NEP Canada ULC v MEC Op LLC, 2016 ABQB 186

Court of Queen ’ s Bench of Alberta Citation: NEP Canada ULC v MEC Op LLC, 2016 ABQB 186 Date: 20160330 Docket: 1201 09690 Registry: Calgary Between: NEP Canada ULC Plaintiff - and - MEC Op LLC, MEC Op Transaction 1 ULC and Merit Energy Company LLC Defendants _______________________________________________________ Memorandum of Oral Decision of J. Farrington , Master in Chambers _______________________________________________________ [ 1 ] The following are oral reasons which I delivered on March 11, 2016.

They have been edited for form and grammar, but are otherwise as delivered. [ 2 ] This is an application by the defendants MEC Op LLC, MEC Op Transaction 1 ULC and Merit Energy Company LLC (collectively “MEC”) to compel further document production and questioning responses from the plaintiff NEP Canada ULC, which I will refer to as “NEP”. The action is a large action framed primarily in deceit and alleged misrepresentation in a contractual context in a circumstance where the defendant sold shares in MEC Op LLC to the plaintiff.

The plaintiff alleges that substantial regulatory irregularities were not disclosed in the context of the transaction and the closing process, and that there was deceit and misrepresentation

in relation to the transaction. [ 3 ] For the reasons which follow, I find primarily in favour of the plaintiff NEP on the issues pertaining to document disclosure, and primarily in favour of the defendants on the issues pertaining to questioning. [ 4 ] Notwithstanding the size of the litigation, and the volume of the document productions and questioning undertaken, this application can largely be decided by reference to basic principles. [ 5 ] Rule 5.1 provides: 5.1

(1) Within the context of rule 1.2, the purpose of this

Part is: (

a) to obtain evidence that will be relied on in the action, (

b) to narrow and define the issues between parties, (

c) to encourage early disclosure of facts and records, (

d) to facilitate evaluation of the parties’ positions and, if possible, resolution of issues in dispute, and (

e) to discourage conduct that unnecessarily or improperly delays proceedings or unnecessarily increases the cost of them.

(2) The Court may give directions or make any order necessary to achieve the purpose of this Part. [ 6 ] Many of these purposes apply here. [ 7 ] Rule 5.6 deals with a party’s obligations in relation to document and record production: 5.6(1) An affidavit of records must (

a) be in Form 26, and (

b) disclose all records that (

i) are relevant and material to the issues in the action, and (ii) are or have been under the party’s control. [ 8 ] Finally, Rule 5.10 deals with documents arising after the original production: 5.10 If, after a party has served an affidavit of records on other parties, the first party finds, creates or obtains control of a relevant and material record not previously disclosed, the first party must (

a) immediately give notice of it to each of the other parties, (

b) on written request and on payment of reasonable copying expenses, supply each of the other parties with a copy of it, and (

c) prior to scheduling a date for trial, serve a supplementary affidavit of records on each of the other parties. [ 9 ] The obligation of a party to produce documents and records can be simply put as an obligation to produce relevant and material documents and records that exist, whether they help a party’s case or hurt a party’s case, subject to exceptions such as claims of privilege. [ 10 ] The point of an affidavit of records is to confirm that a party has complied with its production obligations and to make certain that there is someone who has taken responsibility for doing so.

The affidavit of records is not only about confirming what documents exist by virtue of, in this case, extensive lists. It is also about confirming that production obligations have been met. [ 11 ] Counsel play an important role in the production process. One of the elements of that role is to make certain that the client clearly understands its production obligations. Another element of the role is to review documents and assist the client with making appropriate production decisions.

This involves both legal and ethical considerations. [ 12 ] In this application all parties have extremely experienced and capable counsel who well understand their obligations. [ 13 ] The plaintiff’s production is large. Damages in excess of $150 million are sought. The damage claim to a large extent arises from what the plaintiff says is the remediation of nondisclosed pipeline and well deficiencies, including regulatory deficiencies. The plaintiff says that the remediation process will go on until at least 2019.

