Domenic Construction Ltd v Primewest Capital Corp, 2017 ABQB 486

Court of Queen’s Bench of Alberta Citation: Domenic Construction Ltd v Primewest Capital Corp, 2017 ABQB 486 Date: 20170802 Docket: 1306 00897 Registry: Lethbridge Between: Domenic Construction Ltd. Plaintiff - and - Primewest Capital Corp. and Bar-N Ghost Pine Ranch Ltd. Defendants _______________________________________________________ Reasons for Judgment of J.T. Prowse , Q.C., Master in Chambers _______________________________________________________ [ 1 ] The defendants apply for the removal of Richard Low as counsel for the plaintiff on the basis that Mr.

Low will likely become a witness in these proceedings. [ 2 ] Mr. Low has been counsel for the plaintiff since the beginning of this action and his client has likely paid significant legal fees for that representation. The court should not lightly remove Mr. Low as counsel. [ 3 ] Mr. Low asserts that the application to remove him is a tactical move, designed to frustrate the ability of the plaintiff to pursue its claim. He notes that securing the attendance of the defendants’ primary witness, Mr. Greg Noval, for cross-examination has been extremely difficult.

Requiring the plaintiff to find alternative counsel will be expensive for the plaintiff and likely lead to further delay. [ 4 ] The defendants assert, to the contrary, that the reason for their application is that Mr. Low will likely become a witness in

these proceedings, and therefore it is necessary and appropriate to remove him now as counsel. The test for removal of counsel who may become a witness [ 5 ] The leading Alberta case in this area is Forward v Zurich Insurance Co. , 2002 ABCA 123 , 2002 CarswellAlta 693. In Zurich the lawyer in question, Mr. MacNeil, acted for the plaintiff and had successfully conducted a trial of the underlying motor vehicle personal injury action, recovering a judgment of $470,000 for the plaintiff. [ 6 ] Two days after recovering this judgment, Mr.

MacNeil wrote to his client’s insurer, Zurich, advising that the plaintiff would be pursuing a SEF 44 action against Zurich. Zurich responded that the SEF 44 claim was barred because it was not brought within 12 months from the date upon which the plaintiff or his counsel knew or ought to have known that the quantum of the plaintiff's claims exceeded the minimum limits for motor vehicle liability insurance in Alberta. ($200,000). [ 7 ] The plaintiff then sued Zurich and used Mr. MacNeil to represent him. Zurich responded with an application to bar Mr. MacNeil from representing the plaintiff.

What then occurred (from paragraph 5 of the Zurich decision) was as follows: Romaine, J. found that Mr. MacNeil was a potential witness and a potential tortfeasor with respect to the limitation defence. She ordered that Mr. MacNeil be removed as counsel of record. Mr. Jenuth of the same law firm then assumed conduct of the litigation on behalf of the Plaintiff ... Zurich applied for an order removing all members of the firm Ho MacNeil Jenuth as solicitors of record for Dr. Forward. Waite, J. dismissed the application on the ground that it had been brought prematurely.

Zurich appeals from that decision. [ 8 ] The Court of Appeal held that the application to remove Mr. MacNeil and all members of his firm was not premature, stating as follows at paragraph 7 of the decision: Counsel for Dr. Forward argues that removing solicitors prior to trial on the basis of a mere possibility that counsel may give evidence is insufficient. We agree. Counsel concedes, however, that the rule “only operates in terms that there is a likelihood that this will happen.” (paragraph 23 of the Forward Appellant factum). The same factum goes on to argue that “without a definitive finding that Mr.

MacNeil will be called as a witness and that his giving of evidence will pose a threat to the public's interest in the administration of justice,” removal is not warranted. That, in our opinion, is not the threshold. All that need be established is that Mr. MacNeil is a likely witness. The nature of the current litigation [ 9 ] In order to assess whether it is likely that Mr. Low will be a witness, I will describe the litigation and the role that Mr.

Low played in the underlying events. [ 10 ] The current litigation arose when the plaintiff, who had earlier obtained judgment against Clearview Development Corp. (“Clearview”) and Primewest Capital Corp. (“Primewest”), learned that Primewest had transferred title to land (“NW ¼”) to the defendant Bar-N Ghost Pine Ranch Ltd. (“Bar-N”).

The plaintiff asserts that this transfer was a fraudulent conveyance designed to thwart the plaintiff’s efforts to collect its judgment from Primewest. [ 11 ] The defendants defend the fraudulent conveyance action on various grounds including an assertion that the action was commenced out of time.

They plead that the plaintiff was aware of the transfer of the NW ¼ from Primewest to Bar-N more than 2 years prior to commencing these proceedings on November 29, 2013. [ 12 ] The defendants also contest the plaintiff’s application to amend the statement of claim to allege that Bar-N is liable to the plaintiff on the basis that throughout Bar-N has been an undisclosed principal for Clearview and Primewest. The defendants assert that the plaintiff had notice of this agency relationship more than 2 years prior to seeking to amend its pleadings to add this alternative claim. [ 13 ] Mr.

