Demb v Valhalla Group Ltd, 2017 ABQB 256

Court of Queen’s Bench of Alberta Citation: Demb v Valhalla Group Ltd, 2017 ABQB 256 Date: 20170406 Docket: 1101 00337 Registry: Calgary Between: Valeri Demb, Svetlana Demb and Vadim Demb Plaintiffs / Applicants - and - The Valhalla Group Ltd., Kadco Construction Inc., 1295013 Alberta Ltd., Koocanusa Homes Ltd., Hervé Collet, Mae Collet and Robert Kadman Defendants / Respondents Corrected judgment: A corrigendum was issued on June 23, 2017; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Memorandum of Decision of the Honourable Mr.

Justice C.M. Jones _______________________________________________________ I. Overview [ 1 ] This is an application for a determination of a penalty for civil contempt of court. The applicants, Valeri Demb, Svetlana Demb and Vadim Demb, applied to this court for a finding that Hervé Collet, Mae Collet and Robert Kadman (the “Individual Defendants”) are in contempt of court arising out of their documentary production obligations. I dismissed that application: Demb v Valhalla Group Ltd , 2015 ABQB 618 .

On appeal, the Court of Appeal reversed my finding and held the Individual Defendants were in contempt of court: Demb v Valhalla Group Ltd , 2016 ABCA 172 . The Court of Appeal directed that the matter be remitted to me to impose the appropriate penalty for its finding of contempt. [ 2 ] The Defendants, Kadco Construction Inc. (“Kadco”), Koocanusa Homes Ltd. (“Koocanusa”), The Valhalla Group Ltd. (“Valhalla”) and 1295013 Alberta Ltd. (“1295013”) (collectively, the “Corporate Defendants”), are not Respondents on this Application. II.

Facts [ 3 ] The Plaintiffs commenced this litigation to recover outstanding loans advanced and investments made over several years, beginning in 2003. The Statement of Claim was issued on January 7, 2011 and amended March 10, 2015.

A Consent Judgment against Kadco and Koocanusa was entered into on November 17, 2011 as follows: • Kadco was found liable to Valeri Demb and Svetlana Demb for $251,243.57 plus interest, and to Vadim Demb for $174,427.32 plus interest; and • Koocanusa was found liable to Valeri Demb and Svetlana Demb for $160,143.08 plus interest. [ 4 ] The action continues against Valhalla, 1295013 and the Individual Defendants. [ 5 ] The Plaintiffs’ allegations against the Individual Defendants include that they misrepresented the safety of the loans to Kadco and Koocanusa, and that Kadco and Koocanusa would be able to repay them.

The Plaintiffs also seek a tracing of the investment and loan funds, alleging that the Individual Defendants fraudulently received the funds.

[ 6 ] The Plaintiffs’ action against the Individual Defendants is in the production and questioning stage of the litigation. This matter has been in case management with me for several years. The parties have been embroiled in interlocutory proceedings to address outstanding documentary disclosure obligations. During the time this matter has been in case management, the Plaintiffs have declined my offers to specifically address these issues in case management through targeted orders designed to respond to the Plaintiffs’ concerns.

Instead, the Plaintiffs have twice chosen to address deficiencies in the Individual Defendants’ production by seeking findings of contempt and striking of the Individual Defendants’ Statement of Defence. [ 7 ] There have been multiple rounds of production and multiple court applications by the Plaintiffs seeking further disclosure and, later, orders for contempt of court. As case management judge, I am familiar with the procedural history, which is relevant in my determination of an appropriate penalty for the Court of Appeal’s finding that the Individual Defendants are in contempt of court.

Procedural History [ 8 ] The following is a

summary of the Individual Defendants’ disclosure and production, including the court applications brought and orders obtained: (

i) Affidavit of Records dated June 6, 2011 sworn by Robert Kadman [ 9 ] This Affidavit of Records included disclosure of financial records of the Corporate Defendants, but the Individual Defendants did not disclose their personal financial records. (ii) Seizure of Computer on December 23, 2011 [ 10 ] In enforcing the Consent Judgment, the Plaintiffs had a computer seized by a bailiff that contains financial records for the Corporate Defendants.

A third party was appointed by court order to make a copy of the information contained on the computer, and the computer has been held by the Plaintiffs’ counsel pursuant to a Bailee’s Undertaking. There are more than 83,000 records on the computer. (iii) Application filed April 10, 2012 by the Plaintiffs [ 11 ] The Plaintiffs sought further and better documentary disclosure and production, including financial records contained on a computer seized on December 23, 2011 and held by their counsel.

