Stankovic v, 2016 ABQB 677

Court of Queen’s Bench of Alberta Citation: Stankovic v 849450 Alberta Ltd, 2016 ABQB 677 Date: 20161124 Docket: 1501 04858 Registry: Calgary Between: William Stankovic Plaintiff - and - 849450 Alberta Ltd. Defendant _______________________________________________________ Reasons for Decision of J.T. Prowse , Q.C.

Master in Chambers _______________________________________________________ [ 1 ] The issue being considered is whether the defendant can question a lawyer carrying on the private practice of law as an ‘employee’ of the plaintiff under Rule 5.17(1)(d). [ 2 ] For the reasons which follow I conclude that the defendant cannot question the lawyer in question, Gary Daniels, as an employee of the plaintiff. The change between old Rule 200 and new Rules 5.17 and 5.18 [ 3 ] In these reasons I will use the term ‘consultant’ to mean someone carrying on a profession as a private practitioner.

Consultants typically have their own premises and provide services for many clients. Often the manner in which they provide services is regulated by a professional regulatory body. Mr. Daniels is a consultant as I use that term. [ 4 ] Prior to the new Rules of Court, if a party wanted to examine a consultant under oath prior to trial, they would seek a ruling that the consultant was an officer of, or employed by, the adverse party within the meaning of Rule 200, which provided as follows:

200(1) Before trial, a party to proceedings may orally examine under oath, without an order of the Court, (

a) any other party to the proceedings who is adverse in interest, (

b) if the other adverse party is a corporation, one or more officers of the corporation, and (

c) one or more other persons who (

i) are or were employed by the other party, and (ii) have or appear to have knowledge of a matter raised in the pleadings that was acquired by virtue of that employment. (emphasis added) [ 5 ] The case law under Rule 200 established broad

definitions of ‘officer’ and ‘employed’ to enable the applicant to obtain information that was difficult to obtain elsewhere and where it would be unfair to have the matter proceed to trial without that pre-trial disclosure. [ 6 ] These broad

definitions of ‘officer’ and ‘employed’ were achieved by asking whether the type of services provided were analogous to or akin to services often (or perhaps traditionally) provided by someone who was actually an officer or an employee, in which case the consultant would be considered an officer or employee for the purpose of Rule 200. The difficulty with this distinction is that almost every kind of work done by a consultant is also being done in other situations by professionals who are true employees.

In other words, this analysis taken to its logical conclusion is that every service provider should be considered to be an employee for the purpose of Rule 200. [ 7 ] An illustration of the struggle to apply the ‘analogous to’ or ‘akin to’ criteria can be found in the decision of Johnson v Alberta , 2002 ABQB 1068 , where the issue in the litigation was the location of the boundaries of a lake.

The Crown had hired surveyors to survey the boundaries of the lake and the adverse parties wanted to examine those surveyors under Rule 200. [ 8 ] The surveyors were not employees of the Crown as that term is normally used. Under the Surveys Act , RSA 2000 Ch.

S-26, only a professional Alberta Land Surveyor can determine the location of a natural boundary. [ 9 ] It was clearly appropriate and necessary in the interests of justice that the surveyors be examined under oath prior to trial, and this was ordered, but, if one could find that those surveyors were ‘employed’ for the purpose of Rule 200, then any consultant could be found to be ‘employed’ under Rule 200. [ 10 ] In other words, in my view it is the public policy criteria of full disclosure that drove the decision to allow the pre-trial examination of the consultant surveyors as someone ‘employed’ by the adverse party under Rule 200.

I note the following portion of the judgment in that regard: 25. I am satisfied from the evidence that the surveyors have the best and most direct information about the location of the natural boundary of Buffalo Lake prior to the flooding. The broad objective of Rule 200 — to force pre-trial disclosure of non-privileged information — would best be served by permitting examinations of the surveyors as akin to employees of the Crown as requested by the plaintiffs. [ 11 ] The need to go through such semantic machinations was largely eliminated when the new Rules of Court were enacted in November of 2010.

A copy of the relevant portions of the new Rule 5.17 (largely a restatement of old Rule 200) and the totally new Rule 5.18 are attached as an appendix to these reasons. [ 12 ] Under Rule 5.18 it is no longer necessary to categorize a consultant as an ‘officer’ or an ‘employee’. All that is necessary is to satisfy the public policy criteria, which I would summarize as follows: (

a) a party cannot obtain relevant and material information from an examination of the adverse party under Rule 5.17, (

b) it would be unfair to require the party seeking the examination of the service provider to proceed to trial without having the opportunity to ask the service provider about the information sought, presumably because it deals with a key issue in the litigation, and (

c) the questioning of the service provider will not cause undue hardship, expense or delay to, or unfairness to, the adverse party or the service provider.

