Demb v Taylor, 2017 ABQB 257

Court of Queen’s Bench of Alberta Citation: Demb v Taylor, 2017 ABQB 257 Date: 20170406 Docket: 1301 02760 Registry: Calgary Between: Valeri Demb and Svetlana Demb Plaintiffs / Applicants - and - Mark Taylor Defendant / Respondent _______________________________________________________ Memorandum of Decision of the Honourable Mr. Justice C.M.

Jones _______________________________________________________ [ 1 ] The Plaintiffs, Valeri Demb and Svetlana Demb, apply for a declaration that the Defendant, Mark Taylor, is in contempt of court, or in the alternative, for an order to compel further production and answers to refusals from questioning. I. Background [ 2 ] The Plaintiffs, Valeri Demb and Svetlana Demb, are husband and wife. They loaned $150,000 to Koocanusa Homes Ltd. (“Koocanusa”) that they seek to recover. Mark Taylor is a Director of Koocanusa, and is also a creditor by way of shareholder loan.

By Statement of Claim filed March 1, 2013, they allege that Koocanusa was a shell company, and that the $150,000 loaned to Koocanusa was transferred to Mr. Taylor personally, or to companies controlled by him. They therefore claim against Mr. Taylor the amount of $150,000 plus interest (the “Funds”). II. Procedural History [ 3 ] There is another action brought in the Court of Queen’s Bench by the Dembs and their son, Vadim Demb, against The Valhalla Group Ltd., Kadco Construction Inc., Koocanusa, 1295013 Alberta Ltd., Hervé Collet, Mae Collet and Robert Kadman in Action No. 1101-00337.

The plaintiffs in that action seek to recover outstanding loans advanced and investments made over several years, beginning in 2003. Valeri and Svetlana Demb obtained a Consent Judgment against Koocanusa and another defendant on November 17, 2011. That action has been consolidated with the within action (the “Consolidated Action”). [ 4 ] This action is in the production and questioning stage. Mr. Taylor has made the following production: (

a) Affidavit of Records sworn June 6, 2013; (

b) Supplemental Affidavit of Records sworn June 24, 2014; and (

c) Second Supplemental Affidavit of Records sworn October 30, 2014. [ 5 ] On October 1, 2014, I heard an application by the Plaintiffs for further and better documentary production. In the Order dated the same date (the “Production Order”), I granted leave for the parties to use evidence on that application from the Consolidated

Action. I also directed that Mr. Taylor disclose various financial and other records of Koocanusa within one month of the Production Order, as follows: (

a) Any loan agreements between the Plaintiffs and Koocanusa, as well as any related promissory notes, records of investors and any further documents relating to the transfer of the Funds under such a loan agreement; (

b) Any financial records, bank statements, cancelled cheques and related documents relating to partial payments made by Koocanusa; (

c) Any documents setting out the debt obligation of Koocanusa; (

d) Any financial statements, financial records, bank statements, asset inventories, and related documents of Koocanusa from August 7, 2009 to the filing of the Statement of Claim in this matter (March 1, 2013); (

e) Any financial records, bank statements, cancelled cheques and related documents that would show whether Koocanusa used the Funds to pay creditors, including its directors and specifically, Mr. Taylor; (

f) Any financial records, bank statements, cancelled cheques and related documents that would show whether the Funds were used to advance the business of other corporations run by Mr. Taylor; (

g) Any notes, emails and other supporting documents relating to discussions and proposals between Mr. Taylor, other directors in Koocanusa or Mr. and Mrs. Collet concerning the transfer, use or repayment of the Funds. [ 6 ] The Second Supplemental Affidavit of Records was provided in accordance with the deadline set out in the Production Order. It discloses 268 records, including financial records, correspondence and supporting documents regarding Koocanusa and the Dembs (the “Koocanusa Records”). [ 7 ] Mr. Taylor attended questioning on May 26, 2016.