This application was heard on October 11, 2012 (the “First Production Application”). (iv) Supplemental Affidavit of Records dated May 16, 2012 sworn by each of the Individual Defendants [ 12 ] These Supplemental Affidavits of Records did not disclose financial records. (

v) Further Supplemental Affidavits of Records dated August 27, 2012 sworn by Robert Kadman and Mae Collet [ 13 ] These included financial records of Kadco organized in general bundles. (vi) First Production Application heard on October 11, 2012 [ 14 ] Master Laycock heard the Plaintiffs’ application for further and better Affidavits of Records from the Individual Defendants, as well as for relief relating to the questioning of Mae Collet and unanswered undertakings.

The Plaintiffs sought production of the Individual Defendants’ personal financial records, including bank account records and cheques, and to preserve digital information stored on the computer, among other relief. (vii) Order pronounced October 11, 2012 and dated November 16, 2012 (the “Laycock Order”) [ 15 ] Master Laycock ordered that a third party be appointed to copy all information contained on the computer and provide it to counsel for the Individual Defendants, while the computer was to remain in the Plaintiffs’ counsel’s possession pursuant to his Bailee’s Undertaking.

Robert Kadman was ordered to answer certain undertakings. Master Laycock agreed with Plaintiffs’ counsel that the Affidavit of Records submitted by Robert Kadman should not stand for all of the parties. He ordered that Hervé Collet provide his further and better Affidavit of Records before January 10, 2013, and that Mae Collet and Robert Kadman provide their respective further and better Affidavits of Records within 60 days of his order.

Master Laycock did not set out a detailed list of documents that needed to be provided, but indicated that counsel for the Individual Defendants had a positive obligation to review documents in their possession, and to produce those that are relevant and material. (viii) Further and Better Affidavits of Records dated December 10 and 12, 2012 [ 16 ] Each of the Individual Defendants provided a Further and Better Affidavit of Records in accordance with the Laycock Order. Mae Collet and Robert Kadman swore their affidavits on December 10, 2012, while Hervé Collet swore his on December 12, 2012.

These affidavits itemized personal banking records that were produced with redactions. (ix) Copy of Computer Hard Drive on December 20, 2012

[ 17 ] The computer contents were saved onto an external hard drive that was then provided to the Individual Defendants (the “Hard Drive”). (

x) Unfiled Application provided by Plaintiffs on March 1, 2013 [ 18 ] The Plaintiffs provided an unfiled copy of an Application asking the Court to find the Individual Defendants in contempt of the Laycock Order, on the basis that the Individual Defendants’ financial information and the records from the computer had still not been properly produced. (xi) Supplemental Affidavit of Records of Mae Collet sworn August 2, 2013 [ 19 ] This affidavit disclosed the Hard Drive as a single record. Individual documents were not listed or bundled.

The Plaintiffs’ counsel had (and as far as this Court is aware, continues to have) in his possession the original computer containing these records. (xii) Delivery on September 10, 2013 of un-redacted copies of Documents previously produced [ 20 ] The Individual Defendants delivered a box of un-redacted copies of documents that had previously been produced with redaction by way of Further and Better Affidavits of Records dated December 10 and 12, 2012.

The box was not organized and the documents were not correlated with the previous production. (xiii) First Contempt and Production Application and Decision [ 21 ] The first contempt application was argued before me on September 17 and 19, 2013 (the “First Contempt and Production Application”).

The Plaintiffs argued the Individual Defendants were in contempt of the Laycock Order. [ 22 ] I issued my decision on September 8, 2014 (the “2014 Order”), reported at Demb v Valhalla Group Ltd , 2014 ABQB 554 , aff’d 2015 ABCA 29 , concluding that the Individual Defendants were not in contempt of the Laycock Order, and acted with a sufficient degree of diligence to comply with it: at para 118. The following relief was granted: In the result, I dismiss the Plaintiffs’ application for Primary Relief, including that the Individual Defendants be found in contempt of court.

I allow the Plaintiffs’ application for Alternative Relief, as set out in the following para. I direct the Individual Defendants, at their own expense, to take such steps as are necessary to provide the Plaintiffs with a Further Supplemental Affidavit of Records listing: 1. all relevant and material documents contained on the Hard Drive. While the relevant and material documents may be listed in bundles, the records so bundled must be of the same nature and be described in sufficient detail that the Plaintiffs can understand what the bundle contains.

It is permissible in this case for the Individual Defendants to use electronic searching, provided the search terms are disclosed to the Plaintiffs; and 2. all documents contained in the materials provided to the Plaintiffs on September 10, 2013. This information must be provided within one month of this decision, failing which the Individual Defendants shall appear before this Court to show cause why they should not be held in contempt of court.

The parties may speak to any concerns regarding the electronic search terms at our next case management meeting. (at paras 122-125) [ 23 ] By decision dated January 22, 2015, the Court of Appeal dismissed the Plaintiffs’ appeal of my decision, including my determination that the Individual Defendants were not in contempt of the Laycock Order: 2015 ABCA 29 at paras 31-32 (the “First Appeal”).

