Morrison v Galvanic Applied Sciences Inc, 2017 ABQB 514

Court of Queen’s Bench of Alberta Citation: Morrison v Galvanic Applied Sciences Inc, 2017 ABQB 514 Date: 20170822 Docket: 1301 11717 Registry: Calgary Between: Robert J. Morrison, Rick Durst and David S. Pullan Applicants - and - Galvanic Applied Sciences Inc. Respondent _______________________________________________________ Memorandum of Decision of the A. R.

Robertson , Q.C., Master in Chambers _______________________________________________________ Introduction [ 1 ] On October 17, 2013, the applicants filed an originating application, returnable December 9, 2013, asking that the Court determine the fair value of their shares in the respondent, Galvanic Applied Sciences Inc., as of the valuation date, being September 18, 2013. The application was served on October 28, 2013. No affidavit was provided. The application said, “Affidavit to come later.” [ 2 ] The respondent applies to strike the claim for delay and prejudice.

The application is brought pursuant to both rules 4.31 (significant delay and prejudice) and the “drop dead” rule 4.33 (long delay) for a dismissal of the action, and for costs of the action and this application. [ 3 ] The matter came before me in morning chambers. When I realized who the parties were I disclosed to Mr. Morrison, who was attending on behalf of the applicants, that prior to my appointment to the court almost four years earlier I had represented Galvanic Applied Sciences Inc.

I have no on-going association with anyone involved with the company and prior to the application I was unaware of any of the circumstances involved in the claim. He explained that management of the company had significantly changed and had no

difficulty with me hearing this application. Background [ 4 ] The applicants were dissenting shareholders who dissented from a take-over bid, an amalgamation transaction between Galvanic and an Alberta numbered company that took place in 2013. The transaction had been proposed in a management information circular on August 22, 2013, and it was approved at a special meeting of Galvanic shareholders on September 19, 2013. [ 5 ] The promised affidavit from the plaintiffs came much later. The affidavit of Robert J. Morrison was not sworn until October 11, 2016, and filed with the court on October 19.

The text of the affidavit is 132 paragraphs spanning 99 pages, and there are 47 exhibits. It was necessary to adjourn the application to find time to read this extensive material. [ 6 ] Of course, drafting and swearing an affidavit does not significantly advance an action. Actions taken in private by one party do not have that effect. It is only the filing and service of an affidavit that might advance the action.

The affidavit was served October 18, 2016, ten days before the three-year anniversary of the service of the originating application. [ 7 ] The original application was adjourned by consent on a sine die basis on December 3, 2013.The adjournment did not advance the action. It put off its resolution. [ 8 ] Galvanic paid out the amount approved at the special meeting, being $1.70, to the shareholders, including the dissenting shareholders, on December 2, 2013. Counsel for Galvanic points out that Mr. Morrison received approximately $2 million, and the other applicants received approximately $400,000.

Accordingly, it is somewhat surprising that Mr. Morrison represents himself and, presumably, the others (although he acknowledges that he is not legal counsel) because given the amounts of money involved they could likely afford to have legal counsel. [ 9 ] Accordingly, the basic time stamps that are relevant are these: the supporting affidavit which Mr.

Morrison argues advanced the proceedings commenced by originating application was sworn only a few days before the third anniversary of the filing of the application, it was filed the day before the third anniversary of the filing of the application, and it was served the day after but 10 days before the third anniversary of service of the original application. At best, the applicants’ case under rule 4.33 is a squeaker. [ 10 ] The case is still not ready to be resolved. Even Mr. Morrison does not assert that his lengthy affidavit is sufficient to allow the court to determine the fair value of the shares.

He does not present himself as an expert although he makes legal arguments and valuation arguments throughout his affidavit. [ 11 ] He still does not provide evidence as to what a fair value of the shares would be. [ 12 ] At paragraph 25 he says, I intend, later in the litigation process, to direct a Canadian professional valuation firm to produce an independent “formal valuation”… of the Galvanic shares as of the Valuation Date.

It would be premature to proceed with this now as non-public documents which are referred to in Galvanic filings, and which may be of value in the production of a formal valuation, as well as other pertinent materials, have not yet been made available to me within the scope of this litigation. [ 13 ] In his affidavit he suggests a “preliminary proposed fair value” of $2.65 instead of the $1.70 that was paid. However, he reserves the right to change this opinion once he receives an opinion of a professional valuator.