This raises special production challenges because the production obligations are a moving target. [ 14 ] The normal production challenge is to produce that which exists, subject to identified exclusions for privilege and the like. The obligation is not to create documents. It is to produce that which exists and that which they choose to create and rely upon. [ 15 ] In this case, the initial production is done. Although there were some glitches, the evidence satisfies me that such glitches were innocent, and that when the plaintiff became aware of any issues they were remedied.

Without question, on a production of this size, future such issues are also inevitable. [ 16 ] The production of the plaintiff is now in the phase of producing remediation source documents as they are incurred, and

secondary documents in the nature of collations and summaries of damages. [ 17 ] The defendant seeks documents which roughly fall into three categories. The first are unredacted portions of the notebook of a key witness Ms. Hall. The second is further proof of damages documents and summaries relating to those damages as well as what they term to be “unlocked” spreadsheets showing the mechanisms and formulae used in the calculations. The final category consists of documents which the defendant says are required by its expert in damages calculations.

These include items such as monthly internal financial statements and income tax returns of the plaintiff. [ 18 ] With respect to the request for unredacted portions of Ms. Hall’s diaries, I decline to order any further production. There is no evidence to suggest that any relevant and material portions have been omitted and I decline to order production simply on the basis of a “let’s see what we find” request.

As I indicated earlier, the litigation production system relies heavily upon counsel and the plaintiff has experienced counsel who are well aware of production obligations, and are well able to advise the plaintiff accordingly with respect to production obligations and there is simply no evidence to suggest that anything inappropriate has taken place with respect to the production of the diaries.

In an appropriate case I could review the diaries, but there is no prima facie evidence to suggest that any mischief has occurred with respect to the diaries. [ 19 ] With respect to the damages documents, I also decline to make any further order with respect to production. The plaintiff well understands its continuing production obligations and the rule clearly describes the necessity of swearing a further affidavit of records in due course.

The rule simply needs to be followed and there is no suggestion that the plaintiff is not following the rule. [ 20 ] The defendant also requested what it referred to as “pinpointing” and “unlocked” spreadsheets pertaining to the damages documents request and particularly the

summary documents. I am not prepared to order that those be provided.

Summary documents and charts are secondary in the sense that they summarize material which already exists and attempt to present it in a form that a party likely wishes to present at trial. A party uses its skill and judgment and the skill and judgment of its advisors in choosing how it will present its evidence. Of course, if a party chooses to create documents to be relied upon during the course of the litigation process they would be obliged to produce those documents and that is being done here. [ 21 ] A party is not obliged to create a documentary underlying theory and roadmap for its documents.

A party chooses what it wishes to present with respect to such secondary documents. There can certainly be questioning about the underlying methods pertaining to such secondary documents, but there is no obligation in my view to create pinpointing and unlocked spreadsheets which go further than illustrating the finished product as presented by the documents. Doing so, in my view would be a slippery slope. The next application may well be for better explanations in the documents, or alternatively, complaints about how a party was misled or deceived in the pinpointing.

This is not a case which requires travel of those roads. [ 22 ] There are two distinct steps in the “exchange of information” process. One is document production, and one is questioning. The place for explanations is in the questioning phase. [ 23 ] I would add that in many respects, the requests for OCR (optical character recognition) scanning at a level or technique not presently being used by the plaintiff, and the request for pinpointing is are issues about cost. The plaintiff says that its material is searchable in its hands. The defendants say that they cannot search the material.

It may well be that the parties are using different technologies, programs, or equipment. I have no evidence before me of any of that information. The parties were quite properly talking about having their technical departments discuss the issue and that seems reasonable. [ 24 ] Going further than that, however, clearly requires additional effort in the form of the costs associated with increasing organization and entropy. By all accounts, the plaintiff seems to have organized its materials in progressive and modern ways that work well for its purposes. The defendants want them to go further.

I have no evidentiary basis before me for knowing exactly what would be involved in meeting the standards sought by the defendants. I am not prepared to order further organizational and presentation efforts without a proper evidentiary foundation as to what would be involved. [ 25 ] The plaintiff has been providing damages documents at regular intervals, and I see no reason on the materials before me to mandate specific time frames.

I defer to the wisdom of the learned case management justice who will of course provide timing directions as needed, armed with a better understanding of the overall progress and components of the action. The variable is the incurring of the damages and that would seem to be the largest factor in the production of additional documentation. [ 26 ] In addition, the defendant seeks documents such as internal financial statements and tax returns of the plaintiff on the basis that the defendant’s damages expert “needs them”.