The Court of Appeal commented that they would not necessarily have ruled in the same fashion, but that a decision of a case management judge is accorded a high level of deference in such matters. (xiv) Supplemental Affidavit of Records of Robert Kadman sworn October 8, 2014 [ 24 ] Robert Kadman swore a Supplemental Affidavit of Records on October 8, 2014 on behalf of the Individual Defendants. His explanation for swearing an affidavit on behalf of the Individual Defendants is that they are a family, and their financial affairs are joined together.

Also, Hervé Collet and Mae Collet were in France on October 8, 2014 and authorized Robert Kadman to swear an affidavit on their behalf, as it contained records relating to all of them. [ 25 ] On or about October 15, 2014, the Individual Defendants produced unredacted copies of the documents previously provided in redacted form, as ordered on September 10, 2013, as well as the records contained on the Hard Drive. (xv) Second Contempt Application and Order [ 26 ] The Plaintiffs brought an application for contempt on October 20, 2014 on the basis that the Individual Defendants did not comply with the 2014 Order of September 8, 2014.

Mae Collet was questioned on April 10, 2015 on her Affidavit filed on behalf of the Respondents in opposition to the Application. The Application was heard on June 16 and 18, 2015 (the “Second Contempt Application”). [ 27 ] In March 2015, before Mae Collet was questioned and the Application was heard, the Individual Defendants served an unfiled Application for

Summary Judgment dismissing the action. In support of the draft application, Mae Collet swore an affidavit that attached

various invoices and documentation. The Plaintiffs argued these invoices and supporting documentation had not been produced in any previous production and were further evidence of the Individual Defendants’ failure to make full and proper documentary disclosure and production.

The Plaintiffs argue this was in breach of the Laycock Order, which required each of the Individual Defendants to prepare and swear a further and better Affidavit of Records by specified dates. [ 28 ] On September 30, 2015, I dismissed the Plaintiffs’ application to find the Individual Defendants in contempt, strike their statement of defence and grant judgment (the “2015 Order”). (xvi) Supplemental Affidavits of Records of Robert Kadman, Hervé Collet and Mae Collet sworn October 19, 2015 [ 29 ] On October 19, 2015, the Individual Defendants served on the Plaintiffs separate Supplemental Affidavits of Records detailing 248 records and sworn individually by Robert Kadman, Hervé Collet and Mae Collet.

These records include financial statements, invoices, general ledgers and correspondence. The Individual Defendants state these records are the previously unproduced documents that were set out in Mae Collet’s affidavit provided in support of the draft Application for

Summary Judgment. A sampling of the records listed corresponds with the records produced as exhibits to Mae Collet’s affidavit filed in support of the Individual Defendants’ draft Application for

Summary Judgment. In the copies filed on this Application, Mae Collet’s Supplemental Affidavit of Records appears to be missing the last p of

Schedule 1, which also includes Schedules 2 and 3. For the purpose of this Application, I assume it is the same as the p included in the Supplemental Affidavits of Records of Robert Kadman and Hervé Collet.

Nothing turns on the missing p. [ 30 ] In their Rebuttal Brief, the Plaintiffs acknowledge that although the Supplemental Affidavits of Records were served before the appeal of the 2015 Order was heard, they were not put before the Court of Appeal or drawn to the Court’s attention by any of the parties . (xvii) Appeal of 2015 Order [ 31 ] The Court of Appeal heard the appeal from the 2015 Order on January 15, 2016. On June 6, 2016, the Court of Appeal reversed the 2015 Order dismissing the Plaintiffs’ Second Contempt Application: Demb v Valhalla Group Ltd , 2016 ABCA 172 (the “Second Appeal”).

It held the Individual Defendants were in contempt of court, and directed that the matter be returned to me to determine the appropriate penalty for contempt.

The Court of Appeal reasons are discussed in detail below. (xviii) Supplemental Affidavits of Records of Mae Collet and Hervé Collet [ 32 ] On October 14, 2016, Mae Collet and Hervé Collet each swore a Supplemental Affidavit of Records disclosing the financial records of the Corporate Defendants, listing the same records that were included in the Supplemental Affidavit of Records of Robert Kadman sworn October 8, 2014, described in (xiv) above, with the result being that each of the Individual Defendants has now sworn an Affidavit of Records relating to those documents.

In their submissions, the Individual Defendants note that this is “as mandated by the October 11, 2012 Order.” It is more accurate to say this is in accordance with Master Laycock’s comments during argument before him that Robert Kadman’s Affidavit of Records should not stand for all of the parties: Transcript of Proceedings dated October 11, 2012 at 23. The Order that was issued and entered required that: (

a) The Further and Better Affidavit of Records of Hervé Collet must be served on the Plaintiffs on or before January 10, 2013; (

b) The Further and Better Affidavit of Records of Mae Collet must be served on the Plaintiffs within 60 days of the pronouncement of this Order; and (

c) The Further and Better Affidavit of Records of Robert Kadman must be served on the Plaintiffs within 60 days of the pronouncement of this Order. [ 33 ] As noted in (viii) above, the Further and Better Affidavits of Records were provided in accordance with the Laycock Order, with Mae Collet and Robert Kadman swearing their affidavits on December 10, 2012 and Hervé Collet swearing his on December 12, 2012.

