such a business must, therefore, have adequate cash management systems and that this group of companies did not have such adequate systems. Whether that was due to ineptitude or lack of operating capital is not yet clear. Whether the vulnerability of the system to material misappropriation in fact came to pass is one of the questions of fact which remains to be determined. [ 93 ] In

summary, therefore, I conclude that Mr. Murphy has not established that he and/or the Trust will suffer irreparable harm if an interim receiver-manager is not appointed. (iii) Does the balance of convenience favour the appointment of an interim receiver-manager? [ 94 ] The balance of convenience does not favour the appointment of an interim receiver-manager. In coming to this conclusion, I rely on the following: - the appointment of a receiver-manager would deal only with the management concerns raised by Mr. Murphy; it would not deal with the corporate structure concerns of the Cahills.

Moreover, the information before the court on this application is that Mr. Murphy has access to considerable financial resources as established not only by the size of his initial investment in the CCS Group, but also by the indemnity agreement which he has made with the former employee of the CCS Group. In comparison, although the evidence on this application is that Ms. Cahill has clear title to the home in which she resides, she has no source of income other than the full time work she has done for the CCS Group since 2006. If Mr.

Murphy were to be successful in obtaining the appointment of a receiver-manager, that official might conceivably terminate both Ms. Cahill ’ s employment and that of her son Chris Cahill Jr. While Mr. Murphy would then have unimpaired resources to deal with the corporate structure dispute, the Cahills would find themselves with minimal resources with which to advance their position.

Even though the Cahills have executed documents in support of their position, without significant financial resources to maintain their position in legal proceedings, they might not be financially able to put forward their best position; - at para. 36 of the Inspector ’ s Third Report, there is a comment about the financial position of the CCS Group. The exact words used by the Inspector are not reproduced here for the privacy concerns alluded to earlier.

I accept the Inspector ’ s assessment of the financial position of the CCS Group with respect to its ongoing operations; indeed, I am of the view that all of the information provided to the Inspector amply supports the Inspector ’ s conclusion. It is true that an interim receiver-manager could do many things the Inspector cannot do. However, the appointment of a receiver-manager would not solve the crucial problem of the CCS Group which is the resolution of the dispute about the corporate structure; [ 95 ] In

summary with respect to the tripartite test, although Mr. Murphy has satisfied the first branch of the test, he has failed to satisfy the remaining two branches.

b) The equitable issues [ 96 ] As indicated above, I am of the view that, in addition to the tripartite test, a court which is asked to appoint an interim receiver-manager for a corporation must also consider the equities, and not only the narrow legalities, of the situation.

However, in my view the case law establishes that, with the exception of the potential relief from compliance with the tripartite test arising out of the application of equitable principles, the general approach to the appointment of a receiver-manager of a corporation under the provisions of the Judicature Act are, generally, the same as those which apply to the granting of such relief under corporate legislation. [ 97 ] I accept that another way of referring to the equitable issues would be to say that where the evidence of oppression is overwhelming, an applicant for relief in Mr.

Murphy ’ s position need not satisfy the tripartite test. (

i) Are the dictates of fairness so overwhelming that they require the appointment of a receiver-manager? [ 98 ] In my view, the dictates of fairness are not so overwhelming in the circumstances here that they compensate for Mr. Murphy ’ s inability to satisfy the last two branches of the tripartite test. [ 99 ] In coming to that conclusion, I have taken the following into account: - the reasonable expectations of the parties would not be served by the appointment of an interim receiver-manager. When Mr. Murphy appointed Ms.

Cahill as the day to day manager of the CCS Group, he was aware of her lack of business experience. Since there is no evidence that, under Ms. Cahill ’ s management, the CCS Group abandoned or modified the internal controls that were in place when Mr. Murphy acquired the businesses and there is no evidence that Mr. Murphy provided funding to improve the internal controls that were practicable given the operating structure at the time of the acquisition, it is not reasonable for Mr. Murphy to expect that Ms.

Cahill would prove to be a sufficiently sophisticated manager to be able to deal adequately with an under-funded operation; - the only deadlock which has arisen in the circumstances here has been created by Mr. Murphy. The executed documents relating to the corporate structure provide a mechanism for resolving deadlock - the decision of an arbitrator. It would be unfair for Mr.

Murphy to both refuse to comply with executed documents which provide a mechanism for dealing with deadlock and at the same time to insist on receiving the benefit of a court order based on deadlock which he has created; (ii) Timing [ 100 ] Finally, I note that the applicant concedes that he could be ready for trial almost immediately. The respondents agree that they are also virtually ready for trial. This straightforward admission by Mr. Murphy attracts the application of the following commentary made by Sharpe J. in his authoritative text as repro

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