There is no evidence from the defendant’s damages expert of a first-hand nature that they are needed or why they are needed. It is simply a request that is passed on by the defendant’s counsel. The plaintiff has already produced audited financial statements upon request. There is no specific probative argument made as to why particular documents are needed in the context of the damage calculation, either by the expert in requesting them, or by defendant’s counsel during argument. The argument essentially amounts to a request to produce them because the expert says so.

In my view, in order to satisfy the relevance and materiality test it is reasonable to require that an argument be articulated as to exactly what facts the records requested would tend to prove or disprove. That is consistent with the Rules. [ 27 ] Furthermore, the plaintiff has not yet provided any expert evidence with respect to its damages, and based upon the fact that remediation is ongoing that is not surprising.

It may be that as part of that process certain documents which formerly did not seem relevant and material gather those characteristics when placed into the context of the damages and methods claimed by the plaintiff. I decline to order any further production of those documents at this stage. [ 28 ] The plaintiff says in argument that if it becomes apparent at a later stage that certain documents are relevant and material they will certainly be produced subject to any privilege arguments and the like.

That sounds reasonable and there is no reason to doubt the bona fides of that representation to other counsel and to the Court. [ 29 ] With respect to questioning matters I find primarily in favour of the defendant.

[30] In general terms, I have reviewed the passages which caused the defendant to bring this application and I find for the mostpart that counsel for the plaintiffs was, in many cases, overly obstructive during the course of questioning. [31] As a starting point, Master Funduk reminds in Canalta Concrete Contractors v. Camrose, at paragraphs69 to 71: The counsel asking the questions has the right to phrase them as he considers appropriate. Opposing counsel has no right to dictate to thecross-examining counsel the phraseology he is to use.

If the witness has difficulty understanding the question he, not counsel, must sayso. If a witness does not understand a question he can say so. Counsel should not assume that a witness’s level of comprehension does notexceed their own. Counsel should never, in whatever manner, attempt to feed an answer to a witness. [32] Rule 5.25 deals with objections. [33] It is fundamental to our system that questioning by a party adverse in interest be permitted to continue without interruptionwithin reason for the purpose of discerning the facts in the litigation.

That is the nature of the adversary system. [34] Paragraph 19 of the Amended Statement of Claim alleges: 19. Despite the trust placed in Merit and its obligations, both at common law and under the Purchase Agreement, Merit was not truthfulin making the Representations. To the contrary, as set out with particularity below, many of the Representations were false and wereeither known by the mind and management of Merit to be false or Merit had no belief in the truth of the Representations.

Merit wasreckless or willfully blind as to the falsity of the Representations and concealed the falsity of the representations from NEP. [35] The following exchange took place in the questioning of Mr. Newton in relation to Paragraph 19 on July 30, 2015 at p. 918 ll12-27 and p. 919 ll. 1-7: Q: Can you please tell me all the facts about the allegation that Merit was not truthful in making the representations which you know ormust properly inform yourself of?

Plaintiff’s counsel: I don’t think that’s a proper question, because now that you have introduced the element of truth, you are nowintroducing an opinion or what will ultimately be a finding of fact for the trial judge, but I don’t think it’s a fact this witness can properlyanswer or should be required to properly answer questions on. Q: Can you tell me, Mr. Newton, who the mind and management of Merit is, as referred to in this allegation? Plaintiff’s counsel: Well, I don’t know that he’s got to interpret the claim in that way. [36] In my view, the initial questions were appropriate.

When one pleads in the statement of claim that certain things that were saidwere untruthful, it is not surprising that the pleading party would be asked about those things. It was argued that these are improperquestions because they are matters of opinion. It was also argued that the appropriate place to obtain those details is in a request forparticulars. I disagree. The allegedly untruthful representations are fundamental to the action, and the defendant is entitled to ask aboutthem. [37] In my view the questions are factual ones.