In any event, Mae Collet and Hervé Collet have now also each served an affidavit of records listing the documents disclosed by Robert Kadman in his Supplemental Affidavit of Records sworn October 8, 2014. (xix) Hearing on Penalty for Contempt [ 34 ] The Plaintiffs argued this Application before me on November 22, 2016 for the appropriate penalty to apply in the circumstances of this case as a result of the Court of Appeal’s finding of contempt. III.

Issue [ 35 ] The sole issue for determination on this Application is the appropriate penalty to impose on the Individual Defendants as a result of the Court of Appeal’s finding of contempt. IV. Court of Appeal Decision on Contempt [ 36 ] As set out above, there have been three orders dealing with production, two of which also dealt with contempt and were subject to appeal.

[ 37 ] In the 2014 Order, I concluded that the Individual Defendants were not in contempt of the Laycock Order, but directed certain further production and disclosure. That decision was affirmed by the Court of Appeal in its decision in the First Appeal dated January 22, 2015. [ 38 ] In the 2015 Order, I determined that the Individual Defendants were not in contempt of my 2014 Order. In the Second Appeal decision of June 6, 2016, the Court of Appeal reversed my decision and found the Individual Defendants to be in contempt.

Although the Second Contempt Application did not address contempt of the Laycock Order, as that issue was determined in the 2014 Order and affirmed on the First Appeal, the Court of Appeal concluded that: (

i) Mae Collet and Hervé Collet are in contempt for failing to swear individual further and better Affidavits of Records in response to the 2014 Order, as required by the Laycock Order; and (ii) The Individual Defendants are each in contempt for failing to produce relevant documents when they ought to have produced those documents in accordance with the Laycock Order. [ 39 ] The Court of Appeal held that the 2014 Order was granted in the context, and against the backdrop, of the earlier Laycock Order: Second Appeal at paras 38 and 51. The contempt found in (

i) was that the Laycock Order was explicitly clear that each of the Individual Defendants was to swear his or her own affidavit of records: at para 39. The contempt found in (ii) was that the Individual Defendants were required to provide full and proper affidavits of records within the timelines specified in the Laycock Order, which they failed to do. This failure was conspicuous, given that the Individual Defendants later sought to rely on additional documents on their unfiled Application for

Summary Judgment: at para 51. V. The Parties’ Positions [ 40 ] The Plaintiffs argue that (as of October 6, 2016 when they filed their submissions), the Individual Defendants remained in contempt of court, as Mae Collet and Hervé Collet had still not sworn individual further and better Affidavits of Records, and all the Individual Defendants had still not produced all the relevant documents. The Individual Defendants provided sworn individual Supplemental Affidavits of Records on October 14, 2016, leaving only the Plaintiffs’ argument that they still have not produced all the relevant documents.

The Plaintiffs seek an order striking the Individual Defendants’ Statement of Defence and entering judgment against them. [ 41 ] The Individual Defendants submit that they have purged any contempt as early as October 19, 2015, before the appeal was argued. They seek a dismissal of the Plaintiffs’ application for penalty, with costs, and a direction for the hearing of their Application for

Summary Judgment that was served in March 2015. VI. Law and Analysis on Penalties for Contempt [ 42 ] The available penalties for contempt of court are set out in Rule 10.53 of the Alberta Rules of Court , Alta Reg 124/2010 (the “ Rules ”): Punishment for civil contempt of Court 10.53(1) Every person declared to be in civil contempt of Court is liable to any one or more of the following penalties or sanctions in the discretion of a judge: (

a) imprisonment until the person has purged the person’s contempt; (

b) imprisonment for not more than 2 years; (

c) a fine and, in default of paying the fine, imprisonment for not more than 6 months; (

d) if the person is a party to an action, application or proceeding, an order that (

i) all or part of a commencement document, affidavit or pleading be struck out, (ii) an action or an application be stayed, (iii) a claim, action, defence, application or proceeding be dismissed, or judgment be entered or an order be made, or (iv) a record or evidence be prohibited from being used or entered in an application, proceeding or at trial.

(2) The Court may also make a costs award against a person declared to be in civil contempt of Court.

(3) If a person declared to be in civil contempt of Court purges the person’s contempt, the Court may waive or suspend any penalty or sanction.

