BH-BC Holdings Ltd v Regent Holdings UCL, 2021 ABQB 911

Court of Queen’s Bench of Alberta Citation: BH-BC Holdings Ltd v Regent Holdings UCL, 2021 ABQB 911 Date: 20211115 Docket: 2001 14781 Registry: Calgary Between: BH-BC Holdings Ltd. Plaintiff - and - Regent Holdings UCL and Regent Equipment Leasing Ltd. and Regent Equipment Canada Ltd. Defendants _______________________________________________________ Memorandum of Decision of J. Farrington , Master in Chambers _______________________________________________________ [ 1 ] This is an application to compel the production of documents by way of undertakings requested in a cross examination on an affidavit.

I heard the matter in WebEx chambers on October 20, 2021. [ 2 ] The underlying action is a security and guarantee enforcement action by the plaintiff against the defendants. The defendants say that the security and guarantees relied upon were obtained based upon misrepresentations to the effect that certain loan transactions would be funded, and that in the end, those transactions were not funded and the guarantees only shored up existing security. The matter

is more complicated but that

summary suffices for the purpose of dealing with the undertakings dispute. The underlying application is an application by the plaintiff for

summary judgment. [ 3 ] A leading case with respect to compelling undertakings in relation to cross examinations on affidavits has been the decision of Master Prowse in Dow Chemical Canada Inc. v. Shell Chemicals Canada Ltd ., 2008 ABQB 671 . In Dow Chemical Master Prowse held at paragraphs 5 and 6: After a review of the relevant case law, I have come to the conclusion that the court should be reluctant to direct that undertakings be provided by a party proffering a deponent who is unable to answer all questions put to the deponent during a cross-examination.

It should be more difficult to have undertakings directed on a cross-examination than at examinations for discovery. Undertakings should only be directed on a cross-examination where: (

a) the deponent has referred to information or documents in the affidavit, or could only have made the assertions contained in the affidavit after having reviewed the information or documents being sought, or (

b) the undertakings relate to an important issue in the application, and the provision of such information: (

i) would not be overly onerous, and (ii) would likely significantly help the court in the determination of the application. In addition, even where the undertakings sought do concern an important issue, the court should consider the alternative of simply ruling that the refusing party has not met its onus of proof in the underlying application. [ 4 ] Mr. Justice Mah applied a similar approach in Edmonton (City) v Gosine , 2020 ABQB 546 . at paragraph 16: Drawing these authorities together, I summarize the applicable principles as follows: 1.

The scope of cross-examination on affidavit is more restrictive than on questioning for discovery, given the different objectives and purposes of each. The former should not be used as an impermissible gateway to a foray in the latter. 2. Having said that, cross-examination on affidavit is not confined to the four corners of the affidavit. The test is relevancy and whether the information sought will help the Court to determine the application before it. 3. Credibility is a legitimate field of inquiry in an examination on affidavit, but is restricted to the credibility of statements in the affidavit. 4.

A deponent may be required to inform himself or herself after cross-examination on affidavit by way of responding to undertakings in circumstances where: • the deponent referred to or relied upon documents or other information in making the affidavit; or • where the undertakings relate to an important issue in the application, would not be too onerous to respond to and would significantly assist the Court in its determination of the application. [ 5 ] There were a number of objected undertakings. The affidavit examined upon was an affidavit in support of the

summary judgement application sworn by Conrad Krebs. [ 6 ] Counsel were able to narrow the issues in dispute to Undertaking Number 5 and Undertaking Number 6. [ 7 ] The court reporter’s transcript fairly summarizes them as follows: Undertaking No. 5 - To produce all the documentation in R.C. Morris Capital Management Ltd.’s possession, or that of the plaintiff, or other associates or affiliated organizations involved in the loan transaction, as discussed. Undertaking No. 6 - to make a request by BH-BC of R. C. Morris for all of the documents created which ultimately led to the documents that are in Mr.

Krebs’ affidavit. [ 8 ] For the most part, the arguments focus on the issue of whether documents can only be compelled from the plaintiff corporation, or whether documents that may be in the possession of the parent and other corporations of a group of corporations of which the plaintiff is a part and of which R.C. Morris Capital Management Ltd. is arguably a controlling principal can be compelled. [ 9 ] The plaintiff has not served its affidavit of records.

Plaintiff's counsel indicates that one will be provided, but that it will only include documents and records from the files of the plaintiff and not from the related corporations. The plaintiff asserts that only documents and records from the files of the plaintiff are producible. [ 10 ] Counsel agreed that there is not a great deal of law on the point. The defendant was able to cite Graci v. New Steel , 2010 ONSC 2677 and I have found that case to be helpful. [ 11 ] Before dealing with the two undertakings in dispute, I make some observations. [ 12 ] This is a questioning on affidavit. It is not a

Part 5 questioning. The law as earlier described for

Part 6 questioning and undertakings applies. General production questions are best addressed in the context of the

Part 5 questioning and the discovery process. Here, the scope of production is more limited.

[ 13 ] I restate the core principles that emerge from the cases on

Part 6 questioning. Documents must be produced by way of undertaking when: • the deponent referred to or relied upon them in making the affidavit; or • the undertakings relate to an important issue in the application, would not be too onerous to respond to, and would significantly assist the Court in its determination of the application. [ 14 ] The latter category is the most significant one here. [ 15 ] Counsel for the defendants acknowledges that many of the loan documents that would be in the possession of the plaintiff are also in the possession of the defendant.

Counsel for the defendants has agreed that there is no need for those documents to be provided. It is primarily internal documents of the plaintiff or its affiliates and associates that are sought. [ 16 ] A key issue in this action is whether the plaintiff intended to advance funds in due course or whether the intention was to simply shore up existing security and not advance funds (or something between those two ends of a spectrum). Another important issue in the action is whether the contemplated advance was purposed for the “ICI Bid” as that term is referred to in the pleadings and affidavits.

