Chartered Professional Accountants of Alberta v Neilson, 2018 ABQB 995

Court of Queen’s Bench of Alberta Citation: Chartered Professional Accountants of Alberta v Neilson, 2018 ABQB 995 Date: 20181206 Docket: 1701 04043 Registry: Calgary Between: Chartered Professional Accountants of Alberta Applicant - and - James Russell Neilson Respondent And Between: Docket: B101 960623 Registry: Calgary In the matter of the Bankruptcy of James Russell Neilson

Between: Chartered Professional Accountants of Alberta Applicant - and - James Russell Neilson Respondent _______________________________________________________ Memorandum of Decision of the Honourable Mr. Justice J.T. Eamon _______________________________________________________ Introduction [ 1 ] The Applicant sought pursuant to

section 125 of the Chartered Professional Accountants Act , SA 2014, c C-10.2, to enforce the portions of a Sanction Agreement between the Certified General Accountants’ Association of Alberta (“CGAA”) and the Respondent dated August 8, 2016 imposing money fines and costs on the Respondent arising from allegations of professional misconduct which he committed as a Certified General Accountant. The Respondent defended on the basis that the financial claims in the Sanction Agreement were provable claims in his bankruptcy and could not be pursued outside of his bankruptcy.

I decided the application in my Reasons in Chartered Professional Accountants of Alberta v Neilson , 2018 ABQB 170 (“Reasons”). This Memorandum provides additional directions on costs issues. [ 2 ] Following investigation, the CGAA referred the following allegations of professional misconduct against the Respondent to a disciplinary hearing: (

a) Allegation #1: Attaching the logo of the complainant accounting firm to the unaudited financial statements of a named private company for the years ended September 30, 2012 and 2013, without the complainant’s knowledge or authorization and without the complainant’s participation in the financial statements; (

b) Allegation #2 : Associating with false and misleading information by sending all or part of those financial statements to certain named persons; (

c) Allegation #3 : Not responding to the CGAA’s request of February 2, 2015 to provide a response to the complaint and not cooperating with the investigation. [ 3 ] The Respondent became bankrupt on February 12, 2015. The facts underlying Allegations #1 and #2 occurred before the bankruptcy. Those underlying Allegation #3 had not. [ 4 ] The parties made the Sanction Agreement during the Respondent’s bankruptcy. That agreement included a fine for each allegation, and payment of the costs of the investigation, hearing and compliance with any orders, payable within 30 days of service of the statement of costs.

CGAA provided the Respondent a statement of costs for $15,579.84. The costs were not allocated among the three allegations. [ 5 ] In my Reasons, I held that: (

a) the Applicant’s costs claim is a provable claim in the Respondent’s bankruptcy and subject to the bankruptcy stay and discharge provisions, other than incremental costs (if any) associated with Allegation #3. The Applicant is entitled to a money judgment for those incremental costs notwithstanding the Respondent’s bankruptcy;

(

b) the Applicant’s claims for the disciplinary fines are not provable claims. The Applicant is entitled to a money judgment against the Respondent for the fines notwithstanding his bankruptcy. [ 6 ] I stated with respect to the costs of investigation: [102] The costs of investigating and managing Allegations #1 and #2 to a voluntary settlement, both before the bankruptcy event and during the bankruptcy administration, are so closely related to the pre-bankruptcy professional misconduct and third party complaint that they should be considered as having arisen from an obligation incurred before the bankruptcy.

The CGAA has provided no evidence to suggest that the third parry complaint would not be investigated, or that any part of the costs relating to the third party complaint were remote or unexpected. [103] I find that those costs are a provable claim. They are subject to the stay.

Whether the Respondent is released from them by the bankruptcy is not before me and I make no ruling about that issue. [104] In contrast, costs relating to Allegation #3 were remote and speculative at the date of bankruptcy because the regulatory default had not occurred at that date. [105] How should I deal with the fact the costs were assessed for all the allegations together? It is not unusual that a professional regulator joins a complaint for failure to cooperate to an underlying third party claim.

Often, the failure to cooperate complaint is so closely tied into the underlying facts of a third party complaint that it does not occasion any material additional costs. In my view it is appropriate to consider whether there are any incremental costs associated with Allegation #3. If there are incremental costs associated with it, they would not be a provable claim on the facts of this case. [ 7 ] Following that decision, the parties sought directions on the amount of the incremental costs associated with Allegation #3 and a decision on the costs of the proceedings.