(4) The judge who imposed a penalty or sanction for civil contempt may, on notice to the person concerned, increase, vary or remit the penalty or sanction. [ 43 ] On appeal, the Court of Appeal discussed factors to consider in determining the appropriate penalty for contempt, at para 55 of its decision, citing McDonald Estate (Re) , 2012 ABQB 704 at para 55 :

Contumacy, or lack thereof, goes to the penalty to be imposed after a finding of contempt: Carey at para 38. In assessing contumacy, context is important. In McDonald Estate , Re , 2012 ABQB 704 , 552 A.R. 308 (Alta. Q.B.), the court, at para 55, lists a number of factors to be taken into account in determining the penalty for contempt. These include: 1. Whether there was deliberate defiance of a Court order or whether there was an inadvertent failure to comply with the Court order; 2. The role of legal counsel; 3.

Where there has been a failure to give discovery, the object of the exercise is more to secure the discovery rather than to punish; 4. Attempts to purge contempt or to apologize are relevant; 5. The entire context in the history of the litigation; 6. The amount of reasonable thrown-away costs properly incurred; 7. The nature of the contempt; and 8. The degree of culpability of the contemnor. See also Michel v. Lafrentz , 1998 ABCA 231 , 219 A.R. 192 (Alta. C.A.) at paras 31-32 and Dreco Energy Services Ltd. v. Wenzel , 2005 ABCA 185 , 371 A.R. 11 (Alta.

C.A.) at para 12 . [ 44 ] The Plaintiffs review each of the above factors, arguing the Individual Defendants’ contempt is ongoing, deliberate and egregious. [ 45 ] The Individual Defendants argue they have purged their contempt. They reference the context of the litigation, specifically that Master Laycock and this Court made procedural orders to move this matter to trial.

Rather than work towards trial, they say the Plaintiffs have proceeded with two unsuccessful contempt applications (one of which is the present matter, where contempt was found on appeal). [ 46 ] The context of the litigation and each of the factors noted by the Court of Appeal are considered below. 1.

Deliberate defiance or inadvertent failure to comply [ 47 ] Any kind of negligence (advertent or inadvertent) is less blameworthy than deliberate defiance of a court order: Michel v Lafrentz , 1998 ABCA 231 (“ Michel ”) at para 31 . [ 48 ] The Plaintiffs argue that the Individual Defendants deliberately defied the Laycock Order for each of them to file a further and better Affidavit of Records in response to the 2015 Order. Further, the Plaintiffs argue that the Individual Defendants, in relying on undisclosed documents in their unfiled Application for

Summary Judgment, intended to defy a court order and to obtain a litigation advantage as a result of such defiance. [ 49 ] It is difficult to conclude there was deliberate defiance by the Individual Defendants in the circumstances of this case. Specifically: (

a) In the Second Appeal, the Court of Appeal looked to the Laycock Order, and found the Individual Defendants were expressly in contempt because, in ordering each of them to swear an affidavit of records by a particular date, the Individual Defendants were to understand that requirement applied to any future production. In addition, the Court of Appeal interpreted the Laycock Order as requiring a full and proper affidavit of records, such that any future disclosure would seem to be in breach of the Laycock Order.

These violations were as a result of the context and backdrop set out by the Laycock Order, and did not arise from a violation of the terms of the Laycock Order. In fact, the Master ordered a

schedule for the Individual Defendants to provide further affidavits of records, and that

schedule was met. (

b) The Plaintiffs took issue with the sufficiency of production and sought an order for contempt. In the 2014 Order, I concluded the Individual Defendants were not in contempt of the Laycock Order, and made a production order to assist the parties in moving forward with this matter. While the Court of Appeal expressed concerns with the Individual Defendants’ conduct, the appeal was dismissed in the First Appeal. There was no finding at that time that a requirement in the 2014 Order for further production necessarily meant that the Individual Defendants had breached the Laycock Order for failing to provide a full and proper affidavit of records by the deadlines it specified. (

c) The Plaintiffs brought a further application for contempt of the 2014 Order, arguing that the Individual Defendants did not sufficiently comply with it. In the 2015 Order, I concluded that their conduct did not amount to contempt of my 2014 Order. There was no further discussion of the Laycock Order at this time. It was only on the Second Appeal that the Court of Appeal relied on the context and backdrop of the Laycock Order. [ 50 ] These circumstances are confusing to this Court, and must be confusing to the parties.

For the purpose of determining an appropriate penalty for contempt, I conclude the Individual Defendants’ non-compliance with the Laycock Order, as determined by the Court of Appeal, was not deliberately defiant. 2. Role of legal counsel [ 51 ] The Plaintiffs argue that the Individual Defendants have had three separate lawyers to represent them, and that it is hard to

believe that none of the lawyers would advise them to produce the documents that were disclosed in the unfiled Application for

Summary Judgment and in the October 19, 2015 Further and Better Affidavits of Records. This is speculation. [ 52 ] It would also be speculative to conclude that the Individual Defendants were following poor legal advice. They are responsible for instructions given to their legal counsel. [ 53 ] What is not speculation is that there was some delay in production due to a dispute between the Individual Defendants and their former counsel over a solicitor’s account. This is discussed in the 2014 Order and the appeal of that decision, in the First Appeal at para 14.

