2016 ABQB 2, 2016 ABQB 2

Court of Queen ’ s Bench of Alberta Citation: 1773907 Alberta Ltd v Davidson, 2016 ABQB 2 Date: 20160104 Docket: 1301 06993 Registry: Calgary

Between: 1773907 Alberta Ltd . Plaintiff - and - Shelley Davidson and Richard Davidson and John Doe Corporation - and - Defendants Carolyn Parent also known as Carolyn Trenerry, John Doe and ABC Corporation Third Party Defendants - and between - Shelley Davidson Plaintiff by Counterclaim - and - Silverado Oilfield Ventures Ltd . Defendant by Counterclaim

Corrected judgment: A corrigendum was issued on February 18, 2016; the corrections have been made to the text and the corrigendum is appended to this judgment. _ ________________________________________ ______________ Reasons for Decision of the Honourable Madam Justice B.E. Romaine _________________________________________ ______________ I. Introduction [ 1 ] The current plaintiff in this litigation, 1773907 Alberta Ltd., applies for a revised attachment order against the defendants Shelley Davidson and Richard Davidson pursuant to Section 17(2) of the Civil Enforcement Act , RSA 2000, c. C-15, as amended.

Previous attachment orders have been issued, ex-parte , by consent and otherwise, for the benefit of the previous plaintiff, Silverado Oilfield Ventures Ltd., but a full hearing with respect to entitlement, terms and scope of the order has been delayed by a series of unexpected changes in the status of the parties and the appeal of a striking order. [ 2 ] The primary issues are whether the so-called “fraud exception” to the statutory requirement of evidence of dissipation before an attachment order is granted applies in this case and whether sufficient evidence has been established to continue the attachment order against Mr.

Davidson. I gave oral reasons, to be followed by this written decision. II. Background [ 3 ] This matter has a lengthy history of pre-trial motions. The first Statement of Claim was filed by Silverado on November 1, 2011, and named Shelley Davidson and Richard Davidson as defendants. It alleged fraud, breaches of fiduciary duty and misappropriation against Ms. Davidson, and knowing receipt and unjust enrichment against Mr. Davidson. Silverado alleged that Ms. Davidson stole money from Silverado in three ways:

a) through the unauthorized use of company credit cards;

b) by electronic transfer of funds to herself as payroll; and

c) by depositing Silverado cheques on to her own credit cards and showing them in Silverado’s records as payments to vendors. Randy Hofer, the CEO of Silverado, said that he signed some of these cheques believing that they were to pay Silverado’s credit cards or his own, and alleged that Ms. Davidson forged his signatures on others. [ 4 ] Ms. Davidson says that she was authorized to use the credit cards and denies the other allegations. Mr. Davidson denies any knowledge of the alleged misappropriation. [ 5 ] Silverado (and now 177) rely on certain documents that they say that Ms.

Davidson signed on May 7, 2012, including a forbearance agreement in which Ms. Davidson makes certain admissions, a consent judgment, a GSA and a mortgage on her real property. Ms. Davidson says that she believed she was signing an employment agreement, and was not aware of the nature of the other documents. There are a number of credibility issues with respect to the execution of the documents. [ 6 ] On November 10, 2011, the Statement of Claim was discontinued against Mr. Davidson. Silverado said that this was pursuant to the forbearance agreement but the date of the forbearance agreement is May 7, 2012.

There is nothing in the forbearance agreement that relates to a discontinuance against Mr. Davidson. [ 7 ] At some point in time, a new Statement of Claim naming Mr. Davidson was filed. On December 12, 2012, Silverado applied ex-parte for a Mareva injunction and an attachment order against the Davidsons. Two attachment orders were granted, one against the Davidsons jointly and one against Mr. Davidson and “John Doe Corporation,” both under the same file number.

On December 17, 2012, both a Statement of Claim naming both the defendants, and an amended Statement of Claim adding John Doe Corporation to the defendants were filed, again all under the original court file number. [ 8 ] On December 18, 2012, Silverado obtained an order directing that the December 12, 2012 ex-parte attachment orders would continue until January 7, 2013, unless extended by application. [ 9 ] On January 7, 2013, the parties agreed to a consent attachment order.

This order was in a standard form and prohibited the Davidsons from dealing with their exigible property other than in the ordinary course, for reasonable living expenses or to pay legal fees. It attached their real property and vehicles. This order was extended by consent until September 3, 2013. Orders to produce bank records

were granted. [ 10 ] On April 11, 2013, Silverado’s previous counsel ceased to act and new counsel commenced acting for Silverado. By consent, the file was transferred to Calgary. [ 11 ] Case management commenced in June, 2013, and pleadings and amended pleadings were filed from June to September, 2013. The Davidsons filed a third-party notice against Carolyn Parent (Trenerry), alleging that she was negligent when acting as financial manager of Silverado and in her investigation of Ms. Davidson and she falsified and destroyed financial records of Silverado and committed fraud against Ms.

Davidson by way of identity theft. Ms. Parent is now married to Mr. Hofer. Ms. Davidson filed a counter- claim against Silverado, claiming unpaid commissions and work expenses. [ 12 ] In May, 2013, counsel for Silverado applied for, among other relief, an order amending the previous attachment order:

a) to permit service of the attachment order on all financial institutions that held assets belonging to the Davidsons and on Mr. Davidson’s employer;

b) setting the maximum amount the Davidsons could spend for living expenses at $5,000 a month; and

c) directing a monthly accounting of living expenses. [ 13 ] The relief requested in the application was expanded over time, as explained later in these reasons. [ 14 ] In August, 2013, Ms. Davidson was charged criminally with two counts of fraud over $5,000. [ 15 ] The application to revise the attachment order was scheduled to be heard on September 18, 2013 as a special hearing. In the interim, the existing attachment order was continued by consent orders. The date of the hearing was later moved to September 20, 2013. [ 16 ] Voluminous materials were filed.