Incremental costs [ 8 ] The Applicant claims $9,689.77 as the costs incurred by CGAA as a result of Mr Neilson’s refusal to cooperate with the investigation. These consist of: (

a) investigation costs of $300 attributable to the third allegation; (

b) legal fees for preparation for the discipline hearing, other than .4 hrs to review a motion to the Complaints Inquiry Committee to refer the matter to the discipline tribunal (which would have been incurred in any event); (

c) disbursements incurred to serve the Respondent with notice of the discipline hearing; (

d) disbursements incurred to publish notice of the discipline hearing in a local newspaper. [ 9 ] The Respondent says the Applicant’s request for incremental costs associated with Allegation #3 should be denied. He says he formally requested to resign his membership with CGAA long before the allegations arose, and CGAA nevertheless chose to proceed with an investigation and incur costs when it could have accepted his resignation.

Further, it is impossible to know the extent to which the actions of the investigator “were attributable to his sense of thoroughness … or for any alleged failure to cooperate on my part”. He also says that he had requested copies of CGAA’s files pertaining to the complaints in preparation for the hearing of this proceeding, which was denied.

Therefore, CGAA should not be allowed to use selected excerpts from the files at this stage of the proceedings. [ 10 ] I do not accept the Respondent’s argument that CGAA’s refusal to permit him to resign is a basis to refuse costs associated with Allegation #3. [ 11 ] Neither side provided me with CGAA’s bylaws or rules concerning resignation. It appears from the Respondent’s submissions that he required permission to resign under CGAA’s governing structure. The Respondent has not provided any evidence to establish that CGAA failed to consider or unreasonably refused his request.

As to his request to resign remaining available to be acted on throughout the disciplinary proceeding, it is not unreasonable for a regulator to pursue serious disciplinary matters notwithstanding the desire of a member to resign. Adjudicating complaints against a regulated member helps ensure that public confidence in the profession is maintained and helps deter other professionals from similar misconduct.

Given the serious allegations of dishonesty against the Respondent, pursuing disciplinary proceedings does not appear unreasonable. [ 12 ] I do not accept the Respondent’s argument that CGAA’s refusal to produce to the Respondent its underlying complaint files (or my refusal to order disclosure of all files on the stayed complaints, as described in paras 84-85 of my Reasons) bars CGAA from later relying on extracts from records to prove costs. Mandatory pre-hearing disclosure does not apply to this proceeding unless otherwise ordered (Alberta Rules of Court, Rule 3.10).

The Respondent had an opportunity to renew his request for disclosure, or cross-examine on the Applicant’s affidavit filed June 29, 2018 in support of its incremental costs claim, once it appeared there was a material record which would shed light on that claim. He did not do so.

He has been treated fairly. [ 13 ] CGAA claims that a small amount of investigation time ($300), the costs of attempted service of the notice of hearing ($647.75) and the costs of advertising the notice of hearing in a local newspaper ($2465.52) were incurred because the Respondent refused to cooperate with the process and either would not take delivery of documents or could not be located in order to be served. [ 14 ] A member of a regulated profession should be expected to maintain proper contact information with their regulator so that they can receive communications and service of disciplinary processes.

The investigator’s report details CGAA’s inability to contact or find the Respondent, the many dead ends the investigator encountered in trying to contact him, and the Respondent’s failure to provide proper contact information to his regulator. The Applicant provided ample proof that the Respondent did not cooperate as he ought to have and put the CGAA to expenses in trying to find him and provide him notice of his disciplinary hearing.

[ 15 ] The claim for investigator’s charges of $300 represents 3 hours of the investigator’s 20.08 hours of time spent on the investigation. The Applicant’s witness deposes that while the investigator did not issue a detailed invoice, “it is my belief that at least three hours of [the investigator’s time] can be attributed to Mr. Nelson’s failure to respond …” [ 16 ] Technically, this aspect of her evidence is an opinion and not admissible. I do not rely on it. Nevertheless, the evidence shows the Applicant suffered a loss.

Difficulty in ascertaining the amount of the loss usually is not a justification for denying compensation where it is clear some loss was suffered.

In situations where the evidence is not as helpful or specific as might be expected or the record is fragmented, compensation may be based on estimates and the Court must do the best it can on the evidence it received ( Architectural Millwork & Door Installations Inc v Provincial Store Fixtures Ltd , 2017 ABQB 390 at paras 16-17 and authorities cited therein). [ 17 ] Based on the efforts and disruption outlined in the investigator’s report, I estimate 2 hours’ time attributable to trying to find and communicate with the Respondent.