In case there is any doubt, at paragraph 28 he says, “I want to put particular emphasis on the word preliminary because this is not an admission on my part that fair value cannot be higher than $2.65.” [ 14 ] Accordingly, there is still no case for Galvanic to respond to. [ 15 ] The payment of the $1.70 occurred on December 2, 2013, which was after the date of the commencement of the proceedings. Mr. Morrison argues that the payment of that amount “constituted a partial settlement and thus moved the action closer to a final resolution.” [ 16 ] However, that did not advance the action.

It was not a partial settlement; it was a discharge of the very obligation that Galvanic had recognized and which the applicants had found inadequate. The parties had locked horns over the amount to be paid.

The payment of $1.70 per share was simply taking the step that was predetermined at the special meeting in September, and its anticipated payment was the action that the applicants objected to and is the basis of this claim. [ 17 ] Even if rule 4.33 is not in play, Galvanic argues that there has been significant and inordinate delay which places the burden on the applicant under rule 4.31(2) to show that there has been no prejudice, because the delay is presumed to have resulted in significant prejudice to Galvanic. Analysis Delay Factors Generally [ 18 ] There is really no good reason for the delay.

The only reason given for the length of time ultimately taken is that Mr. Morrison found it “an immensely challenging task” to prepare his affidavit. [ 19 ] In his affidavit of May 17, 2017, filed in response to this application, he acknowledges that the only communication in 2014 was an email he sent to Galvanic’s former counsel on April 9, 2014, when he reported that the Law Information Centre had assured him that “there is nothing terribly out of the ordinary in the amount of time I have been taking”. He assured counsel that he was continuing to work on the case.

[ 20 ] He gave another “update” by email of February 12, 2015. He projected completing his affidavit and getting it to Galvanic’s counsel by April – which meant April 2015, in the circumstances. [ 21 ] He gave another update by email of November 30, 2015, when he acknowledged that the projected date of April was “a terrible misjudgment”. He specifically acknowledged that he was aware of rule 4.33. He referenced the Court of Appeal’s decision in Ursa Ventures Ltd v Edmonton (City) , 2016 ABCA 135 .

That case dealt with whether an affidavit of records delivered within weeks of the three year limit in rule 4.33 was a sufficient step. The majority accepted that using a functional approach, the Chambers judge had concluded that it satisfied the requirements of rule 4.33. Justice Peter Martin concurred, but solely because he could not say that the Chambers Judge’s reasons were unreasonable. He went on to express his frustration: Still, I remain concerned that such an infantile step should be allowed to reset the clock for another three years of inactivity.

That would neutralize the important objective of Rule 4.33(1). The idea is that we usher these malingering files to trial or put them out of their misery. [ 22 ] He said that the chambers judge should have imposed a firm litigation

schedule as contemplated by Rule 4.33(2). Did the Affidavit “Significantly Advance” the Action? [ 23 ] Mr. Morrison’s affidavit does not assert any new information. Aside from noting that some participants have passed away in the interim (which may suggest prejudice resulting from the delay) the most recent event that I am able to identify in the affidavit, touching on the facts of the case is the payment on December 2, 2013. Later dates that appear in the affidavit relate to such things as Mr.

Morrison having a discussion with a representative of the Alberta Law Information Centre about the format of his affidavit (which is both irrelevant and inadmissible in light of rule 13.18). The affidavit does not present any new information that was not known at the time the application was filed or within a few weeks thereafter. [ 24 ] The affidavit is extremely difficult to read. In an affidavit sworn May 17, 2017, in response to the application to dismiss, Mr. Morrison describes his affidavit as “clear and streamlined”. I do not see it that way.

Aside from its length and volume of exhibits, it contains much information that is not helpful to the analysis of fair market value. The arguments presented are not straightforward. There seems little connection between the text of the affidavit and the exhibits (I could not connect some of the exhibits to any discussion of them in the affidavit).

It is a rambling discussion of a variety of concerns about share valuation including, in the course of the discussion, various facts which might ground the applicants’ position. [ 25 ] Overall it is an attempt at providing a quasi-opinion (with no conclusion, as indicated above) by someone not qualified to give an opinion, and setting forth an attempt at legal arguments by someone not a lawyer, on behalf of himself and others. [ 26 ] The claim advanced by Mr. Morrison on behalf of Mr. Durst and Mr. Pullan constitutes a violation of the Legal Profession Act , RSA 2000, c. L-8.