He gave two undertakings and took 13 questions under advisement. [ 8 ] On June 22, 2016, counsel for the Plaintiffs wrote to counsel for Mr. Taylor asking for a response to the undertakings within 30 days. When no response was received within 30 days, it appears this application was prepared. [ 9 ] On November 14, 2016, Mr. Taylor answered the undertakings and refused the questions taken under advisement. For two of the questions taken under advisement, he indicated the questions were already answered as the documents were provided in the Second Supplemental Affidavit of Records sworn October 30, 2014. III.

This Application [ 10 ] In the Notice of Application brought in November 2016, the Plaintiffs seek: (

a) An Order declaring Mr. Taylor in contempt of court for failing to comply with the Production Order; (

b) An Order striking Mr. Taylor’s Statement of Defence and granting judgment and costs; (

c) In the event that the relief in (

b) is not granted, an Order directing Mr. Taylor to swear and serve a further and better Affidavit of Records within 30 days of granting the Order; (

d) In the event that the relief in (

b) is not granted, an Order compelling Mr. Taylor to respond to undertakings requested at his questioning on May 26, 2016, failing which his Statement of Defence will be struck; and (

e) Costs of this Application in any event. IV. Issues [ 11 ] The issues for determination before me are: 1. Is Mr. Taylor in contempt of court as a result of breaching the Production Order? 2. If there is a finding of contempt of court, what is the appropriate remedy? 3. If there is no finding of contempt, is an order required, either for further production or to compel answers to questions refused by Mr. Taylor at his questioning? V. Analysis and Decision Contempt [ 12 ] Civil contempt of court is discussed in Rule 10.52 of the Alberta Rules of Court , Alta Reg 124/2010 (the “ Rules ”). The applicable portion of that rule provides that:

(3) A judge may declare a person to be in civil contempt of Court if (

a) the person, without reasonable excuse, (

i) does not comply with an order, other than an order to pay money, that has been served in accordance with the rules for service of commencement documents or of which the person has actual knowledge… [ 13 ] The standard of proof for establishing civil contempt is “proof beyond a reasonable doubt of an intentional act or omission that is in fact in breach of a clear order of which the alleged contemnor has notice”: Demb v Valhalla , 2016 ABCA 172 at para 42 ; Carey v Laiken , 2015 SCC 17 (“ Carey ”) at para 38 . Therefore, for there to be a finding of civil contempt, there must be: (

i) An existing requirement of the court; (ii) Notice of the requirement to the person alleged to be in contempt; and (iii) An intentional act (or failure to act) that constitutes a breach of the requirement. This should be without adequate excuse. …: Koerner v Capital Health Authority , 2010 ABQB 557 at para 33 . [ 14 ] Finding a party in contempt of court is not to be done as a matter of routine to obtain compliance with court orders.

It should be used “cautiously and with great restraint”, and is “an enforcement power of last rather than first resort”: Carey , at para 36 . [ 15 ] There is no dispute that there is an existing order of the Court – the Production Order dated October 1, 2014. There is also no dispute that Mr. Taylor is aware of the Production Order, as he provided a Second Supplemental Affidavit of Records sworn October 30, 2014 in accordance with that order. The issue is whether Mr.

Taylor has failed to comply with the Production Order by failing to disclose all relevant and material records in his control in the Second Supplemental Affidavit of Records, and should therefore be found in contempt of court. Parties’ Positions [ 16 ] The Plaintiff argues that Mr. Taylor did not disclose all the records he was required to disclose in his Second Supplemental Affidavit of Records, and is therefore in breach of the Production Order.

The Plaintiffs also argue that providing records in response to many of the questions refused would result in the disclosure of relevant and material records that were in Mr. Taylor’s control at the time of the Production Order and should have been disclosed in the Second Supplemental Affidavit of Records. It is alleged that Mr. Taylor failed to provide responses to his undertakings within a reasonable time, notwithstanding that those responses would, the Plaintiffs say, likely have purged the contempt. [ 17 ] The Plaintiffs say that the questions undertaken and refused by Mr.