I assess the investigator’s costs at $200. [ 18 ] I further allow the costs of the process server and public advertising of the notice of the hearing, on the basis that the Respondent ought to have cooperated by keeping a proper address at which to receive communications from his regulator. [ 19 ] The legal fees claimed by the Applicant were incurred for legal counsel’s preparation for the discipline hearing.

The Applicant asserts it would not have incurred them if the Respondent had promptly indicated he wished to settle the matter. [ 20 ] The Applicant equates failure to cooperate with failure to admit the charges or promptly settle them. Its position is inconsistent with my reasoning quoted in para 6 above. I was not provided any evidence to suggest CGAA’s by-laws or rules deprive the Respondent of his right to dispute discipline allegations by forcing him to admit the allegations of fraud against him.

Absent such evidence, failure to cooperate does not mean refusing to admit the charges or insisting that CGAA prove the allegations against him. I refuse the legal fees for hearing preparation, apart from any attributable to preparing to prove Allegation #3. Experienced counsel could prepare to lead evidence on that allegation very quickly, and there is no indication in the evidence that counsel began to prepare the investigator as a witness before turning her attention to the settlement initiative.

In the circumstances I do not allow a claim for legal fees. [ 21 ] The total amount of the incremental costs is therefore $3,313.27. Costs of the Application [ 22 ] Rule 10.29 states that a successful party is entitled to a costs award against the unsuccessful party, subject to the Court’s discretion under Rule 10.31 after considering the matters in Rule 10.33 [ 23 ] A party who is substantially successful in the action should normally be awarded costs, absent other considerations.

It is not necessary that the party succeed entirely on every issue and argument ( Wilde v Archean Energy Ltd , 2008 ABCA 132 at para 9 ; Mahe v Boulianne , 2010 ABCA 74 at para 6 ; 574095 Alberta Ltd v Brendanco Investments Inc , 2002 ABQB 487 at para 13 ; Sagacity Professional Corporation v Buchanan Barry LLP , 2011 ABQB 58 at paras 16-18 ; Adams v Adams , 2011 ABQB 812 at para 5 ; Donselaar v Donselaar , 2013 ABQB 276 at para 4 ; Clarke v Syncrude Canada Ltd , 2014 ABQB 430 at paras 7 , 8, 11). [ 24 ] The real issue in the Application was whether the Respondent was insulated from financial liability to his professional regulator by entering bankruptcy.

The Applicant generally succeeded on the issue and recovered the fines and some costs, while the Respondent succeeded in defending some of the costs claimed. This is not a case where it is appropriate to depart from the default rule and award costs of this proceeding by issue. There is no circumstance suggesting the Applicant should be deprived of the costs of recovering its claim. [ 25 ] I award the Applicant costs of the proceedings, other than the present application for directions, on the basis of

Schedule “C”, column 2 and reasonable disbursements. There is no costs award to either side for the present application for directions. Conclusion [ 26 ] The Applicant’s draft formal judgment is acceptable with the following revisions: (

a) the sum in para 2 is $3,313.27; (

b) para 3 will state: “The Court declares: (

a) pursuant to

section 69.4 of the Bankruptcy and Insolvency Act , the stay under

section 69.3 does not apply to the commencement and prosecution of the within application or any claim determined by the Court on this application not to be a provable claim; (

b) the Fines and the Costs are not provable claims in the Bankruptcy of Mr Neilson and survive any discharge he may obtain.”; (

c) para 5 will state: “The Applicant is awarded costs of these proceedings on the basis of

Schedule “C”, column 2, and reasonable disbursements, but excluding the attendance in Chambers on August 21, 2018 and the Applicant’s written letter submission dated of August 22, 2018. The amount payable under this costs award is not a provable claim in the bankruptcy of Mr Neilson and survives any discharge he may obtain.”; (

d) add para 6: “Rule 9.4(2)(

c) is invoked”. [ 27 ] Applicant is to revise and resubmit the formal judgment accordingly. Heard on 21 st day of August, 2018,

with subsequent written submissions 22 nd day of August, 2018; and 3 rd day of October, 2018. Dated at Calgary, Alberta this 6 th day of December, 2018. J.T. Eamon J.C.Q.B.A. Appearances: Aidan D. Henderson for the Plaintiff James Russell Neilson for the Self-Represented Litigant