Just before the scheduled hearing, counsel for Silverado filed additional affidavit evidence, resulting in an adjournment of the application to December 3, 2013 to allow reply affidavits and cross-examination. [ 17 ] At this point, Silverado’s application to expand the provisions of the consent attachment order included seeking orders prohibiting any further borrowing on credit or otherwise, requiring advance approval from counsel to Silverado before the Davidsons paid any legal fees including amount and proposed method of payment, and attaching all interests in their property, vehicles and sports equipment.

Silverado also sought an order requiring the Davidsons to limit their spending on living expenses and legal fees to $7,500 a month and to deposit the rest of their income in trust as security for Silverado’s claims pending trial, or alternatively to allow the Davidsons’ employers to be issued a garnishee for amounts beyond $7,500 per month.

The relief sought included the requirement that the Davidsons provide a complete accounting of their earnings, expenses and investments every month, and prohibiting them from making payments to or withdrawals from their pension and investment accounts, including contributions to Mr. Davidson’s pension and benefits plans from his employer. [ 18 ] I issued a revised interim attachment order on September 20, 2013.

It is similar on its terms to the previous consent order, except that it provides that the Davidsons are to provide a monthly accounting of expenditures to counsel for Silverado and to the Court. [ 19 ] On October 17, 2013, unbeknownst to the Court or the Davidsons, a Receiver was appointed over the current and future assets, undertakings and properties of Silverado pursuant to the provisions of a General Security Agreement executed by Silverado in favour of HSBC Bank Canada.

The assets of Silverado, including this litigation, were seized by the Receiver. [ 20 ] Again without the knowledge of the Davidsons, the Receiver negotiated a sale of the assets of Silverado to the current plaintiff, 1773907 Alberta Ltd, over the following few weeks, culminating in 177’s offer to purchase Silverado’s assets for $675,000. This offer was conditionally accepted by the Receiver on November 19, 2013, subject to court approval. The principals of 177 are Tom and Donna Trenerry, the parents of Carolyn Hofer, whom the Davidsons allege is responsible for the allegations against Ms.

Davidson. 177 was incorporated by the Trenerrys on October 25, 2013. [ 21 ] The sale of assets was to be clear of all encumbrances and liabilities of Silverado, except that any liabilities with respect to the operation of the business from the closing date forward would be the responsibility of the purchaser. The assets were purchased on an “as is, where is” basis with no representation as to fitness for purpose. [ 22 ] The sale documentation states specifically that Silverado retains all its existing liabilities, including liabilities to employees. Thus the sale leaves Ms.

Davidson with a counter-claim for unpaid wages and commissions against an insolvent company stripped of its assets, and renders the undertaking as to damages filed by Silverado with respect to the attachment orders a worthless security. [ 23 ] Despite the receivership, Silverado conducted questioning in this litigation on November 8, 2013. Counsel to the Davidsons had heard rumors of a receivership, but, during questioning, Mr. Hofer refused to acknowledge the fact. Counsel for the Davidsons nevertheless contacted the Receiver in mid-November, 2013, advising that Ms.

Davidson was a creditor arising from the litigation and should be added to the creditor list. [ 24 ] On November 19, 2013, the same day the Receiver accepted 177’s offer to purchase the Silverado assets, the Receiver obtained an order from a Master that allowed 177’s offer to be deleted from the Receiver’s affidavit relating to the proposed sale when the affidavit was filed with the Court.

It is not clear from the record before this Court the reasons why the terms of the offer were deleted from the Receiver’s affidavit. [ 25 ] On November 30, 2013, counsel for the Davidsons contacted the Receiver to enquire about information she had received that a hearing to approve the sale of Silverado’s assets was to be held on December 5, 2013. She asked for a copy of the materials filed with the Court. Counsel for the Receiver responded on December 1, 2013, advising that the application was scheduled for December 4, 2013

and that the sale had closed on November 19, 2013, subject to court approval. [ 26 ] Immediately prior to the December 3, 2013 hearing relating to the attachment order application, the Davidsons asked Silverado whether the action had been transferred. Silverado took the position that the action had “not been assigned as per requirements of Section 20(1) of the Judicature Act ” and that, thus, the action had not been stayed by operation of Rule 4.34 of the Alberta Rules of Court.

Rule 4.34 provides that if the interest or liability of a party is transferred to another person by assignment, bankruptcy, death or other means, the action is stayed until an order to continue the action by or against the other person has been obtained. [ 27 ] On December 3, 2013, counsel for the Davidsons advised this Court of the receivership and took the position that the application for a revised attachment order was stayed by operation of Rule 4.34, as carriage of the action had been transferred to the Receiver as part of the assets of Silverado.

Counsel for the Davidsons also raised a concern about 177’s legal representation, as it appeared that 177 was represented by a partner of Ms. Davidson’s counsel in pending criminal charges, thus raising, concerns about a conflict of interest with respect to the sale and purchase of Silverado’s assets. [ 28 ] Counsel for Silverado took a narrower view of Rule 4.34 and argued that carriage of the action was not in the hands of the Receiver. However, he acknowledged that he was not counsel to the Receiver.

I adjourned the application to December 12, 2013 and directed that counsel to the Receiver and counsel to 177 on the sale appear to address the situation. [ 29 ] On December 4, 2013, Justice Eidsvik approved 177’s offer to purchase Silverado’s assets and authorized the Receiver to conclude the purchase and sale transaction. It appears from materials filed in the receivership that the assets of Silverado were valued by Century Services, and no value was assigned to the litigation against the Davidsons.

Nor did the Receiver or 177 attribute any specific value to the litigation in the offer to purchase the assets of Silverado, which were in any event purchased for less than their assessed value. [ 30 ] On December 9, 2013, counsel for Silverado provided notice of the assignment of the action and Justice Eidsvik’s order to counsel for the Davidsons. [ 31 ] On December 12, 2013, counsel for the Receiver appeared before me and confirmed that, as of the date of the receivership, carriage of the action would have rested with the Receiver and that counsel for Silverado had not been retained to act for the Receiver on December 3, 2013 and during previous questioning.

However, since the sale of the litigation to 177 had now been approved by Justice Eidsvik, the issue was moot.