Taylor on questioning numbered 2, 6, 7, 8, 9, 10, 11, 13, 14 and 15 relate to the provision of information and records that should have been produced in accordance with the Production Order, sections 3(

d) and (e), set out as (

d) and (

e) in para 5 above. Questions 2 and 7 were answered prior to the hearing of this Application. The Plaintiffs argue that questions 6, 8, 9, 10, 11, 13, 14 and 15 were proper questions relating to records that should have been disclosed in the Second Supplemental Affidavit of Records. [ 18 ] The Plaintiffs argue that questions refused on questioning by Mr. Taylor numbered 1, 3, 4, 5 and 12 relate to documents to be requested from other persons. They say these are proper questions, as the documents are within Mr.

Taylor’s control as a Director of Koocanusa, even if they are not in his possession. [ 19 ] The Defendant responds that he complied with the Production Order by providing a Second Supplemental Affidavit of Records sworn October 30, 2014, as required, disclosing the Koocanusa Records.

He says the Plaintiffs have adduced no evidence that he has in his possession any of the documents listed in the Production Order and not already disclosed, or that such documents even exist. [ 20 ] Further, the Defendant argues that he is sued in his personal capacity, and is not required to produce records in the within action solely because he is a director of Koocanusa. In any event, Mr. Taylor states that the Plaintiffs have had the Koocanusa Records produced for them in the Consolidated Action. Because the Plaintiffs had the Koocanusa records in the Consolidated Action, they could have used them in Mr.

Taylor’s questioning. They did not do so. Sufficiency of Production [ 21 ] In the Production Order, Mr. Taylor was directed to provide a further affidavit of records disclosing documents relating to Koocanusa and the use of the Funds. He did so in compliance with that order. [ 22 ] The Plaintiffs assert that questions refused by Mr. Taylor on questioning relate to the production of documents already required to be produced by the Production Order, and that by refusing to produce them, Mr.

Taylor is in contempt of the Production Order. [ 23 ] There is no evidence before me that further relevant and material documents exist that were not disclosed in accordance with the Production Order. It is also unclear whether Mr. Taylor has the legal authority to the records requested. Bare assertions of a failure to disclose documents are not evidence. I am not satisfied that the Second Supplemental Affidavit of Records excludes any further documents that are or have been under Mr. Taylor’s control relating to Koocanusa and the use of the Funds. [ 24 ] Mr.

Taylor is not in contempt of the Production Order. [ 25 ] As I have found no contempt of the Production Order, it is not necessary to address the appropriate remedy for contempt. I now consider the Plaintiffs’ alternative relief sought for an order for further production and to compel answers to questions refused on

questioning. Questions Refused on Questioning [ 26 ] The Plaintiffs divide the questions refused on questioning into two categories: questions relating to production and questions requiring a request for information or documents from other persons. There is no dispute as to the relevance of the questions to the issues in this action. The Defendant argues that the questions refused relate to documents already disclosed and produced, or improperly ask him to make inquiries of other persons.

He argues that he is a party to this litigation in his personal capacity, and is not the corporate representative for Koocanusa. He also argues the records sought by the Plaintiffs have already been produced in the Consolidated Action, and it does not advance this action to require Mr. Taylor to now produce them. [ 27 ] Mr. Taylor relies on Thornton v Swirski-Cowndon , 2016 ABQB 88 (“ Thornton ”), where the defendant was a director and officer of a non-party corporation. She was sued in her personal capacity for her conduct as a director and employee of the corporation.

This Court held that as a director and officer, she had the authority to provide instructions to the corporation’s solicitor. Accordingly, she had sufficient possession or control of the corporation’s solicitor’s file to be required to list it in her affidavit of records: at para 25. The Court also noted that the defendant was not questioned as a corporate representative of the corporation, but rather, in her personal capacity.

Given the allegations in the action, the Court concluded that she had no duty to inform herself in the same way she would as the corporate representative: at para 29. [ 28 ] Whether a party is obligated to produce documents held by a non-party depends on whether the party has the right to access records in the hands of a non-party. This right to access records may arise by contract, by statute, at common law or at equity: McAllister v Calgary (City) , 2012 ABCA 346 (“ McAllister ”) at para 6 .