Low’s involvement in the underlying events began in October of 2006 when he represented the plaintiff in its sale of development land in Lethbridge to Mr. Noval’s corporation, Clearview, for $10 million, payable over time. Clearview’s obligations were guaranteed by another related corporation, Primewest. [ 14 ] At the time of the sale from the plaintiff to Clearview in October of 2006, Primewest was the registered owner of some adjacent lands, the NW 1/4.

The plaintiff has alleged as follows regarding the NW ¼: During the negotiations between the plaintiff and Clearview with respect to the ... purchase contract it was represented to the plaintiff by both Clearview and Primewest that Primewest’s guarantee was significant and material in that at that time Primewest owned land adjacent to the Clearview purchase land and legally described as [the NW ¼].

It was on this basis and on the strength of this ownership representation, that the plaintiff entered into the Clearview Land Purchase agreement, supported by the Primewest guarantee. [ 15 ] Primewest transferred the NW ¼ about 3 months later, in January of 2007, to another related corporation, Bar-N. [ 16 ] In December of 2007 Mr. Low acted as counsel for the plaintiff as purchaser of a number of lots from Bar-N, which lots had been earlier subdivided from the NW ¼. Mr.

Low’s file contains a land titles search of the NW ¼. [ 17 ] Clearview made additional $600,000 annual installment payments on the Clearview lands in October of 2008 and October of 2009, but defaulted in making the installment payment due in October of 2010. [ 18 ] Consequently, the plaintiff, using Mr. Low as its counsel, sued Clearview and Primewest in March of 2011 for the accelerated balance due, and obtained judgment against them in September of 2011. [ 19 ] Mr. Low, as counsel, received documentation in April or May of 2012 in the nature of copies of tax returns of Clearview and Primewest.

These tax returns showed that both corporations had no assets and their business was “being agents of a related corporation”. The defendants say that this documentation disclosed the agency relationship between Primewest and Bar-N which is the subject of the

recent amendment application by the plaintiff. [ 20 ] The defendants assert that the manner in which Mr. Low attempted to collect on the Primewest judgment in 2011 shows that the plaintiff was already well aware that the NW ¼ had been earlier transferred to Bar-N. Topics on which Mr. Low may be a witness [ 21 ] The defendants assert that there are four separate topics where Mr. Low has relevant evidence, as follows: (

i) he is a witness to and participant in the Clearview purchase transaction in 2006, during which it is alleged that representations were made by the defendants as to Primewest’s ownership of the NW ¼, which is alleged to have been important to the plaintiff’s decision to sell the lands to Clearview. (ii) he is a witness to and participant in the lot purchase agreement in December of 2007 which resulted in his office obtaining a land titles search over the NW ¼ during December of 2007. (iii) he is a witness to the events surrounding efforts to collect on the judgment against Primewest in late 2011 and early 2012, which the defendants say shed light on the question of whether the plaintiff already knew that the NW ¼ had been transferred earlier. (iv) he is a witness to and participant in the receipt by the plaintiff of information found in Clareview’s and Primewest’s tax returns (with respect to the ‘agency’ issue) in April/May of 2012. [ 22 ] I will now consider each of these four topics separately. (

i) Information acquired during the 2006 Clearview purchase [ 23 ] The defendants have indicated that they wish to ask Mr. Low the following types of questions regarding this topic: • Did he prepare the 2006 purchase agreement? • Were any representations, of the type referred to in the statement of claim, made in Mr. Low’s presence?

If so, what were those representations and when and by whom were they made? • Did he make any enquiries regarding the assets of Clearview or Primewest at the time of this agreement, either from the defendants or from third party sources? • If the topic of Primewest’s ownership of the NW ¼ was discussed, did he make any enquiries as to the basis upon which Primewest held the title to the NW ¼ at the time of this agreement? • Did he make any requests of Primewest for a mortgage over the NW ¼ at the time of the agreement?

Does he have any documents reflecting such a request? (ii) The December 2007 land titles search on the NW ¼ [ 24 ] The defendants have indicated that they wish to ask Mr. Low the following types of questions regarding this topic: • When was he retained to act in the purchase of the lots in late 2007? • Did he prepare an agreement for the purchase of the lots? • Was he aware that the lots being purchased were subdivided out of the NW ¼? Who was the owner of the lots at the time?

Was it Bar-N? • How did he or someone in his office know to pull a title to the balance of the NW ¼ at the time when that title is not part of the lots then being purchased? Why was that title pulled? • Did he review the title on his file for the balance of the NW ¼ at this time? Did he notice that it was owned by Bar-N? • When did he first become aware that Primewest had, in January of 2007, transferred title to the NW ¼ to Bar-N? • Does Mr.