Counsel to 177 on the sale explained that she had not been aware of any potential conflict, and in any event, had acted for 177 solely on the purchase and sale of the Silverado assets. [ 32 ] Since at that point the action had been transferred to 177 as part of Silverado’s assets, Rule 4.34 clearly applied to stay the action, whether or not it had been stayed earlier by the receivership. [ 33 ] On December 19, 2013, submissions with respect to Silverado’s application for a more onerous attachment order proceeded despite the stay, with the consent of all parties.

Counsel for the Davidsons explained that since all pre-application steps had been taken, briefs had been filed and the parties were ready to address the issue, they would agree to having the application heard without prejudice to their position that the action should be struck for abuse of process. I heard the application, but deferred a decision until Silverado’s application to lift the stay and the Davidsons’ cross-application to strike the action could be heard.

That application was scheduled for January 24, 2014. [ 34 ] On January 24, 2014, 177 applied to lift the stay imposed by Rule 4.34 and to amend the Amended Statement of Claim to add itself as a plaintiff in the action. The Davidsons in response applied for

summary dismissal of the action on the basis that the new plaintiff’s case would depend upon an assignment tainted by champerty, making 177’s pursuit of the action improper, vexatious and an abuse of process. [ 35 ] I heard these applications on January 24, 2014 and issued a decision on April 11, 2014, lifting the stay and allowing 177 to be substituted as the new plaintiff, but striking the action as an abuse of process on the basis of the principles of champerty and maintenance: Silverado Oilfield Ventures Ltd. v.

Davidson , 2014 ABQB 218 . [ 36 ] Although the result was that the attachment order was lifted, that portion of the decision was stayed by the Court of Appeal pending an appeal. [ 37 ] I also issued an order dated January 24, 2014, varying the interim attachment order of September 20, 2013 by removing the Davidsons’ Gull Lake property from the order, to allow the Davidsons to sell the property to the co-owner, Mr. Davidson’s father, and to use the proceeds to pay out the mortgage, with the remainder to be paid in trust and applied to the Davidsons’ legal fees. This sale has not yet taken place, as Mr.

Davidson’s father was unable to arrange refinancing, and 177 now moves to vacate the order as it pertains to the Gull Lake property. Mr. Davidson’s father is now deceased. [ 38 ] The appeal of the striking order was heard on October 7, 2014 and allowed by decision dated May 1, 2015: 1773907 Alberta Ltd. v.

Davidson , 2015 ABCA 150 . [ 39 ] On June 5, 2014, while the appeal was under reserve, Martin, J.A. granted an order that, among other things, directed that this Court determine the source of payment of the Davidsons legal bills, whether from the Davidsons’ monthly employment income or from other assets, pending a decision on the appeal. I issued a decision on that issue dated January 15, 2015 which was appealed by 177. By decision dated May 8, 2015, the Court of Appeal found that my decision was made in the shadow of the striking order.

It noted that, “not surprisingly”, this circumstance affected the reasoning and resulted in the appellants not being provided with copies of all documents relied upon by the Court. [ 40 ] This arose because the Court of Appeal stay order specified that a $20,000 per month spending limit be imposed on the Davidsons’ and that this Court be provided with monthly accountings of the Davidson’s expenditures from January 20, 2014 until further order of the Court of Appeal on a confidential basis in order to ensure that the Davidsons stayed within that limit.

[ 41 ] The issue was remitted back to me for fresh consideration. [ 42 ] The Davidsons sought leave to appeal the Court of Appeal’s May 1, 2015 decision to the Supreme Court of Canada, and leave to appeal has recently been denied. They are also seeking leave to file for a late appeal of the decision of Eidsvik J. on December 4, 2013 approving the sale of the assets of Silverado to 177, given certain comments made by the Court of Appeal in the May 1, 2015 decision. [ 43 ] Shortly after the Court of Appeal’s decision on the striking order, I met with the parties to discuss the next steps in the litigation.

It was agreed that, given the substantial time that had elapsed from the hearing on December 13, 2013, I would need updated information and submissions with respect to the application to amend the attachment order. [ 44 ] A new hearing with respect to the attachment order could not be scheduled until August 11, 2015. However, I held a case management hearing on July 13, 2015. A number of issues were discussed, including 177’s application for an accelerated trial date. The Davidsons updated the Court on their need for funds to pay legal fees, and sought approval to access $35,000 from Mr.

Davidson’s savings plan with Suncor. [ 45 ] There was considerable discussion about what the Court of Appeal in the legal fees appeal had said about the right of 177 to cross-examine on certain documentation, and whether 177, now the plaintiff in the action, had to apply for an attachment order or whether it could rely on Silverado’s application. [ 46 ] I directed 177 to make an application for an attachment order, specifying what terms it was seeking, as the terms sought by Silverado had changed from time to time in the interim.

I directed that the issues of the attachment order, legal fees and an expedited trial date be heard on August 11, 2015. 177 refused to agree to the Davidsons’ request to use the Suncor savings plan to pay legal fees, despite Mr. Davidson filing an affidavit setting out the details of the plan, so that issue was also put over to August 11, 2015. [ 47 ] Counsel for 177 stated that it wanted affidavits from the Davidsons setting out complete financial disclosure since December, 2013, and that it had a right to cross-examine on these affidavits.

I noted that the Davidsons had disclosed the affidavit that was before the Court of Appeal and the monthly accounting statements the Court had been receiving. I also ordered disclosure of the outstanding legal fees.

It was clear that, with the short time period until hearing and counsel availability over the summer, cross-examination on that material would be difficult to schedule, and I made no order directing further disclosure that would delay the August 11, 2015 hearing. [ 48 ] On July 27, 2015, I received 177’s application to continue the attachment order made September 20, 2013 as modified by the Court of Appeal’s June 5, 2014 order, which limited the Davidsons’ spending on living expenses and legal fees to $20,000 and sought an order that, with the exception of their monthly employment income, the Davidsons would not use, transfer, dispose of or encumber any of their exigible property to pay legal fees without the consent of 177 or an order of the Court. 177 also sought an order vacating the previous order allowing the Davidsons to sell the Gull Lake property and for an order that this matter be set down for trial on the first available date after February 1, 2016. [ 49 ] Very shortly afterwards, I received a letter from counsel for 177 stating that the parties could not agree on the extent of pre- hearing financial disclosure.