This delay accounts for some of the Plaintiffs’ frustration in the production process. 3. Objective to secure discovery rather than to punish [ 54 ] In determining the appropriate remedy for contempt, “the court must use the most limited power it has available to achieve the desired objective”: Schitthelm v Kelemen , 2013 ABQB 42 (“ Schitthelm ”) at para 58 . In Schitthelm , Justice Yamauchi noted that “the purpose of civil contempt proceedings is coercion, rather than punishment”: at para 59.

He further held that a contemnor should be given the opportunity to purge the contempt, and that purging contempt may be a mitigating factor in assessing a penalty: at para 59. Similarly, in para 31 of Michel , the Alberta Court of Appeal commented that: …[W]here the contempt consists of some type of failure to give discovery, a host of cases say that the object of the exercise is to secure the discovery, more than to punish. Severe punishments, such as

summary dismissal, or striking out a defence, have been later remitted after belated compliance, in a number of cases. [ 55 ] In concurring reasons on the First Appeal, Justice O’Ferrall commented that while contempt proceedings are designed to compel compliance, rather than to punish, “there are occasions when it is appropriate to grant contempt orders that have as their object denunciation and deterrence (both specific and general)”: at para 40. [ 56 ] The Plaintiffs provide examples where courts have held that severe punishments, including striking pleadings, are appropriate where there is persistent non-compliance, and a pattern of delay and lack of cooperation. [ 57 ] For example, in Bains Engineering Corporation v 734560 Alberta Ltd , 2004 ABQB 780 , aff’d 2005 ABCA 187 , the defendants were found in contempt of court for repeatedly failing to provide meaningful answers to undertakings to disclose the particulars of their counterclaim and persistently disobeyed a court order: at para 32.

Their pleadings were struck and judgment was entered. In that case, the case management judge had warned them that their answers were unsatisfactory, and found they had more than enough chances to provide adequate undertaking responses.

He also found, after four years of case management, that the defendants had “created a general pattern of delay and [had] demonstrated a lack of cooperation in the litigation process”: at para 20. [ 58 ] Another example cited by the Plaintiffs is Hover v Metropolitan Life Insurance Co , 1999 ABCA 123 , where an application for contempt for failing to comply with an order to answer undertakings was served on the plaintiff’s counsel of record.

Counsel had no instructions on what position to take on the hearing of the application, and the plaintiff was found to be in contempt of court for failing to answer outstanding undertakings and as a result of the general pattern of delay and lack of cooperation throughout the litigation: at paras 8 and 12. A majority of the Court of Appeal confirmed the remedy for contempt striking the plaintiff’s pleadings, and returned the matter to the Court of Queen’s Bench for an assessment of damages: at para 25.

The dissenting Justice found the sanction of striking pleadings and entering judgment was too severe: at para 66. He noted that “[t]he immediate effect of a contempt sanction may be to penalize the contemnor, but its ultimate purpose is to secure compliance with the directions of the court”: at para 67. [ 59 ] These cases are distinguishable from the present case, where the Individual Defendants have provided further and better affidavits of records in response to each court order and to the Court of Appeal’s finding of contempt. Their most recent efforts are discussed below in the

section on “Attempts to purge contempt or to apologize”. As case management judge, I have not found the Individual Defendants to have demonstrated a lack of cooperation or delay; rather, I am of the view that both the Plaintiffs and the Individual Defendants are responsible for delay by failing to address discovery and production issues in case management, as I have directed. The parties cooperated in deciding upon search terms for the electronic records, but as far as I am aware, made no efforts to agree on what additional back-up documentation, other than what has been disclosed, is relevant to the issues. This is discussed below in the

section on “Entire context in the history of the litigation”. Finally, the Plaintiffs argue that this is a case of “repeated contempts”. That is not accurate. There has been one finding of contempt – by the Court of Appeal – and another application for contempt was dismissed, which was upheld on appeal. 4. Attempts to purge contempt or to apologize [ 60 ] The Individual Defendants have served Further and Better Affidavits of Records dated October 19, 2015 and Supplemental Affidavits of Records dated October 14, 2016.

They argue this has purged the contempt found by the Court of Appeal. [ 61 ] The Plaintiffs argue that these affidavits do not purge the Individual Defendants’ contempt, and say that the Individual Defendants have made no attempt to purge their contempt or apologize. I do not accept this argument. [ 62 ] By swearing and serving the October 19, 2015 and October 14, 2016 affidavits of records, I find the Individual Defendants have purged both aspects of the contempt found by the Court of Appeal that (

a) Mae Collet and Hervé Collet failed to swear individual further and better Affidavits of Records as required by the Laycock Order; and, (

b) the Individual Defendants failed to produce relevant documents when they ought to have produced those documents in accordance with the Laycock Order. My reasons for this finding are explained below. (

a) Individual Affidavits of Records

[ 63 ] First, the Plaintiffs argue that the 2016 Supplemental Affidavits of Records sworn by Mae Collet and Hervé Collet respectively do not purge their contempt of the Laycock Order, as they simply set out the same documents as Robert Kadman listed in the Affidavit of Records sworn June 6, 2011.