They are not questions of opinion as suggested by counsel for the plaintiffs duringargument. They are appropriate compendium questions as contemplated by Mr. Justice Cote in Can-Air Services Ltd. v. British AviationInsurance Co. [1988] AJ No. 1022 (CA). [38] In addition, the plaintiff alleges that the mind and management of Merit had certain knowledge. Surely the defendants areentitled to know who the plaintiffs are alleging at Merit had the knowledge in question. If not, rebutting the allegation would requireMerit to prove that none of their employees had that knowledge.

The plaintiff chose to make a specific allegation about the mind andmanagement of Merit in its pleading. Surely the defendants are entitled to know the factual basis for the allegation and who the plaintiffconsiders that mind and management to be. The plaintiff’s officer cannot, and should not, be shielded from those questions. [39] There are other examples of interruption such as the so called “PLIMP example” at p. 87 of Mr. Newton’s questioning ofAugust 11, 2014 at ll 23-27 and p. 88 ll 1-22: Q: What was your understanding of PLIMP? A: My understanding of PLIMP, it was a pipeline manual. Q: I see.

Is PLIMP an acronym for something? A: Yes. Q: What it is an acronym for? Plaintiff’s counsel: Are you talking about his knowledge today? That’s part of the problem. What is it, you’re saying, what is it. Q: What was your understanding of PLIMP at the time, sir? You did tell me that you thought it was a manual, and I asked you what youthought the acronym stood for. So did you have an understanding of the acronym at that time?

Plaintiff’s counsel: Before you answer the question, you know, Mr. Smith, full well, that that word is defined in the schedule. Defendants’ counsel: [Plaintiff’s counsel], this is a fairly important aspect of the case— Plaintiff’s counsel: I get it, but be fair— Defendants’ counsel:--and you shouldn’t be as interruptive as you are.

So— Plaintiff’s counsel: I’m not being interruptive—if you’re going to ask a fair answer, fair ball, but you know, you, as a lawyer, know thatthe word, “acronym” is defined in the document, which—ask if he had it with him [40] The understanding of the term PLIMP is an important term in the litigation. There is no question that the term is defined termin the agreement, but the understanding of the witness of the term and the acronym is also an important part of the litigation. Counsel forthe defendant was entitled to test that understanding freely and without interruption by counsel for the plaintiffs.

If counsel for theplaintiffs had simply left the interruption to reminding that the term was defined in the agreement, that would have been one thing, butthe interruption was broader and more comprehensive and it bordered on coaching the witness to fall back on the definition in theagreement and avoid answering questions based upon his understanding. [41] In other questioning instances, counsel for the plaintiff even rephrased questions and posed them to their own witness. [42] It is difficult to rule on all of the objections individually because there were so many of them, but I do find that in most casesthe complaints of counsel for the defendants were well-founded.

The interruptions interfered with the flow of the questioning. Counselfor the defendants are entitled to continue with their examinations sought free of interruption. [43] Another example of an objection or interruption on an important point was at p. 60 ll. 13-25 of Mr. Newton’s questioning ofAugust 11, 2014: Q: All right. And we’ll get to the discussions between Mr. Carnahan and Mr. Carr later, but what you’re telling me now is that thatassessment that Mr. Carnahan performed did not influence your decisions; is that correct? A: What decisions? Q: To proceed with the transaction or not?

The economic impact of non-compliance identified by Mr. Carnahan, I think you said, did nottrigger a threshold? Plaintiff’s counsel: Well, that’s not –like, influence a decision. I mean, if the number is lower than or it’s a low number, then the questionwould reasonably be, did that give you comfort, which indeed might influence your decision, and that’s the problem with the work“influence” Mr. Smith. [44] Counsel for the defendants was exploring the important point of reliance and counsel for the plaintiff interrupted. [45] There is yet another example: Q: United Hunter is a pipeline noncompliance issue?

Plaintiff’s counsel: That may be true in part. It’s more than that. Defendants’ counsel: Let her answer the question please. Plaintiff’s counsel: No. No. Don’t phrase it in a way, the way you want to phrase it, that may be mischaracterizing it. Q: Was the United Hunter a pipeline noncompliance issue? Yes or no? Plaintiff’s counsel: Did you know at that time?