The Davidsons had provided 177 with:

a) an affidavit of Mr. Davidson sworn April 29, 2015, attaching a letter to the Court dated July 25, 2014, a Statement of Earnings and Deductions from his employer as of June 12, 2014, some excerpts from an employee benefits pamphlet containing information about the administration of Mr. Davidson’s Suncor benefit plans and a statement of legal fees as of July 25, 2014

b) the monthly accounting statements from January 2014 to June 2015 as required by Martin, J.A. to be delivered to me as case management justice pending the appeal; and

c) a letter dated July 23, 2015 from counsel for the Davidsons providing an updated

summary of unpaid legal fees. [ 50 ] In a letter dated July 23, 2015, 177 indicated that it wanted the court to direct the Davidsons to provide affidavit evidence dealing with their complete financial picture, including:

a) their employment incomes, bonuses and benefits, with back-up in the form of pay stubs and tax returns;

b) their assets, including bank accounts, investment/RRSP/RESP accounts, and Mr. Davidson’s Suncor benefit accounts, which at that time included Stock Appreciation Rights, Restricted Share Units, a Personal Retirement Account, a Defined Benefit Ancillary Account, and a Suncor Savings Plan, with back-up in the form of account statements; and

c) their liabilities, including mortgages on the Cochrane and Gull Lake properties, and their line of credit and credit card balances, with back-up in the form of mortgage and credit line statements. [ 51 ] It should be noted that extensive questioning had previously occurred with respect to the Davidsons’ financial circumstances. 177, however, wanted fresh affidavit evidence. [ 52 ] 177 submitted in the letter that it was entitled to this information, both for the purposes of its application for an attachment order and for the purpose of addressing payment of legal fees in the face of an attachment order.

As counsel for 177 was aware, counsel for the Davidsons was out of the country, and therefore, I did not direct an earlier hearing to discuss these submissions. [ 53 ] The hearing with respect to the attachment order, the payment of legal fees and an application to set a trial date took place on August 11, 2015. I reserved decision on the attachment order and the payment of legal fees.

I gave oral reasons on 177’s application for a trial date to be set for the first available date after February 1, 2016. 177’s application for an accelerated date was predicated on obtaining the Davidsons’ agreement that cross-examination transcripts be adopted as questioning transcripts. The Davidsons did not agree to give up their right of questioning. The application also sought an order that the Davidsons’ questioning of plaintiff’s witnesses be completed by October 15, 2015, that the plaintiff’s expert report be provided by September 30, 2015 and that the Davidsons would

have three months to prepare and file a rebuttal expert report. Finally, 177 sought an order that any pre-trial applications be heard by November 15, 2015. [ 54 ] The Davidsons pointed out that neither party had commenced questioning, that neither party had at that point produced or exchanged expert reports, and that, since there had been no questioning, undertakings had not been addressed. They noted their outstanding appeals.

They suggested a more reasonable set of deadlines that would result in questioning and production being completed by July 31, 2016. [ 55 ] I found that, given the history of the matter and the absence of even the plaintiff’s expert report, the time-table suggested by 177 was unrealistic. [ 56 ] I made it clear that I was not staying the action pending the appeals, but listed the outstanding applications that needed to be addressed, particularly the payment of legal fees.

A more reasonable time-table was discussed with the parties. [ 57 ] On August 11, 2015, for the first time, counsel for 177 submitted that it had the right to cross-examine the Davidsons even in the absence of any affidavit evidence from them, pursuant to Rule 6.8 and the decision in Precision Drilling Canada Limited Partnership v Yangarra Resources Ltd ., 2013 ABQB 492 . No reference to this rule or case had been made in 177’s brief for the hearing. Counsel for the Davidsons asked for time to address this new argument, and I directed counsel to provide me with short briefs on the issue.

In addition, counsel for the Davidsons submitted during argument that there were irregularities on the face of the execution pages of the forbearance agreement that 177 alleges was signed by Ms. Davidson. While this material had been previously filed in one of the six boxes of the court file, I asked counsel for the Davidsons to provide me with copies of what they were referring to, to save me having to review the entire record. I asked for further details of those irregularities. [ 58 ] I received a brief from the Davidsons on these matters on August 27, 2015 and a brief from 177 on August 31, 2015.

The brief from 177 included a newly-filed affidavit from former counsel to Silverado that attempts to explain some of the irregularities in the forbearance agreement. Counsel for the Davidsons strenuously objected to the filing of this new affidavit and asked me either to disregard it in my deliberations or to allow them the right to cross-examine on it. [ 59 ] On October 5, 2015, I received a letter from counsel to 177, advising that Martin, J.A. had directed him to write to me.

The letter states: The parties attended before Justice Martin at the Court of Appeal on Thursday, October 1, 2015 in regard to the Davidsons’ applications (the “Applications”) to extend the time to appeal the Vesting Order of the Honourable Madam Justice Eidsvik (the “Extension Application”), and to compel answers to undertakings and objections arising from the questioning of Tom Trenerry on an affidavit filed for the Extension Application. Counsel for the Davidsons requested that Justice Martin grant an adjournment of the Applications.

In response, counsel for 177 expressed concern that such an adjournment could impact the setting of a trial date. Counsel for the Davidsons replied that this matter had been argued before My Lady and should be left in your hands.

In response to this concern, Justice Martin directed the parties to write to you and indicate that Justice Marin was receptive to setting a trial date for the earliest opportunity, and that he was willing to assist in setting such a trial date if this issue remained unresolved by October 14, 2015, when the parties are again scheduled to be in front of the Court of Appeal. [ 60 ] The Davidsons received 177’s expert report with accompanying schedules on October 6, 2015. [ 61 ] I met with counsel for 177 and with co-counsel for the Davidsons on October 13, 2015.