The Plaintiffs argue that there is continuing contempt because the Individual Defendants did not delineate between their respective records, in the face of the comment from the Court of Appeal that “…it is important to be able to ascertain just which party has or had which identifiable documents in his or her possession”: at para 40. [ 64 ] One reason it is important to be able to identify which party had what records in his or her possession in a case such as this, where fraud is alleged, is to determine who may be responsible for an alleged fraud, if anyone.

The Individual Defendants have noted that they are a family, and that their financial affairs are intermingled. Without commenting on the merits of the case, it may be that they all had knowledge of the events leading to the Plaintiffs’ loss and all bear responsibility, if there is any responsibility to be borne.

By swearing numerous identical affidavits of records, it certainly would lend support to an argument that they all had knowledge of what was happening, as they all have sworn the records were within their care and possession. [ 65 ] To the extent that the Court of Appeal found that Mae Collet and Hervé Collet were in contempt for failing to swear individual Affidavits of Records as required by the Laycock Order, that contempt has been purged.

Although the Laycock Order did not specifically require individual affidavits of records in subsequent production (except to set deadlines for Further and Better Affidavits of Records, which were met), Master Laycock agreed with counsel during argument, who stated that the Affidavit of Records sworn by Robert Kadman on June 6, 2011 should not stand for all of the parties. In the Second Appeal, the Court of Appeal referred to the context and backdrop of the Laycock Order, where each of the Individual Defendants was required to swear an affidavit of records, in finding contempt.

Mae Collet and Hervé Collet swore Supplemental Affidavits of Records on October 14, 2016 to address that finding. (

b) Disclosure of Back-up Documentation to General Ledger [ 66 ] Second, the Plaintiffs argue that although the October 19, 2015 Further and Better Affidavits of Records were, through inadvertence, not drawn to the attention of the Court of Appeal, the affidavits do not purge the Individual Defendants’ contempt. They say the records filed in support of the unfiled Application for

Summary Judgment that are disclosed in the October 19, 2015 Further and Better Affidavits of Records are not the only relevant invoices and accounting records that must be disclosed. [ 67 ] The Individual Defendants have previously stated that the ledgers they have disclosed and produced have supporting invoices and records. Mae Collet stated on her questioning that invoices were disclosed in the general ledger, but were not produced as they were not requested.

It is not clear from the record provided by the Plaintiffs as to whether they requested certain back up documentation relating to relevant ledger entries, or if they seek all supporting documentation relating to the general ledgers that have been disclosed and produced. Only supporting documentation relating to general ledger entries that are relevant to the litigation is required to be produced. [ 68 ] Rule 5.2(1) of the Rules provides that: …a question, record or information is relevant and material only if the answer to the question, or the record or information, could reasonably be expected (

a) to significantly help determine one or more of the issues raised in the pleadings, or (

b) to ascertain evidence that could reasonably be expected to significantly help determine one or more of the issues raised in the pleadings. [ 69 ] Master Robertson considered this rule in a landlord and tenant dispute, where the tenant sought production of all invoices and other back-up documentation for the operating expenses charged by the landlord: 1332721 Alberta Inc v Jenkins & Associates Architecture and Town Planning Ltd , 2014 ABQB 456 (“ Jenkins ”). In that case, the landlord produced many of the documents relating to expenses, including a

summary of the charges, but did not produce all of the back-up invoices, cheques or other related documents: at para 33. Master Robertson discussed the meaning of the word “significantly” in Rule 5.2(1) , at para 37: I have emphasized the word “significantly” because it comes into play here. The fact that some scrap of information or record might have some potential impact on the analysis does not make it “relevant and material” or the words “and material” would have no meaning.

It must reasonably be expected to significantly help in the probative process. [ 70 ] The general ledgers have been produced, as have supporting records that the Individual Defendants have determined are relevant and material to the merits of the action. It is not possible to determine what, if any, further supporting records are relevant and material, or would significantly help in the probative process, in the absence of questioning about general ledger items. In Jenkins , Master Robertson ordered certain back-up documentation that had been requested and refused on questioning.