Consideration of those issues is an important part of the

summary judgement application. In my view, internal documents pertaining to those issues are relevant and material and they are important issues in the overall context of the dispute. There is no evidence that documents relating to them would be onerous to produce. I find that the request meets the test in Dow Chemical and Gosine subject to consideration of whether the review should extend to other corporations associated with the plaintiff. [ 17 ] While there will be debate at the

summary judgment application as to whether that type of evidence can be considered in the face of what is said to be strong language in the security documents, that is a matter for consideration on the

summary judgment application. The defendants are entitled to make their arguments by way of response to the

summary judgment application. If the documents requested were only in the hands of the plaintiff, they would clearly be compellable. [ 18 ] With respect to whether the production is limited to documents of the plaintiff corporation only or whether the obligation is broader and extends to the other related corporations, I find that the concepts in the Graci case are helpful even if they arise in a slightly different context. There is evidence that R.C.

Morris Capital Management Ltd. oversees many corporations which engage in lending activities as a group, and that separate corporations are generally used for funding separate transactions depending on the parties that contribute to the loan in each case. There is also evidence in the affidavit of Mr. Bowlen that Robert Christopher Morris was very much involved in the negotiation of the transaction and security documents here. [ 19 ] Standard corporate veil concepts are part of the law and limited corporate liability is an important principle of commercial commerce.

I am satisfied, however, that for purposes of this type of application where document production is sought, the existence of separate corporate entities is not necessarily the end of the discussion. [ 20 ] The first analysis I do is a traditional “possession, power or control” one. I find on the evidence that R.C. Morris Capital Management Ltd. and Robert Christopher Morris have a significant element of control, at least with respect to document production, as to what happens with the plaintiff corporation. They are effectively the alter ego of the individual corporations such as the plaintiff. Mr.

Morris was very much involved in the negotiation of the transaction. For the purposes of document production, I am satisfied that R.C. Morris Capital Management Ltd., the plaintiff, and the other related corporations are under the common control of R.C. Morris Capital Management Ltd. and its directing mind. In the circumstances, the plaintiff can be compelled to produce documents from either R.C.

Morris Capital Management Limited or the affiliated corporations if such records and documents otherwise meet the test in Dow Chemical and Gosine . [ 21 ] While the application can be decided as above using traditional physical “possession, power or control” concepts, the same result also flows from perhaps a newer type of analysis that does not depend as much on physical possession. The world is different now. There are many more documents and records in this electronic age.

While single purpose corporations are entirely appropriate, their documents and information are not necessarily constrained to their own physical files. Corporations act through people. Those people often do not communicate expressly in the name of the single purpose corporation, and they often do not specify whether they are communicating on behalf the specific purpose corporation or on behalf of another entity or perhaps on behalf of a group of entities. [ 22 ] For example, the evidence is that Mr.

Krebs’ LinkedIn page makes no reference to a role with the plaintiff BH-BC Holdings Ltd., yet he states that he is its authorized representative here. Mr. Bowlen’s affidavit illustrates that Mr. Krebs uses an email address in the “@rcmorris.com” domain rather one that is derived from or specific to BH-BC Holdings Ltd. Similarly, the evidence shows that Mr. Morris used an “@rcmorris.com” email address on this matter. [ 23 ] The critical issue is the substance of the evidence, rather than which entity happens to have been designated (usually after the fact) as the “keeper” of the evidence.

Evidence is evidence no matter who happens to have been designated as its custodian. Production that is restricted to notional characterizations as to which entity “possesses” a record in a virtual world risks exclusion of much relevant and material evidence. The key elements are power and control. The defendants are entitled to a production that is broader than the security file. They are entitled to an effective production which addresses the real issues in dispute.

I would respectfully suggest that this is the “possession, power or control” rule applied in a virtual setting where possession is an amorphous concept. [ 24 ] So where does that leave matters? [ 25 ] I find that Undertaking Number 5 must be partially answered subject to any valid claims of privilege (which must be properly declared).

The answer may be limited to documents and records that would tend to prove or disprove the intention of the plaintiff to advance funds, and documents and records that would tend to prove or disprove whether the intended purpose of the disputed advance was to assist with the ICC Bid. The requirement includes internal correspondence and records among the plaintiff and its related group on both issues. Both are important issues in the

summary judgment application that arise from the pleadings and from the actual context of the undertaking request in the transcript. The production need not include documents that have already been shared through the loan

documentation process that would be in the hands of the defendant already. Undertaking Number 5 must be answered to that limited extent. [ 26 ] With respect to Undertaking Number 6, respectfully, I find that the request is too broad and it does not meet the test in Dow Chemical and Gosine . It is difficult to focus the request on particular issues. I also find that it would be difficult for the Court to evaluate whether a document was inside or outside the set of “...all of the documents created which ultimately led to the documents that are in Mr.

Krebs’ affidavit.” Undertaking Number 6 need not be answered. [ 27 ] That is my disposition in relation to this matter. Costs may be spoken to as part of the ultimate

summary judgement application before the Master or Judge hearing the application and may be determined by that Master or Judge. [ 28 ] I compliment counsel for the way that they have dealt with this matter. They narrowed other issues between the parties in a very focused manner and that made the application suitable for hearing in morning chambers. The Court is grateful for the approach taken. Heard on the 20 th day of October, 2021. Dated at the City of Calgary, Alberta this 15 th day of November, 2021. J. Farrington M.C.Q.B.A. Appearances: Miles Davison LLP Terry Czechowskyj Q.C. for the Plaintiff Miller Thomson LLP Patrick D. Fitzpatrick for the Defendant