The lead counsel for the Davidsons was out of the county. Counsel for 177 suggested that, given the letter of October 5, 2015, if I did not set a trial date, Justice Martin would do so. Counsel for the Davidsons disagreed that this was what Justice Martin had said, and submitted that any request by 177 to have the Court of Appeal set a trial date was inappropriate and contrary to Rule 4.14(2) of the Rules of Court. [ 62 ] Counsel for 177 pressed for a trial date in January of 2017, prior to Ms. Davidson’s criminal trial, which is set from February 27 to March, 2017.

I agreed that it appeared that the parties would be ready for trial in the civil action in early 2017, but concerns were expressed with respect to the timing of the criminal trial, and the fact that the Davidsons’ lead counsel was not present to address this issue.

No precise trial date had been reserved by the plaintiff with the trial co-ordinators, but I agreed that a trial date could be set, subject to hearing any concerns from counsel for the Davidsons. [ 63 ] On October 23, 2015, I heard from lead counsel for the Davidsons, giving valid reasons why the civil trial should not be heard until after the criminal trial. She suggested that under a reasonable schedule, the first trial date could be on or after April 30, 2017. [ 64 ] By letter dated October 29, 2015, 177 agreed to the Davidsons’ proposed litigation plan.

It is therefore adopted, subject to the outcome of the Davidsons’ appeal. [ 65 ] On September 28, 2015, the Court of Appeal issued a decision with respect to the costs of Court of Queen’s Bench hearing and the appeal, awarding costs of roughly $43,380.75 against the Davidsons. 177 asked counsel for the Davidsons for a proposal on paying the costs, and had received no answer by October 31, 2015. Without further notice, 177 served a garnishee summon on Mr. Davidson’s employer and on several other financial institutes.

Given certain ambiguities in the garnishee summons, it appeared that more than the amount owing in costs would be deposited in Court and the Davidsons would be left with no resources to pay monthly expenses. Counsel for the Davidsons asked for an emergency case management hearing to address this situation. I directed that, once funds sufficient to pay the costs award were deposited, the garnishee summons should be stayed. [ 66 ] It is in the context of this

summary of litigation that I address the issue of a revised attachment order. The history is important, not just for the context, but because Silverado, and now 177, allege that the Davidsons have sought to delay the trial of this civil action. It is correct that the Davidsons resisted the imposition of a revised attachment order in the fall of 2013 that would have severely limited their expenditures on living expenses to a level substantially below their current monthly liabilities and that would have given Silverado

the right to approve their expenditures of legal fees to defend against the litigation. The resolution of that application was interrupted by a receivership and sale of assets conducted in circumstances that put control of the litigation in the hands of parties related to the third party, and that left Ms. Davidson with a counter-claim against an insolvent corporation. The Davidsons brought their striking motion in that context.

They opposed an application for an accelerated trial date that would have essentially eliminated or limited their rights of pre- trial questioning and would have left them with inadequate time to prepare a rebuttal expert report. [ 67 ] The Davidsons resist the current application for a revised attachment order on grounds that cannot be characterized as frivolous. While this litigation has become complex and prolonged, it cannot be said to be due to the conduct of the Davidsons. III.

Order Sought [ 68 ] 177 applied for an order continuing the attachment order of September 20, 2013, as modified by the Court of Appeal on June 5, 2015, until the determination of this action. The form of order sought is attached as Appendix A. It is less onerous in certain respects than the orders previously sought by Silverado. [ 69 ] 177 also applied for an order to the effect that, with the exception of their monthly employment income, the Davidsons may not use, transfer, dispose of or encumber any of their exigible property to pay legal fees without the consent of 177 or an order of the Court. IV.

Analysis [ 70 ] An attachment order is a statutory remedy. The applicant, 177, bears the onus of demonstrating to the Court that the tests set out in section 17(2) of the Civil Enforcement Act have been satisfied. [ 71 ] Section 17(2) of the Civil Enforcement Act states that the Court may grant the order if it is satisfied that: (

a) there is a reasonable likelihood that the claimant’s claim against the defendant will be established, and (

b) there are reasonable grounds for believing that the defendant is dealing with the defendant’s exigible property, or is likely to deal with that property,

i) otherwise than for the purpose of meeting the defendant’s reasonable and ordinary living expenses, and ii) in a manner that would be likely to seriously hinder the claimant in the enforcement of a judgment against the defendant. [ 72 ] An attachment order is an exceptional remedy, and can only be granted when the statutory criteria have been met.

The extraordinary nature of a pre-judgment attachment is recognized in the legislation, in that section 17(5) of the Civil Enforcement Act provides that, when an attachment order is granted, it should be granted in such a manner that it causes as little inconvenience to the defendant as is consistent with achieving the purposes for which the order is granted. [ 73 ] Professor Ronald C.C.

Cuming [1] describes the purpose of pre-judgment preservation orders as follows: It has long been accepted in common law jurisdictions that the legal system must provide measures designed to reduce the opportunity for a defendant to frustrate the enforcement of a money judgement that may be ultimately obtained against him or her by dissipating, destroying or disposing of exigible property or moving it out of the jurisdiction of the court. However, there are very important public policy considerations involved in the design and implementation of these measures.

By definition, they restrict the freedom of the defendant and, in some cases, third persons to deal with their property at a time when the plaintiff has only a claim that has not been proved through court proceedings. Of greater concern is the potential use of these measures as a tactical weapon against a defendant who has a valid defence to the claim. A defendant might be induced to settle a groundless or doubtful claim simply to recover control of assets subject to a legal asset preservation measure.

If the defendant is deprived of the use of income earning assets, he or she may not have the resources to defend an invalid claim. [ 74 ] Justice Robert J. Sharpe in his book “Injunctions and Specific Performance” says the following: Clearly, pre-trial execution of any kind poses definite problems. Attachment of assets or interference with disposition of assets will often constitute a serious interference with the defendant’s affairs. That interference may be more readily justified where the plaintiff’s right is specifically related to the asset in question.

However, where the plaintiff asserts a general claim and looks to the assets only as a means of satisfying a likely or possible monetary judgment against the defendant, interference with the defendant’s assets is more difficult to justify. Unless strictly limited to cases where the plaintiff’s prospect of ultimate success is strong and to cases where the defendant is bent on flouting the court’s process, restraining the defendant’s freedom to deal with his or her property upon the filing of an unsecured claim could well produce serious injustice.