Low have time records made during the 2007 lot purchase transaction which would assist him in answering these questions? (iii) Knowledge regarding the NW ¼ following judgment being obtained against Clearview and Primewest in September of 2011? [ 25 ] The defendants have indicated that they wish to ask Mr. Low the following types of questions regarding this topic: • Following the obtaining of the judgment against Clearview and Primewest in September of 2011, why did Mr.

Low not attempt to register the Writ against Primewest against the NW ¼ if he was unaware that the NW ¼ had been by that time transferred to Bar-N? (iv) evidence regarding the agency relationship between Clearview/Primewest and Bar-N

[ 26 ] The defendants have indicated that they wish to ask Mr.

Low the following types of questions regarding this topic: • During the 2006 Clearview purchase did he make any enquiries regarding the corporate relationships between Clearview, Primewest and Bar-N? • When did he first receive a copy of Erin Selinger’s affidavit sworn on April 30, 2012, containing the tax returns of Clearview and Primewest? • Did he notice that, in the Selinger affidavit, she deposed that neither Clearview nor Primewest possessed any assets? • Did he notice, from the tax returns of Clearview and Primewest attached to the Selinger affidavit, that it was indicated that both corporations were acting as 100% “agents of a related corp”.

If so, what corporation did he take it was being referred to? Observation regarding topics on which the defendants want to question Mr. Low [ 27 ] In my opinion, the topics on which the defendants wish to question Mr. Low are relevant and material and it is likely that Mr. Low will be a witness regarding these matters. [ 28 ] I do not believe that the defendants are raising these topics as a tactical move, designed to frustrate the ability of the plaintiff to pursue its claim. Steps in the process where Mr. Low may be a witness [ 29 ] The three occasions where Mr. Low may be a witness are as follows: (

i) under Rule 6.8 prior to the upcoming applications. (ii) at questioning (discoveries). (iii) at trial. [ 30 ] I will discuss these three steps individually. (

i) a Rule 6.8 examination prior to the upcoming applications [ 31 ] The defendants have indicated that they intend to serve an appointment on Mr. Low pursuant to Rule 6.8 in order to question him with respect to the upcoming applications for

summary judgment/dismissal, and with respect to the plaintiff’s upcoming application to amend the statement of claim. [ 32 ] This power to examine witnesses with respect to upcoming applications existed under the old Rules of Court (Rule 266) but was rarely used because the examination was an examination in chief and not a cross-examination. Rule 6.8 will likely be used more often because the examination has been held to be in the nature of a cross-examination.

See Precision Drilling Canada Limited Partnership v Yangarra Resources Ltd. , 2013 ABQB 492 , 2013 CarswellAlta 1723. [ 33 ] If I had determined that the intended cross-examination of Mr. Low under Rule 6.8 was merely a tactic to frustrate the ability of the plaintiff to pursue its claim I would have set the appointment aside as an abuse of process. However, for the reasons set out above, I have concluded that the defendants have bona fide grounds to examine Mr. Low under oath pursuant to Rule 6.8 (ii) questioning (discoveries) [ 34 ] The parties have not yet conducted questioning under

Part 5 (discoveries) but if and when they do, the defendants will be able to seek the court’s permission to question Mr.

Low pursuant to Rule 5.18, which deals with questioning individuals who have provided services to corporations, such as the corporate plaintiff. [ 35 ] There are a number of qualifications listed in Rule 5.18 which must be met before the court will grant permission, and I do not pre-judge whether those conditions will be met. [ 36 ] I merely mention this topic because, when a court is considering whether a lawyer is likely to be a witness, I believe the court should have regard to all the different ways in which a lawyer may end up being a witness. (iii) questioning at trial [ 37 ] As Mr.

Low has relevant and material evidence, as discussed above, I believe it is likely that he will be a witness at trial. Conclusion [ 38 ] The facts in this case are very similar to the facts in the leading decision in Zurich . [ 39 ] In both situations a lawyer was involved in events which pre-dated the litigation. In Zurich it was a prior personal injury claim, in this case it was the 2006 Clearview purchase, the 2007 lot purchase and the enforcement of the earlier judgment against

Clearview and Primewest. This earlier involvement led to the lawyer having relevant and material information making likely that he/she would be called as a witness. [ 40 ] In both situations, limitations issues have been raised, which puts the lawyer in a potential conflict situation with his own client. [ 41 ] As a result, I direct that Mr. Low remove himself as counsel to the plaintiff.

I direct that all applications in this action be stayed until September 30, 2017 in order that the plaintiff obtain new counsel who can familiarize himself/herself with the litigation in order to provide legal advice to the plaintiff. Costs [ 42 ] Costs of this application may be addressed following September 30, 2017, when new counsel has been appointed for the plaintiff. Heard on the 20 th day of July, 2017. Dated at the City of Calgary, Alberta this 2 nd day of August, 2017. J.T. Prowse, Q.C. M.C.C.Q.B.A. Appearances: Richard A. Low Richard A. Low & Company, LLP for the Plaintiff Matthew D.

Bullock Huckvale LLP for the Defendants