Section 106 of that Act provides as follows: 106

(1) No person shall, unless the person is an active member of the Society, (

a) practise as a barrister or as a solicitor, (

b) act as a barrister or as a solicitor in any court of civil or criminal jurisdiction, (

c) commence, carry on or defend any action or proceeding before a court or judge on behalf of any other person, or (

d) settle or negotiate in any way for the settlement of any claim for loss or damage founded in tort. [ 27 ] As mentioned above, it does not set out a case to which Galvanic must respond. [ 28 ] Some points in his affidavit appear to have some merit. For example, he argues that the value of $1.70 was established in various “lockups” with major shareholders and that adversely affected subsequent trading until the proposal was made. [ 29 ] Also, he argues that Galvanic introduced a new product to its customers in the month leading up to the special resolution.

That fact was not well-known to the market, and may have increased share value over a short time. [ 30 ] Mr. Morrison describes his affidavit as focussing on how the process leading up to the vote was flawed. [ 31 ] Accordingly, there appears to be some factual basis, from what I can understand in the affidavit, for an opinion to the effect that the fair market value could have been more than a $1.70. [ 32 ] With this in mind, it can be argued that the affidavit does provide some information that advanced the action. The question is whether it significantly advanced the action.

The affidavit is barely helpful in analysing the fair value of the shares, and as mentioned it does not purport to satisfy any particular test to show that the $1.70 figure is wrong, merely that it might be wrong. [ 33 ] In response, Galvanic refers to 1406998 Alberta Ltd v Dorbandt , 2017 ABQB 321 where Master Schlosser dealt with an expert report and whether it had significantly advanced the matter. At paragraph 29 he said it did not: The question is then: ‘is this report of any significant assistance in determining any of the issues in the Pleadings?’ In my view it is not.

It is essentially an opinion that might serve another lawsuit, but not this one. It is not ‘an important piece of evidence’….It does not advance this action because it does not discharge the primary burden of proving the extent of contamination in the costs of remediation.

[ 34 ] Galvanic asserts that here Mr. Morrison’s affidavit does not offer significant assistance in determining the question of fair value. The functional approach taken in Dorbandt , mandated by the Court of Appeal in Ursa Ventures , and also in XS Technologies Inc v Veritas DGC Land Ltd , 2016 ABCA 165 , and several other cases, should be taken.

Therefore, although the affidavit may offer some assistance in resolving the case, it did not significantly advance the claim, because the applicants have still not made out a claim to which Galvanic must, or even can, respond. [ 35 ] What has now been filed is an affidavit saying, with considerably more detail, exactly what was said in the original application: “affidavit to come later”. Accordingly, on a functional analysis, I conclude that the case has not been advanced at all. Even in Mr.

Morrison’s affidavit there is no conclusion of what the value should be, and the applicants expressly reserve their right to change their arguments. Rule 4.31 Factors [ 36 ] Galvanic also argues that rule 4.31 is in play, and that the delay to October 16, 2016, was “inordinate and inexcusable”, and once the Court concludes that, then the delay is presumed to have resulted in significant prejudice to Galvanic.

The burden is on the applicants to prove otherwise. [ 37 ] I note that the foundational rules specifically say, in rule 1.2(1) this: The purpose of these rules is to provide a means by which claims can be fairly and justly resolved in or by a court process in a timely and cost effective way. [ 38 ] Sub-rule (2) expressly states that the rules are intended to be used “to facilitate the quickest means of resolving a claim at the least expense” and “to oblige the parties to communicate honestly, openly and in a timely way”. [ 39 ] Sub-rule (3) mandates that the parties are to “identify or make an application to identify the real issues in dispute and facilitate the quickest means of resolving the claim at the least expense”. [ 40 ] Rule 1.7(1) directs me to ascertain the meaning of the rules from, among other things, their purpose and intention.

That takes me back to rule 1.2. [ 41 ] This is an originating application, not a proceeding commenced by statement of claim, so we do not have such things as the delivery of affidavits of records and supporting documents, questioning, judicial dispute resolution proceedings, and other such formal steps that may be looked at to determine if proceedings have been advanced at all, significantly or otherwise. [ 42 ] On an originating application, the applicant’s case is normally set out in the supporting affidavit.

This is not just convention: rule 3.9 specifically requires the supporting affidavit to be served 10 days or more before the date scheduled for the hearing of the application. [ 43 ] This reflects that an originating application is intended to proceed with some reasonable pace. In Dash Distributors Inc v Powlik , [2012] A.J. No. 1310, 2012 ABQB 770 , Master Schlosser addressed the speed of originating applications, in paragraphs 7 through 9.