The Court of Appeal in McAllister held, at para 7 : …[T]he right to access the record must be specific to the party from whom disclosure is sought; merely having the ability to bring an application for third party disclosure under the Rules of Court, an application equally available to any party to the litigation, is not sufficient to indicate control. Nor is it enough … that the party may be able to request the record from the non-party because of an existing relationship between them.

If the requesting party does not have a corresponding ability to enforce compliance with the request, he or she does not have “control” over the record. [ 29 ] In a case decided under the former Alberta Rules of Court , the Court of Appeal has noted: “As a general discovery principle, a party is not required to inform himself from the third parties”: United Inc v Jacques Whitford Environment Ltd , 2008 ABCA 158 at para 14 . This principle was applied by this Court in Wrzesien v Arnett & Burgess Pipeliners Ltd , 2013 ABQB 59 at para 68 ; request to reconsider ref’d 2013 ABQB 287 .

There, Manderscheid J. held that the corporate representative of the defendant was not required to go to an employee of the corporation’s bank to ask for notes of a conversation between them when the bank was a non-party and not a person under the power or control of any of the defendants: at para 69. [ 30 ] To the extent that non-party records are relevant and material to this action and cannot be legally compelled by Mr.

Taylor to be disclosed, either party may make application to obtain the records from the non-party under Rule 5.13. [ 31 ] With respect to the records already disclosed in the Consolidated Action, it is not sufficient for Mr. Taylor to argue that the Plaintiffs already have them in their possession. If the records are relevant and material to issues in this action, and if they are in Mr. Taylor’s control, they must be disclosed in an affidavit of records: Rules , r. 5.6.

The Rules also require on-going disclosure of records as a party “finds, creates or obtains control of a relevant and material record not previously disclosed”: Rules , r. 5.10. [ 32 ] I have considered each of the questions asked at Mr. Taylor’s questioning, both undertaken and refused. In deciding whether the questions must be answered, I apply the following conclusions: 1. Mr. Taylor is not required to obtain and produce records of a non-party unless he has the right to access the records from the non- party. 2. Mr.

Taylor is questioned in his personal capacity, not as the corporate representative of Koocanusa. He does not have an obligation to inform himself about Koocanusa’s operations in the same way that a corporate representative appointed under Rule 5.4 would be required to do. That includes asking questions of non-parties about Koocanusa’s business. 3. Mr.

Taylor is required to disclose records under his control that are relevant and material in this action pursuant to Rule 5.6, even if they have already been disclosed in the Consolidated Action. [ 33 ] The following table sets out the questions asked, the answers provided by Mr. Taylor to the Plaintiffs on November 14, 2016, and this Court’s decision as to whether Mr. Taylor must respond: Question Mr. Taylor’s Response Court’s Direction 1 To request of Robert Kadman and provide the outstanding receivable from the Lederhas Build Refused Mr. Taylor has no obligation to obtain information from Mr. Kadman.

No answer is required. 2 To produce any further year-end financial statements for Koocanusa that have not yet been produced See attached financial statements for 2011, 2012, 2013 and 2014 The answer given is responsive to the question. Mr. Taylor is to comply with Rule 5.10 on Subsequent Disclosure of Records if further financial statements are created or under his control.

3 To make a request of Mr. Kadman for a description of how Koocanusa Homes Limited Partnership fit into the operations of Koocanusa Homes Ltd. Refused As noted above, Mr. Taylor has no obligation to obtain information from Mr. Kadman. No answer is required. 4 To make a request of Mr. Kadman to advise whether Koocanusa Homes Limited Partnership had a separate bank account, line of credit or other banking arrangement Refused As noted above, Mr. Taylor has no obligation to obtain information from Mr. Kadman. No answer is required. 5 To request of Mr.

Kadman to provide bank account statements for any bank accounts, lines of credit or other banking arrangements that Koocanusa Homes Limited Partnership may have had for the relevant period Refused As noted above, Mr. Taylor has no obligation to obtain information from Mr. Kadman. No answer is required. 6 To provide bank account statements for [Koocanusa] from the time of the creation of the company in 2008 up to the current date Refused Mr. Taylor is to advise whether he has the right to request the records from Koocanusa. If not, that ends the inquiry.