On the other hand, it is equally difficult to justify the invariable refusal of such relief. The rationale underlying the ordinary interlocutory injunction is surely met where the plaintiff is able to show that there is a strong case on the merits and that, if the defendant is not stopped, the plaintiff’s right to an appropriate remedy at trial will be lost. The purpose of interlocutory injunctive relief is to prevent the effective destruction of the plaintiff’s rights in the period of delay awaiting trial.

If the risk that the plaintiff’s right will be destroyed exceeds the risk that the defendant may be unduly interfered with, an interlocutory injunction is justified. That purpose is surely met where the plaintiff can demonstrate that a money judgment will be rendered useless if the defendant is not prevented from evading the reach of the court’s process.

[ 75 ] These comments are located in Justice Sharpe’s discussion of Mareva injunctions, but apply with equal relevance to pre-trial attachments of assets generally. [ 76 ] Recently, Veit, J. in Gilks v. Green Clean Squad Inc . , 2015 ABQB 83 noted that: Apart from compliance with the provisions of s. 17 of the CEA, where an application is made for pre-trial/pre-judgment relief, a court must consider other principles.

While s.17 of the CEA does not explicitly say so, it is a general principle of the common law that all pre- judgment relief is exceptional. [ 77 ] I must determine whether the statutory requirements have been established by 177 against Ms. Davidson and Mr. Davidson separately. [ 78 ] With respect to Ms. Davidson, the “reasonable likelihood” that the claimant’s claim will be established part of the test has been met, although I note that Ms. Davidson vigorously disputes the allegations.

The test does not require a guarantee of success. [ 79 ] The more difficult issue is whether 177 has established that there are reasonable grounds for believing that Ms. Davidson is dealing with her exigible property, or is likely to deal with that property, otherwise than for the purpose of meeting her reasonable and ordinary business or living expenses and in a manner that would be likely to seriously hinder 177 in the enforcement of a judgment against her, should it obtain one. [ 80 ] There is no evidence that Ms.

Davidson is dealing with her income or assets other than to meet her living expenses and pay legal fees. There is no evidence of any attempt to move assets out of the jurisdiction or to hide them. However, 177 argues that the so- called “fraud exception” applies, which would not require such evidence. [ 81 ] This “exception” has been the subject of controversy and inconsistent decisions. In Sibley & Associates LP v. Ross , 2011 ONSC 2951 , Strathy, J. (as he then was) traced the origin of the exception and analyzed the arguments for and against such an exception in the case law and the academic literature.

He noted that the exception originated in cases where there had been an allegation of fraudulent conveyance and the injunction sought pertained to the very property that was the subject of the litigation. After a thorough review, he concluded as follows: [62] From Chitel v. Rothbart to the present day, the law has sought to draw a fair balance between leaving the plaintiff with a “paper judgment” and the entitlement of the defendant to deal with his or her property until judgment has issued after a trial.

In my respectful view, a plaintiff with a strong prima facie case of fraud should be in no more favoured position than, say, a plaintiff with a claim for libel, battery or spousal support. On the other hand, there may be circumstances of a particular fraud that give rise to a reasonable inference that the perpetrator will attempt to perfect the deception by making it impossible for the plaintiff to trace or recover the embezzled property.

To this extent, it seems to me that cases of fraud may merit the special treatment they have received in the case law. [63] Rather than carve out an “exception” for fraud, however, it seems to me that in case of fraud, as in any case, the Mareva requirement that there be risk of removal or dissipation can be established by inference, as opposed to direct evidence and that inference can arise from the circumstances of the fraud itself, taken in the context of all the surrounding circumstances.

It is not necessary to show that the defendant has bought an air ticket to Switzerland or has sold his house and has cleared out his bank accounts.

It should be sufficient to show that all the circumstances, including the circumstances of the fraud itself, demonstrate a serious risk that the defendant will attempt to dissipate assets or put them beyond the reach of the plaintiff. [64] The risk of removal or alienation can be inferred by evidence suggestive of the defendant’s fraudulent criminal activity ... [ 82 ] While the relief sought in Sibley was a Mareva injunction, the decisions and academic literature treat Mareva injunctions and attachment orders, both species of pre-judgment relief, in much the same way.

The “fraud exception”, for example, originated in cases involving Mareva injunctions before it was used by Burrows, J. in Osman Auction Inc. v. Belland , 1998 ABQB 1095 in a case involving an attachment order. In Interclaim Holdings Ltd. v.

Down 1999 ABCA 329 at para 83 , the Court of Appeal noted that in granting either a Mareva injunction or a preservation order, a court should be guided by the principles of the Civil Enforcement Act . [ 83 ] I adopt the reasoning in Sibley , particularly since the requirements for an attachment order are set out in statutory form and not in the common law, and do not provide a statutory “exception” in the case of allegations of fraud. However, consistent with the wording of

Section 17, the circumstances of the alleged fraud may give rise to an inference that there are reasonable grounds for believing that a defendant is likely to deal with her exigible property otherwise than for the purpose of meeting her reasonable and ordinary business or living expenses, and in a manner that would be likely to seriously hinder the claimant in the enforcement of a judgment it may obtain. [ 84 ] The question is whether this is one of those cases.

While this is not a case where the plaintiff seeks to preserve the asset that is the subject of the dispute, as in an action for wrongful conversion, 177 seeks to connect the acquisition of assets by Ms. Davidson to receipt of money alleged to have been fraudulently obtained. Ms. Davidson has been charged criminally, and, while she is entitled to the presumption of innocence, the allegations against her are strong.

She does not admit the fraud, however, nor has she let the allegations stand without answer, as has been the situation in other cases that apply the “fraud exception”. [ 85 ] However, given the nature of the fraud alleged against Ms. Davidson, which includes allegations of attempting to conceal the alleged fraud, the balance is tipped in favour of continuing an attachment order against Mrs. Davidson, particularly since 177 no longer applies for the overly onerous provisions of previous applications. [ 86 ] Mr. Davidson is in a different position.