Rule 5.18 is restricted to services provided to a corporation [ 13 ] My comments under this heading deal with the situation where a consultant provides services to a corporation. [ 14 ] The first step ought to be to determine whether the consultant was in fact an officer or employee of the adverse party. [ 15 ] In my view, the term ‘employee’ should be interpreted utilizing the substantial case law developed in the areas of employment law and tax law which deal with whether someone is or is not an employee.

In other words, the old case law under Rule 200 should not be used to broaden the concept of who is or is not an employee. [ 16 ] If someone is a consultant, as defined at the outset of these reasons, they would typically not be considered to be an employee under that law. [ 17 ] If the consultant is not an employee or officer of the adverse corporate party, then the consultant can nevertheless be examined under Rule 5.18 if the public policy criteria listed in Rule 5.18 can be satisfied.

[ 18 ] It makes no sense to me to have an applicant apply to examine a consultant of an adverse corporate party under Rule 5.17, and to use the public policy criteria under case law developed under old Rule 200 to determine if that consultant is providing services ‘akin to’ or ‘analogous to’ an employee, when that consultant (who is clearly a service provider under Rule 5.18) can be examined under similar public policy criteria specifically listed in Rule 5.18. [ 19 ] The case law under old Rule 200 is voluminous and the decisions are sometimes contradictory.

Where a clear rule has been enacted to codify the previously created public policy criteria, it is not helpful to refer to those previous cases. [ 20 ] Rule 5.17 is narrower than old Rule 200 which uses the word ‘employed’ rather than Rule 5.17, which uses the word ‘employee’. It is common for a person to say that they ‘employed’ a consultant architect to design a building for them.

It would not be normal grammatical useage for that client to describe the architect as their ‘employee’. [ 21 ] Where an application is made to examine a consultant of an adverse corporate party, the definition of ‘employee’ under Rule 5.17 should in my view be restricted to the normal usage of that term for the following reasons: (

i) Rule 5.17 was enacted concurrently with Rule 5.18. The Rules should be interpreted together to make sense of them, (ii) the wording of Rule 5.17, which uses ‘employee’ is narrower than the wording of old Rule 200, which used ‘employed’, (iii) it is more consistent with access to justice for litigants to use the clear concise express public policy criteria in Rule 5.18 to seek the examination of a consultant service provider than to refer to the voluminous case law under old Rule 200.

Where the services are provided to an individual rather than a corporation [ 22 ] Rule 5.18 deals with examining a services provider to a corporation. It does not apply where a consultant provides services to a natural person. In that circumstance, the applicant will be driven to use Rule 5.17 in an attempt to categorize the service provider as an employee of or officer of the adverse party. [ 23 ] I am not sure why Rule 5.18 was not worded to apply to examining a service provider to a natural person such as Mr.

Stankovic. [ 24 ] I am unable to envisage a public policy reason for Rule 5.18 not applying to consultants who provide services to a natural person. [ 25 ] Where does this leave us? Am I to apply the old case law under Rule 200 to see whether the definition of ‘employee’ under Rule 5.17 can be ‘broadened’ so as to encompass Mr. Daniels, just as the

definitions of ‘employed’ and ‘officer’ were broadened by case law under the old Rule 200? [ 26 ] The public policy criteria discussed in the previous case law under Rule 200 has effectively been codified under Rule 5.18. Rather than litigants resorting back to that prior case law, with all the time and expense involved, I believe the criteria under Rule 5.18 should be applied to the application to examine Mr. Daniels under Rule 5.17, even though Mr. Daniel’s services were provided to a natural person and not to a corporation. [ 27 ] In other words, in my view the definition of ‘employee’ under Rule 5.17 should be broadened to cover Mr. Daniels only if: (

a) the defendant 849 cannot obtain relevant and material information from an examination of Mr.Stankovic as a party adverse in interest, (

b) it would be unfair to require the defendant 849 to proceed to trial without having the opportunity to ask Mr. Daniels about the information sought given the importance of that information, and (

c) the questioning of Mr. Daniels will not cause undue hardship, expense or delay to, or unfairness to, the plaintiff Mr. Stankovic or to Mr. Daniels. [ 28 ] I will now review the facts of this case in order to apply those three criteria. The facts [ 29 ] Prior to this litigation, the plaintiff Mr.Stankovic and Mr. Trnski, the principal of the defendant 849450 Alberta Ltd. (“849”), were close friends. [ 30 ] Mr.