If so, the question must be answered. 7 To the extent that the information is not provided in the latest financial statement for [Koocanusa] to provide the current value of the shareholders’ loan in Mr. Taylor’s name The current value of Mr. Taylor’s shareholder loan to Koocanusa is $117,731.05. The answer given is responsive to the question. No further answer is required. 8 To the extent that the information is not provided in the latest financial statement for [Koocanusa], to provide the current value of the shareholders’ loan in Mr.

Kadman’s name, or whatever company owns shares in Koocanusa for the benefit of Mr. Kadman Refused Mr. Taylor is not required to request this information from Mr. Kadman. Mr. Taylor is to advise whether he has the right to request the records from Koocanusa. If not, that ends the inquiry. If so, the question must be answered. 9 In relation to the Lederhas Build, to produce all records relating to the funds coming to Koocanusa as a result of the Lederhas Build, from the time that the agreement with Mr. Lederhas was entered into, to the present time Refused Mr.

Taylor is to advise whether he has the right to request the records from Koocanusa. If not, that ends the inquiry. If so, the question must be answered. 10 To provide any correspondence between [Koocanusa] and Mr. Lederhas relating to his build and its progression Refused Mr. Taylor is to advise whether he has the right to request the records from Koocanusa. If not, that ends the inquiry. If so, the question must be answered. 11 To make a request and provide a full record of investors for [Koocanusa] Refused Mr. Taylor is to advise whether he has the right to request the records from Koocanusa.

If not, that ends the inquiry. If so, the question must be answered. 12 To the extent that there were any loans made to Koocanusa Homes Limited Partnership, to provide any record of investors regarding any loans made to that entity as well Refused Mr. Taylor is to advise whether he has the right to request the records from Koocanusa or Koocanusa Homes Limited Partnership. If not, that ends the inquiry.

If so, the question must be answered. 13 To provide any financial statements, financial records, bank statements, asset inventories, and related documents of Koocanusa for the period of August 7, 2009, to the filing of the Statement of Claim [March 1, 2013] Refused. This information was provided in Mr. Taylor’s Affidavit of Records sworn October 30, 2014 as directed by [the Production Order] of Justice Jones in this action. Mr. Taylor is required to provide production numbers or the range of production numbers in his Affidavit of Records where these records are found.

Otherwise, this is a sufficient answer to the question.

14 To the extent Mr. Taylor does not have the records outlined in undertaking number 13, to make reasonable efforts to obtain those records and produce them. Refused Mr. Taylor has indicated he has already disclosed the records outlined in question 13 so no answer to this question is required. 15 To make reasonable efforts to obtain whatever financial records, including cancelled cheques or cheque stubs, Koocanusa may have showing the repayment of any shareholders loans [sic] from the period of August 7 th , 2009, to the commencement of this Claim [March 1, 2013] Refused. This information was provided in Mr.

Taylor’s Affidavit of Records sworn October 30, 2014 as directed by [the Production Order] of Justice Jones in this action. Mr. Taylor is required to provide production numbers or the range of production numbers in his Affidavit of Records where these records are found. Otherwise, this is a sufficient answer to the question. [ 34 ] In addition to responding to the questions as required above, any further production arising out of the answers to the questions should be disclosed and produced in an affidavit of records to be sworn and served within 45 days of the date of this decision.

Conclusion [ 35 ] The application for a declaration that Mr. Taylor is in contempt, and that his Statement of Defence be struck and judgment entered against him, is dismissed. [ 36 ] Mr. Taylor is ordered to provide answers to the questions as set out above and provide a further affidavit of records, if required, within 45 days of the date of this decision. [ 37 ] Given the mixed success of the parties, each party shall bear its own costs. Heard on the 15 th 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: David W. Johnson and Jeffrey D.

Poole, Poole Lawyers for the Plaintiffs Alexander M. Kooiman, Quarry Park Law for the Defendant