There is no evidence connecting him directly with the alleged fraud, and he has not been charged criminally. The plaintiff’s case against him is essentially that, given the marital relationship and the fact that the plaintiff alleges that some of the misappropriated money was used to make payments on Mr. Davidson’s credit cards, he must have known about the fraud. The plaintiff also refers to a statement in the forbearance agreement to the effect that Ms. Davidson admits the contents of the Statement of Claim filed by Silverado, including these against her husband.

[ 87 ] This allegation is problematic in that it appears that at the time Ms. Davidson executed the forbearance agreement (which she denies knowing was a forbearance agreement), the claim had been discontinued against Mr. Davidson. [ 88 ] It should be noted that Mr. Davidson was extensively questioned by counsel to Silverado in 2013, with no resulting admissions or evidence that Mr. Davidson was aware of the alleged fraud or participated in it any way. He strongly contests the allegations made by the plaintiff. He testified to his belief that Ms.

Davidson earned about $70,000 in salary and also earned commissions. He testified that she was in charge of the family finances. [ 89 ] The standard required with respect to whether the plaintiff has established that its action has a reasonable likelihood of success is higher than that which is employed on an application for

summary judgment dismissing the claim, in which the question would be whether on the material presented there was a reasonable issue to be tried, and lower than a requirement to demonstrate a strong prima facie case: Osman Auction Inc. v. Belland , 1998 ABQB 964 at para 39 . The evidence against Mr. Davidson does not demonstrate a strong prima facie case. The issue is whether it meets the lower required standard. [ 90 ] On the extensive materials before me, I am not satisfied that there is a reasonable likelihood that the plaintiff’s claim against Mr. Davidson will be established at trial.

There is a paucity of evidence linking Mr. Davidson to the alleged fraud. Conflicts in the evidence would require me to make credibility findings on that issue that should be reserved for trial. Thus, the plaintiff has not met its onus of establishing the first part of the attachment order test. [ 91 ] Even if I am wrong in this determination, however, there is no persuasive evidence of dissipation by Mr. Davidson, or either Davidson for that matter. [ 92 ] As noted by Thomas, J. in Welcome Ford Sales Limited v.

Hellec , 2011 ABQB 753 at 43: [42] As this extraordinary remedy developed at common law, proof of actual or anticipated dissipation was a core issue in obtaining a Mareva injection. That common law remedy is now provided for in the CEA. However, the law continues to be that if there is no risk of dissipation of assets, then the claimant must prove its case before it can secure judgment. Evidence of dissipation includes evidence that assets have disappeared, or evidence that assets have been sold to non-arm’s length parties for less than market value. [ 93 ] There is no such evidence.

There is no evidence that the Davidsons have taken any unusual action to dispose of any assets, or that they have attempted to move assets out of the jurisdiction. There is no evidence, despite fulsome financial disclosure and extensive questioning, of any hidden bank accounts. [ 94 ] The plaintiff submits that the Davidsons have breached the existing attachment order and dissipated assets in the following ways:

a) Mr. Davidson cashed out about $103,578 in restricted share units. 177 says they consented to this on the understanding that the proceeds would go to the payment of legal fees. 177 complains that $10,000 of the proceeds have not been accounted for. The Davidsons have established that, of the roughly $60,000 in net proceeds, $50,000 went to payment of legal fees in the civil action and the balance to payment of fees in the criminal action and to property taxes. This is not dissipation, nor a breach of the attachment order.

b) The plaintiff alleges that one of the Davidson’s vehicles has been sold. This Court allowed the Davidsons to sell that vehicle and a trailer by order of January 15, 2015. The Davidsons have satisfied me that the vehicles have not yet been sold. This is neither dissipation nor a breach of any order of this Court.

c) The Plaintiff alleges that the September 20, 2013 order requires that the Davidsons redirect $375 bi-weekly that they had previously been depositing into registered accounts into their lawyers’ trust accounts. I agree with the Davidsons that the order does not require funds to be paid, but merely directs that if funds were to be paid to an RRSP or RESP, they instead be paid into trust. Ms. Davidson has stopped contributing to her RESP and RRSP accounts and used funds for living expenses and legal fees.

This is not dissipation nor a breach of the September, 2013 order. [ 95 ] Similarly in the December, 2013 application, Silverado was unable to present persuasive evidence of dissipation, arguing Mr. Davidson’s contributions to pensions, benefits and investments funds were dissipation, as was interest payments on their mortgages and use of Mr. Davidson’s bonuses towards their living expenses and legal fees. None of the alleged examples of dissipation amount to anything beyond the use of funds for reasonable and ordinary living expenses. [ 96 ] Nor is there any evidence of fraud on Mr.

Davidson’s behalf that may be a factor in assessing the risk of dissipation. The allegations of knowing assistance, which may amount to fraud, are not supported by evidence other than speculation, and the other allegations against Mr. Davidson are not based on fraud. Allegations of fraud unsupported by any persuasive evidence are not sufficient to raise the inference of dissipation. [ 97 ] 177 submits that I should not make a decision with respect to the attachment order without giving its counsel an opportunity to cross-examine the Davidsons pursuant to Rule 6.8. Given my decision with respect to Ms.

Davidson, that issue is moot with respect to her. I have decided that it is not appropriate for 177 to use Rule 6.8 to cross-examine Mr. Davidson in the absence of an affidavit from him in an application for an attachment order, and I will set out the reasons for that decision separately. [ 98 ] I also decline to adjourn this application any further. There is no formal application before me by 177 to use the Rule 6.8 process and this issue was not raised by 177 until the day of hearing.

It may well be appropriate to allow the use of Rule 6.8 with respect to the issue of the payment of legal fees out of attached property, but that issue has not yet been decided. [ 99 ] Thus, 177 has not satisfied its onus in establishing either of the two requirements for an attachment order against Mr. Davidson, and an attachment order against Ms. Davidson will not apply to any of Mr.