The choice of an originating application means that you can get into Court on a specific date to have the matter heard and, where the use of it is appropriate, the process dispenses with many of the steps that would follow in the ordinary course. [ 44 ] Mr. Morrison acknowledged that he was aware of rule 4.33 and the need to take a step. He knew that the respondent was expecting to see an expert opinion. He knew who might be qualified to provide an expert opinion. Exhibit 8 to his October 2016 affidavit is a copy of Standard No.150 published by the Canadian Institute of Chartered Business Valuators.

Paragraph 1 of that document states: Chartered Business Valuators may be retained to provide a conclusion as to the fairness of the proposed transaction to security holders (or to a group of security holders), from a financial point of view. In the circumstances, written communications arising from such engagements are termed “Fairness Opinions”. [ 45 ] In his response affidavit, Mr. Morrison says that he was not “dilatory”, “dormant”, or “dawdling”. He refers to Ursa Ventures Ltd v Edmonton in this context. He says he was always trying to move his case forward.

He complains that Galvanic could have taken the opportunity to communicate its concern, but never did. He notes that there was no response to his emails giving updates on the drafting of his affidavit. He says Galvanic could have asked to agree on a litigation plan, but that never happened. [ 46 ] However, this case is his application and until October 2016, he had provided absolutely no evidence to support it.

If the applicant is not interested in moving the case forward, the respondent should not be forced to take steps to push forward a lawsuit - the defendant may well believe that the lawsuit should never have been started in the first place. Neither should the unresolved claim remain outstanding indefinitely: Charik Custom Homes Ltd v Sara Development Inc , 2014 ABQB 63 .

Complaining that the other party did not do something, when that other party had no obligation to do anything at all, is not a proper response to an application under either of rules 4.31 or 4.33. [ 47 ] (He further asserts that he was never the “non-moving party” which indicates a misunderstanding of the Court of Appeal’s use of that expression in Ursa Ventures .

The Court was, of course, referring to the party other than the party who had moved ( i.e. , brought an application) to have the action struck.) [ 48 ] In Humphreys v Trebilcock , 2017 ABCA 116 the Court of Appeal set out the proper approach to an application to dismiss under rule 4.31: In order to apply r. 4.31 an adjudicator must answer six distinct questions. [151] First, has the nonmoving party failed to advance the action to the point on the litigation spectrum that a litigant acting

reasonably would have attained within the time frame under review? [152] Second, is the shortfall or differential of such a magnitude to qualify as inordinate? [153] Third, if the delay is inordinate has the nonmoving party provided an explanation for the delay? If so, does it justify inordinate delay? [154] Fourth, if the delay is inordinate and inexcusable, has this delay impaired a sufficiently important interest of the moving party so as to justify overriding the nonmoving party’s interest in having its action adjudged by the court?

Has the moving party demonstrated significant prejudice? [155] Fifth, if the moving party relies on the presumption of significant prejudice created by r. 4.31(2), has the nonmoving party rebutted the presumption of significant prejudice? [156] Sixth, if the moving party has met the criteria for granting relief under r. 4.31(1) , is there a compelling reason not to dismiss the nonmoving party’s action? This question must be posed because of the verb “may” in r. 4.31(1) .

Inordinate Delay [ 49 ] It is an extraordinary circumstance for the supporting affidavit to an originating application to take three years for delivery. In light of the requirement in rule 3.9 and the stated intention of the foundational rules that litigation proceed in a timely fashion, there is an expectation that a supporting affidavit will be filed with an originating application and served with it (failing which in unusual cases it might be served a few days later if there is difficulty getting it sworn and there is a deadline for commencing the action but in any event before the scheduled hearing date).

The plaintiff has failed to advance the action to the point on the litigation spectrum that a litigant acting reasonably would have attached within three years. A three-year delay in providing any supporting evidence at all, in the context of an originating application, is inordinate. Inexcusable Delay [ 50 ] As discussed, there seems to be no meaningful explanation for the three-year delay. Mr. Morrison says that he was at “a huge disadvantage” in obtaining record production. However, there is no evidence that he asked for production.

He might have written an email, or a letter, or brought an application, but that does not appear to have happened. He appears to have expected Galvanic to volunteer assistance in the preparation of his evidence. [ 51 ] Mr. Morrison surely had no difficulty in understanding that it is at least appropriate, if not strictly necessary, to retain legal counsel to argue a case of this nature on his behalf, and he clearly knew that he would have to provide expert evidence, probably from a chartered business valuator. The affidavit that we now see reflects the fact that Mr.