A: I understood it to be a contractual issue that also had a pipeline noncompliance issue associated with it. [46] In the foregoing sequence plaintiff’s counsel actually answers the first question posed. [47] In many cases the reasons cited for the objections in the transcript were different from those argued before me.

That is nottroubling on occasional instances, as a question must still be proper whether the objection is characterized properly or not, but in thiscase the objections in many instances were argued upon entirely different grounds leaving an appearance of objecting in the moment,while hoping to think up a reason that will stand for the objection later. [48] This is not meant to say that counsel for the plaintiff cannot interrupt or object. Counsel for the plaintiff may interrupt forreasons of legitimate objection. Those objections should be measured and only made, however, when necessary.

They went much furtherin this case and they interfered with the questioning. [49] There were also objections based upon litigation privilege. Of course, the dominant purpose test applies to litigation privilege.A party seeking to assert privilege must prove entitlement to the privilege. While litigation privilege was argued in a vague way here, noattempt was made to show an evidentiary basis for the privilege and actually demonstrate the dominant purpose for the creation of thematerial in question. [50] In addition, as held in Global Petroleum Corp. v. CBI Industries Inc., 1998 NSCA 220 , (NSCA):

It is beyond dispute that privilege cannot be used to protect facts from disclosure if those facts are relied on by a party in support of itscase. It is immaterial that the fact was discovered through the solicitor or as the result of the solicitor's direction. If it is relied on it mustbe disclosed. See Metlege v. Halifax Insurance Company (1998), N.S.J. No. 309 per Pugsley, J.A. at paragraph 31. See also Soke FarmEquipment Limited v.

New Holland of Canada Limited, supra, at p. 765; Wigmore on Evidence, Third Edition, (1940), Volume 1, page3; Manes and Silver, Solicitor-Client Privilege in Canadian Law (1993), p. 133, note 24; CMHC v. Foundation Co. of Canada et al.(1984), (NS SC), 63 N.S.R. (2d) 402 at 405 (N.S.S.C.T.D.). [51] The questioning party is entitled to have a useful transcript. The objections, most of which were unfounded, were so frequentand intrusive in this case that they interfered with that right. [52] There has been a movement in some large cases to deal with objection hearings in a more pragmatic way.

For example, somejustices have commenced objection hearings with a direction that each individual question will be subject to a specific cost award (say$500 for example). That approach serves a number of purposes. It focuses attention on specific questions because the costsconsequences can add up quickly. It also has proven to be effective at promoting settlement of objection issues for the same reason.

Ifthe difficulties persist, that might be an appropriate approach in this matter, but hopefully that does not become necessary after continuedquestioning. [53] Finally, I am aware that it may appear somewhat ironic that my reasons place a great deal of confidence in plaintiff’s counselon the documents portion of the application given my findings on the questioning portion of the application.

I want to emphasize that Iam satisfied that any difficulties on the questioning aspects were as a result of perhaps excessive zeal in the various moments, rather thanany intention, and I am confident that there will be no difficulties moving forward. I compliment all counsel on their cooperation that wasapparent during argument on a file of this size and complexity. [54] Counsel for the defendants provided me with a draft order for his application.

Based upon these reasons, I am going tocomment on the various provisions of the order and make my formal direction insofar as an Order is concerned. [55] (Those comments were provided orally to the parties in relation to a specific draft order that was before the parties fordiscussion purposes and are not reproduced here). [56] Thank you very much to counsel for their able and well presented submissions during argument. While the submissionsextended into three afternoons, the breadth of the material covered was large. As to costs, there was very mixed success.

The plaintiffwas primarily successful on the documents issues, and the defendants were primarily successful on the questioning issues. Costs of thisapplication will be in the cause on the same scale and multiplier or method of fixation as is ultimately chosen by the trial justice in thismatter for the trial. Heard on the February 1, 8, 29 and Oral Decision delivered March 11, 2106. Dated at the City of Calgary, Alberta this 30th day of March, 2016. J. Farrington M.C.C.Q.B.A.

Appearances: Lenard Sali and Michael Mysak for the Plaintiff NEP Canada ULC Roger Smith Kelly Moffet-Burima and Robert Beeman for the Defendants MEC Op LLC, MEC Op Transaction 1 ULC and Merit Energy Company LLC