Stankovic filed this statement of claim for foreclosure against 849 in May of 2015. [ 31 ] It alleges that he holds a $550,000 mortgage from 849 against land described as the James River farm, which is in default. It seeks the usual foreclosure remedies. [ 32 ] 849 has defended the foreclosure. 849 alleges that the mortgage in question (the “James River mortgage”) was part of a joint venture between Mr. Stankovic and Mr. Trnski. He says that the parties had agreed that the mortgage would not be enforced until profits had been realized from the joint venture. [ 33 ] The following

summary of the statement of defence sets out the defences of 849 to the foreclosure action. I provide this

summary because it sets out 849’s allegations of an ever changing commercial deal between Mr. Stankovic and Mr. Trnski (849). [ 34 ] Mr. Daniels, the lawyer, was involved in the discussions and negotiations of the commercial deal. Obviously Mr. Trnski hopes that an examination under oath of Mr. Daniels will confirm Mr. Trnski’s version of the commercial deal.

[ 35 ] The statement of defence asserts that: • Mr. Stankovic owned a 4 acre property, including residence, on 77 Street S.W. in Calgary, then worth approximately $2.5 million. • Mr. Trnski’s corporation 849 owned a farm in rural Alberta referred to as the James River farm. • in May of 2010 Mr. Stankovic and Mr. Trnski, who were long-time friends and business associates, entered into an agreement to advance the subdivision and sale of the 77 Street property. • They agreed that another of Mr.

Trnski’s corporations, 1536679 Alberta Ltd. (“153”) would enter into an agreement to purchase the 77 Street property for $5.5 million. 153 would obtain the $500,000 deposit from 849. In turn, 849 would obtain those funds by way of loan from Mr. Stankovic, secured by 849’s mortgage of the James River farm. • this documentation, including the $500,000 deposit, would assist Mr.

Stankovic in taking the position with the Canada Revenue Agency (“CRA”) that the anticipated sale proceeds of approximately $5.0 million of the soon to be subdivided 77 Street property of approximately $5.0 million would be treated as tax exempt proceeds of the sale of a principal residence. • Mr. Stankovic and Mr.Trnski agreed to divide the anticipated proceeds from the subdivision and sale. Mr.

Stankovic would receive the first $5.0 million (being a $2,500,000 increase over its present value of $2,500,000) with the increase over $5.0 million being split between the two of them. • Even after entering into an agreement for sale with 153, Mr. Stankovic continued to use the home located on the 77 Street property as his residence. All the furnishings in the home continued to be owned by Mr. Stankovic. • Mr. Trnski and his family moved into the 77 Street residence, in a home sharing arrangement with Mr.

Stankovic, to give an air of credibility that the sale at $5,000,000 in 2010 to 153 was bona fide. • by 2014, the anticipated proceeds of sale of the subdivided 77 Street property had increased to $10.5 million. In the face of this increased value Mr. Stankovic caused Mr. Trnski to jointly meet with the lawyer Gary Daniels in October 2014 to restructure the transaction. Mr. Stankovic wanted to protect his greater than expected income from income tax and he insisted on re-doing the sale value of the 77 Street Property to shield an even greater amount of the profit from tax. • Mr.

Stankovic decided that the price for which he would be selling the 77 Street property to 153 would be increased from $5.5 million to $7.5 million. • in January of 2015 the 77 Street property was transferred into the name of 153 at a stated value of $7.5 million with a vendor take-back mortgage of $7.0 million. The balance of $500,000 was stated to have been paid to Mr. Stankovic by 153, secured by the James River mortgage. • the underlying agreement continued to be that the $500,000 advanced by Mr.

Stankovic under the James River mortgage granted by 849 would be paid from the sale proceeds of the sale of the 77 Street property. • in February of 2015 Mr. Trnski was served with divorce papers. This raised the prospect of a matrimonial property claim interfering with the subdivision of the 77 Street property. In reaction to this, Mr. Stankovic demanded that the 77 Street property be transferred back to him from 153. Mr. Stankovic threatened to terminate the joint venture agreement with Mr.

Trnski by enforcing against 153 the vendor take back mortgage against the 77 Street property and by enforcing against 849 the mortgage against the James River farm. • this threatened mortgage enforcement was contrary to the collateral agreement between Mr. Stankovic and Mr. Trnski that there would be no enforcement of the James River mortgage until the completion of the 77 Street property. The application under Rule 5.17(1)(

d) to examine Mr. Daniels as an ‘employee’ [ 36 ] Mr. Trnski swore an affidavit in this action on April 18, 2016. He mentions Gary Daniels in that affidavit but does not take a position regarding for whom Mr. Daniels was acting. He refers to him as “the lawyer Gary Daniels”, not my lawyer, his lawyer or our lawyer. [ 37 ] Mr. Trnski swore a subsequent affidavit on September 26, 2016. In this affidavit he swears that Mr. Daniels was acting for both him and Mr.