Davidson’s solely-owned assets, such as his vehicles, any of his RESP, RRSP, investment, stock, retirement funds, pension funds or other accounts held in his name through Suncor Energy Inc., Solium Capital Inc, Sunlife Financial, Investors Group or any other institution or firm. Nor is he to be included in the

prohibition against dealing with his exigible property. However, given the complexities of jointly-owned property, the interest he owns jointly with Ms. Davidson in real property will continue to be the subject of the revised attachment order and he will have to continue to provide a joint monthly statement with Ms. Davidson, in order to ensure that the statement provides adequate information on Ms. Davidson’s use of funds. [ 100 ] I decline to vacate any portions of the order made on January 24, 2014.

Given the Davidsons’ need to access funds to cover legal fees, that order will remain in effect to allow them to pursue this source of funds, for the same reasons for which it was originally granted. [ 101 ] Given my decision that the attachment order against Mr. Davidson should be lifted, the situation with respect to access to funds to pay legal fees has changed. Counsel should now have an opportunity to assess whether access to any of the property covered by the revised attachment order against Ms. Davidson is necessary to cover legal fees.

If so, the Davidsons may bring a revised application. [ 102 ] Even if I had come to a different decision with respect to an attachment order against Mr. Davidson, I would have allowed the Davidson’s application to apply the proceeds of Mr. Davidson’s savings account to legal fees. The plaintiff has not provided sufficient evidence that these funds are tainted with fraud, and they are reasonably necessary to allow the Davidsons to continue to retain counsel on both the civil matter and the criminal matter. [ 103 ] If the parties are unable to agree on costs, they may make submissions on them.

Dated at the City of Calgary, Alberta this 31st day of December, 2015. B.E. Romaine J.C.Q.B.A. Appearances: Matti Lemmens and Locklyn E. Price for Shelley Davidson and Richard Davidson Trevor McDonald and Robert Martz for Silverado Oilfield Ventures Ltd and 1773907 Alberta Ltd Appendix A Form of Order Sought by 1773907 1(

a) The Defendents, Shelley Davidson and Richard Davidson, are prohibited and restrained from transferring, assigning, selling, encumbering or otherwise dealing with any of their “exigible property” (used herein as defined in the Civil Enforcement Act and

associated regulations, as amended) other than in the ordinary course and for reasonable living expenses as limited in paragraph 1 (b), or to pay legal fees, and are also prohibited and restrained from borrowing or incurring debts on credit cards, lines of credit or otherwise, other than in the ordinary course and for reasonable living expenses or to pay legal fees. The source of payment of the Davidsons’ legal fees, whether from the Davidsons’ monthly employment income or from other assets, shall be determined by the case management judge.

Any dealings (including borrowing or incurring debts) that are not in the ordinary course and/or for reasonable living expenses or to pay legal fees require the prior written agreement of the Plaintiff or further Court order. This order shall not be served on any bank, financial institution or credit card company. (

b) The Davidsons shall not use any assets other than their monthly employment income, up to the approximately joint net amount of $20,000, to pay living expenses. 2. All interest of the Defendants, Shelley Davidson and Richard Davidson, in the following property is hereby attached:

a) The real estate legally described as: CONDOMINIUM PLAN 0513169 UNIT 75 AND 87 UNDIVIDED ON TEN THOUSANDTH SHARES IN THECOMMON PROPERTY EXCEPTING THEREOUT ALL MINES AND MINERALS

b) The real estate legally described as: PLAN 7521541 BLOCK 2 LOT 53 EXCEPTING THEREOUT ALL MINES AND MINERALS

c) The following personal property: i) 2012 Ford Expedition with vehicle identification number 1FMJK2A59CEF63362; ii) 2012 Jeep Wrangler with vehicle identification number 1C4BJWFG1DL507202; iii) Black Shorlander Sea Doo Trailer, licence plate #Z142-80; iv) 2006 black Sea Doo RXT, vehicle identification #YDV27976E606; v) 2006 black Sea Doo RXT, vehicle identification #YDV27903E606; vi) Bay Liner Boat, vehicle identification #U5-U5HDS1CXC808, licence plate number 205br-2367; vii) Bay Liner Trailer, vehicle identification #5K2B525239F501137, licence plate # T395- 26; viii) SWS Snowmobile trailer, licence plate #9012-90; ix) 1996 Polaris Indy 500 Snowmobile, vehicle identification #3191610; x) 1997 Polaris Indy 340 Snowmobile, vehicle identification #3367182; xi) red Pelican canoe and; xii) black canoe trailer (home-made – no VIN) 3.

The seizure under Bailee`s undertaking of personal property set out in paragraph 2(

c) above is in effect and shall not expire except by further order of the Court. 4. The Defendants shall provide a monthly accounting of expenditures to counsel for the Plaintiff, Burnet Duckworth & Palmer LLP (“BD&P”), and to the Court. 5. The Defendants are prohibited from making, accepting or receiving any withdrawals or transfers from their (or their children’

s) RRSP, RESP, investment, stock, retirement funds, pension funds or any other accounts held with, by or through any of Suncor Energy Inc., Solium Capital Inc., Sunlife Financial, Investors Group or any other institution or firm. 6. The Defendants shall be prohibited from depositing the bi-weekly amount of $375 that the Defendants have been depositing into RESP and RRSP accounts with Investors Group from the date of this Order onwards. Commencing immediately, such funds shall be deposited into the trust account of their counsel, Borden Ladner Gervais LLP, unless varied or set aside by further order of this Court.

7. Any mortgage renewal or amendment agreement that the Defendants intend to execute while this Order is in effect shall first be delivered to BD&P prior to execution by the Defendants, and the Plaintiff may apply to the Court for relief if it objects to any of the terms or conditions thereof. 8. This Order shall not expire except by further order of the Court. 9. Any party or parties may apply to vary or amend this Order on reasonable notice to the other party or parties. 10. The Registrar of Land Titles is directed to register this Order on an expedited basis. 11.

This Order may be approved as to form in counterpart and by facsimile or e-mail. _______________________________________________________ Corrigendum of the Reasons for Decision of The Honourable Madam Justice B.E. Romaine _______________________________________________________ Please note citation line has been corrected to read, “2016 ABQB 2”