It would be preferable to deal with back-up documentation in the same manner in this case, by way of questioning and answers to undertakings, and through the case management process, as the parties have been invited to do. [ 71 ] The evidence establishes that individual Supplemental Affidavits of Records were served upon the Plaintiffs on October 19, 2015. These affidavits contained the records disclosed for the first time in the supporting materials for the draft Application for

Summary Judgment. This was before the Court of Appeal heard the appeal and determined that the Individual Defendants were in contempt due to their failure to properly disclose in affidavits of records the documents relied on by the Individual Defendants in their unfiled Application for

Summary Judgment. As noted by counsel for the Plaintiffs, neither party drew to the Court of Appeal’s attention the fact that these Supplemental Affidavits of Records had been served. Thus, this aspect of the Court of Appeal’s finding of contempt had been purged before the finding was even made. This is a significant consideration in determining the appropriate penalty. 5. Entire context in the history of the litigation [ 72 ] The Plaintiffs characterize the Individual Defendants’ actions as foot-dragging and obstructionism. It could, however, be

argued that the Plaintiffs are equally responsible for delays by failing to address discovery and production issues in case management. The Plaintiffs have, in my view, resisted the Court’s efforts to address deficiencies in a focused and timely matter by seeking the Court’s direction. Rather, they have sought to end this litigation before the real issues can be adjudicated by bringing applications for contempt and striking of the Individual Defendants’ Statement of Defence. 6.

Amount of reasonable thrown-away costs properly incurred [ 73 ] The Plaintiffs seek solicitor-client costs for the steps in the litigation since the date of the Laycock Order, in the amount of $85,310.52. 7. Nature of the contempt [ 74 ] The Plaintiffs argue the contempt in this case is deliberate and egregious. [ 75 ] The Individual Defendants respond that the contempt found by the Court of Appeal is narrow in scope.

Specifically, it relates to the failure of each of the Individual Defendants to swear affidavits of records, and to disclose in proper affidavit of record form documents already disclosed to the Plaintiffs. [ 76 ] In the Second Appeal, the Court of Appeal noted that serving separate Affidavits of Records was a matter of substance over form: at para 40. [ 77 ] I accept that the Individual Defendants have purged their contempt. In doing so, no documents previously unfamiliar to the Plaintiffs have been disclosed and the Plaintiffs have not been taken by surprise. 8.

The degree of culpability of the contemnor [ 78 ] The Plaintiffs state that the Individual Defendants engaged in ongoing contempt in the face of criticism and outright findings of contempt by the Court of Appeal. This is not accurate, given that the Individual Defendants took steps to purge their contempt before the Second Appeal was even heard that resulted in this contempt finding. VII. Penalty [ 79 ] My application of the various factors to be taken into account have no bearing on the finding that the Individual Defendants are in contempt.

The Court of Appeal has made that finding, and that is the final word on that issue. My application of the various factors impacts on the appropriate penalty for that contempt. [ 80 ] There are a range of possible penalties available for contempt. I agree with the Plaintiffs’ argument that if there is no case bad enough to warrant striking pleadings, the Rules will have no teeth: Kin Franchising Ltd v Donco Limited , 1993 ABCA 7 at para 12 . However, this is not such a case. [ 81 ] I have found that the Individual Defendants have purged their contempt.

They have produced voluminous records and, at least since my involvement as case management judge, have appeared sincere in their efforts to comply with court orders. I have also found that both parties have contributed to the delay and production issues in this case by not raising issues before me as case management judge to sort out in a collaborative way. Therefore, I will not strike out their Statement of Defence as a punishment. [ 82 ] I agree with Justice Yamauchi in Schitthelm , discussed above, that the desired objective is coercion, which in this case is to secure discovery, rather than punishment.

I am also mindful of Justice O’Ferrall’s comments in his concurring reasons on the First Appeal that denunciation and deterrence may also be appropriate. Accordingly, a lthough the Individual Defendants have purged their contempt, I impose a fine of $1,000 payable to Her Majesty the Queen in right of Alberta for the contempt found here. [ 83 ] The Plaintiffs seek solicitor and client costs from October 11, 2012, the date of the Laycock Order, given the Court of Appeal’s findings of contempt of that Order.

I do not think that is appropriate in this case, where the 2014 Order and First Appeal found no contempt of the Laycock Order. It was not until the Second Appeal that there was a finding of contempt of Master Laycock’s Order. I award the Plaintiffs their costs to be calculated based on Column 4 of

Schedule C for the Second Contempt Application before me and the Second Appeal. [ 84 ] The Individual Defendants have requested a direction for the hearing of their Application for

Summary Judgment that was served in March 2015. The parties are directed to provide my office with agreed available dates in the next six months for the Application within 30 days of the date of this decision. Heard on the 22 nd day of November, 2016. Dated at the City of Calgary, Alberta this 6 th day of April, 2017.

C.M. Jones J.C.Q.B.A. Appearances: Jeffrey D. Poole, Poole Lawyers for the Plaintiffs Alexander M. Kooiman, Quarry Park Law for the Defendants _______________________________________________________ Corrigendum of the Memorandum of Decision of The Honourable Mr. Justice C.M. Jones _______________________________________________________ P 15, para 83 the line reading: I award the Plaintiffs their costs to be calculated based on Column 3 of

Schedule C for the Second Contempt Application before me and the Second Appeal. Column 3 is changed to Column 4.