Stankovic. [ 38 ] He begins that affidavit with this paragraph: In or about the early spring of 2010, in pursuance of the joint venture agreement being discussed between myself and my then very close personal friend, the Plaintiff Stankovic, we both decided to retain Mr. Daniels as the lawyer for the joint venture, as we both knew him since the 80's and trusted his judgment. Both the Plaintiff and I discussed all the matters set forth in my Affidavit with Mr. Daniels. [ 39 ] He then outlines a series of meetings and communications he had with Mr.

Daniels concerning the matters outlined in his statement of defence, summarized earlier. He ends his affidavit with this paragraph: Based on the above, I believe Mr. Daniels is a key material witness to be called at trial. His testimony is relevant and material and since he was present when the underlying agreement was discussed and negotiated, he has knowledge and is aware of the material and relevant facts, which form the main issues of this matter. [ 40 ] With these facts I turn to a consideration of the three criteria (by analogy to Rule 5.18) to determine if the defendant should be allowed to examine Mr.

Daniels.

Application of the three criteria: (a) 849 cannot obtain the relevant and material information from an examination ofMr. Stankovic [41] In the previous case law, a party often sought to have someone classified as an officer or employee under Rule 200 becausethey had no other way of knowing what happened at some relevant event. [42] Mr. Trnski, the principal of 849, was at the meetings in question between himself, Mr. Stankovic and Mr. Daniels. He metalone with Mr. Daniels in at least one situation. He already has the information as to what happened at the meetings because he was atthe meetings. [43] Mr.

Trnski can also discover Mr. Stankovic as to Mr. Stankovic’s version of what happened at most of the meetings, as Mr.Stankovic was in attendance at the majority of meetings. [44] Mr. Trnski is unable to demonstrate that he cannot obtain material and relevant information as to what occurred withoutexamining Mr. Daniels. (

b) it would be unfair to require 849 to proceed to trial without having theopportunity to ask Mr. Daniels questions about the information sought [45] While it might be helpful for Mr. Trnski to find out in advance what Mr. Daniels testimony will be (as he points out in hisaffidavit, quoted earlier), we do not have a system of pre-trial depositions in Alberta. Accordingly it is not ‘unfair’ for Mr. Trnski toproceed to trial without knowing in advance what the testimony of witnesses such as Mr. Daniels (as opposed to the testimony of theparties) will be. (

c) the questioning will not cause undue hardship, expense or delay to, or unfairnessto, any other party or to the person to be questioned, [46] If the discovery of Mr. Daniels were otherwise necessary and appropriate I would not find the expense and delay as sufficientreason to deny the examination. Conclusion [47] For the reasons set out above, in my view, when an application is made to examine under oath a lawyer (or any other serviceprovider) to an adverse party, the following process should be followed: (

i) If the lawyer is or was an employee of the adverse party, then she/he may be examined for discovery under Rule 5.17. (ii) If the lawyer is not an employee of an adverse corporate party, but provided services to the adverse corporate party, then theapplication to compel the lawyers attendance at discovery should proceed under Rule 5.18. (iii) If the lawyer is not an employee, and the adverse party is an individual as opposed to a corporation, the court should havereference to the criteria listed under Rule 5.18 in deciding whether to allow discovery to take place, even though the application is notproceeding under Rule 5.18. [48] Mr.

Daniels carries on the practice of law as a private practitioner/consultant. He is not an employee of the plaintiff as thatterm in normally used. [49] He cannot be examined under Rule 5.18 as drafted as he provided services to an individual and not a corporation. [50] Applying the public policy criteria under Rule 5.18 to Mr. Daniels, given my conclusion on the three criteria just discussed, Idecline to broaden the definition of ‘employee’ under Rule 5.17 to encompass Mr. Daniels. [51] Accordingly, 849’s application to examine Mr. Daniels pursuant to Rule 5.17 is dismissed.

Cases reviewed [52] I reviewed the following cases in considering this application: [53] Kirdeikis v Campbell Brothers Real Estate Ltd., (AB CA), 1963 CarswellAlta 33; Cana Construction Co. vCalgary Centre for Performing Arts, 1986 ABCA 175, 1986 CarswellAlta 165; Simpson’s Num Ti Jah Lodge Ltd. v Lange, 1991CarswellAlta 187; BTK Holdings Ltd. v Greater Edmonton Development Corp., 1992 ABCA 238 , 1992 CarswellAlta 141;Trizec Equities Ltd. v Ellis-Don Management Services Ltd., (AB KB), 1994 CarswellAlta 126; 474562 Alberta Ltd. vJ.M.