Morrison was attempting to work both as legal counsel and as expert witness in his case. It is no surprise that he found this challenging. He does not have the qualifications to do either. [ 52 ] The Court regularly allows some flexibility for the individual circumstances of the case, the parties, and counsel when considering when steps must be taken. Our judicial system is not inflexible. Rule 13.5(2) allows the Court to extend time deadlines.

However, allowing a party more than three years to take a preliminary step which should have been taken before proceedings were first commenced, or at least taken within a short period of time after commencing the proceedings and in any event served more than 10 days before the scheduled hearing, would be inordinate.

A chartered business valuator, had he or she been retained within weeks of the delivery of the originating application, would have been able to advise the applicants what information was required in order to express a meaningful opinion, and the opinion would have been ready within a matter of weeks, perhaps a few months. Depending on what other commitments the chartered business valuator had at the time that may have extended somewhat farther. But it would never have taken three years.

Prejudice [ 53 ] As to delay, he points out that no one had complained of the delay in proceeding, and he asserts that Galvanic has not suffered any prejudice. But if there has been inordinate and inexcusable delay, the burden is not on Galvanic to show that it has suffered prejudice, but rather on the applicants to show that it has not. Conclusion [ 54 ] In my view, the delay in providing supporting evidence for an originating application has been inordinate. The excuses given are, in the end, that the applicants did not get around to hiring a chartered business valuator and Mr.

Morrison became mired in trying to do the job himself, even though he knew that he was not qualified to do that. Accordingly, the delay has been inordinate and inexcusable. [ 55 ] Once that has been shown, prejudice is presumed. The burden is on the applicants to show that there has been no prejudice. We do know that one or more of the key people involved have passed away. It is well-known that memories fade with time. Even the affidavit provided by Mr. Morrison does not suggest that there is any significant evidence that accrued during the time following commencement of proceedings.

All of the relevant evidence is at least three years old, now approaching four. [ 56 ] In the circumstances rule 4.33 applies because there was no event that advanced the proceedings within three years. In my view, that is the better analysis. A functional analysis tells us that the case has not advanced at all. Where rule 4.33 is in play, there is no discretion. That is why it is called the “drop dead rule”. [ 57 ] However, in any event the delay in providing supporting evidence was inordinate and inexcusable, and therefore rule 4.31 also applies.

Prejudice has been presumed, and there is no evidence to the contrary. [ 58 ] Although rule 4.31(1) is discretionary, I exercise my discretion in favour of Galvanic. Rule 3.9 was violated,

section 106 of

the Legal Profession Act was violated, to the extent the applicants have an argument that rule 4.33 does not apply it is only because they have squeaked in some inadequate evidence just before the three year deadline, and after three years there is still no case for the respondent to meet. There is no compelling reason not to dismiss the plaintiffs’ action. I echo Martin, J.A.’s frustration in Ursa Ventures , quoted above. I have concluded that this malingering file should be put out of its misery. [ 59 ] The claim is struck.

Costs [ 60 ] In the ordinary course, costs of the application would go to the respondent for an opposed morning chambers application (there were no briefs requested or provided). As this was an originating application, no pleading was required by the respondent, and to my understanding no appearance was actually required in 2013 to adjourn the application sine die. Costs would, therefore, likely be modest. [ 61 ] I would normally allow the parties to contact the Court for an award of costs if they are unable to agree. However, Mr.

Morrison resides in Toronto and travelling to Alberta is obviously an expensive proposition for such a matter. It might be done by way of telephone conversation, but I choose to set costs provisionally unless either party wants to have an audience to discuss them. [ 62 ] I would award costs to the respondent under

Schedule C, under column 3 to roughly approximate the amount thought to be in issue, bearing in mind that proceedings never got to the point where we knew precisely how much money was in issue. [ 63 ] If there are other factors in play the parties may wish to address the Court as to costs. If neither party contacts the Master’s Chambers clerk within three weeks of the date of release of this memorandum of decision to arrange for a hearing on costs, costs will be awarded as set forth in the immediately preceding paragraph. [ 64 ] In light of the fact that the applicants do not have legal counsel and the fact that this application is based upon their delay, I invoke rule 9.4(2) (

c) and allow counsel for Galvanic to present an order for filing. Heard on the 24 th day of May, 2017. Dated at the City of Calgary, Alberta this 22 nd day of August, 2017. A. R. Robertson, Q.C. M.C.C.Q.B.A. Appearances: Robert J. Morrison Applicant David J. Tupper Blake, Cassels & Graydon LLP for the Respondent