Nelson Holdings Ltd., 1998 ABQB 1046; Adams v Norcen Energy Resources Ltd., 1998 ABQB 913, 1998 CarswellAlta 1030;Gienow Building Products Ltd. v Tremco, 2000 ABCA 105; Mikisew Cree First Nation v Canada, 2000 ABQB 485, 2000 CarswellAlta722; Johnson v Alberta, 2002 ABQB 1068, 2002 CarswellAlta 1692; Flynn v Luscar, 2002 ABQB 799, 2002 CarswellAlta 1123;Alberta-Pacific Forest Industries Inc. v Ingersoll-Rand Canada Inc., 2002 ABQB 791, 2002 CarswellAlta 1089; Klemke Mining Corp. vShell Canada Ltd., 2002 ABQB 1131, 2002 CarswellAlta 1677; MacKenzie v First Marathon Securities Ltd., 2004 ABQB 300, 2004

CarswellAlta 481; Prairie Lands v Concert Properties Ltd. , 2004 ABQB 726 , 2004 CarswellAlta 1285; Petro-Canada Products Inc. v Dresser-Rand Canada Inc. , 2004 ABCA 144 ; Resortport Development Corp. v Alberta Racing Corp. , 2006 ABQB 597 , 2005 CarswellAlta 1370; Apotex Inc. v Alberta , 2006 ABCA 133 , 2006 CarswellAlta 478; Hunter Financial Group Ltd. v Maritime Life Insurance Co. , 2006 CarswellAlta 847 ; Abramski v TD Waterhouse Canada Inc. , 2006 ABQB 134 , 2006 CarswellAlta 207; Ziegler Estate v Green Acres (Pine Lake) Ltd. , 2008 ABQB 552 , 2008 CarswellAlta 1341; Dominion Exploration Partnership v Enron Canada Corp. , 2007 CarswellAlta 466 ; Devon Canada Corp. v PE-Pittsfield LLC , 2008 ABQB 394 , 2008 CarswellAlta 961; 1135973 Alberta Ltd. v Dupre, 2008 ABQB 778 ; Hercap Investments Inc. v Alberta Permit Pro Inc. , 2009 ABQB 643 , 2009 CarswellAlta 1826; Cumberland Fabricators Ltd. v Ledcor Industries Ltd. , 2009 ABQB 757 , 2009 CarswellAlta 2180; Hunka v Degner , 2010 ABQB 716 , 2010 CarswellAlta 2273; Hunka v Degner , 2011 ABCA 142 , 2011 CarswellAlta 791; Cogent Group Inc. v EnCana Leasehold Ltd.

Partnership , 2011 ABQB 335 ; Strategic Acquisition Corp. v Multus Investment Corp. , 2013 ABQB 681 , 2013 CarswellAlta 2392; Canadian Natural Resources Ltd. v ShawCor Ltd. 2016 ABQB 21 , 2016 CarswellAlta 31. Costs [ 54 ] If counsel cannot agree on costs of this application they may approach me for a ruling in that regard. Heard on October 5 th and November 9 th , 2016. Dated at the City of Calgary, Alberta this 24 th day of November, 2016. J.T. Prowse, Q.C. M.C.C.Q.B.A. Appearances: Francis N.J. Taman Bishop & McKenzie LLP for the Plaintiff Clive O.

Llewellyn Llewellyn Law for the Defendant Appendix 5.17(1) A party is entitled to ask the following persons questions under oath about relevant and material records and relevant and material information: (

a) each of the other parties who is adverse in interest; (

b) if the party adverse in interest is a corporation,

(

i) one or more officers or former officers of the corporation who have or appear to have relevant and material information that was acquired because they are or were officers of the corporation, and ... (

d) one or more other persons who are or were employees of the party adverse in interest who have or appear to have relevant and material information that was acquired because of the employment;... 5.18(1) Subject to subrules (2) and (3), if (

a) a party cannot obtain relevant and material information from an officer or employee or a former officer or former employee of a corporation that is a party adverse in interest, (

b) it would be unfair to require the party seeking the information to proceed to trial without having the opportunity to ask questions about the information sought, and (

c) the questioning will not cause undue hardship, expense or delay to, or unfairness to, any other party or to the person to be questioned, the party may question, under oath, a person who has provided services for the corporation and who can provide the best evidence on the issue.