JBuck v. Sons Inc, JMB Investco (Can) L.P.,, 2023 ABKB 308

Court of King’s Bench of Alberta Citation: JBuck and Sons Inc v Resource Land Fund V, LP, 2023 ABKB 308 Date: 20230525 Docket: 2101 02799 Registry: Calgary Between: JBuck and Sons Inc, JMB Investco (Can) L.P., JMB Investco (US) L.P., and JMB Investco (US) II L.P. Applicants - and - Resource Land Fund V, LP Respondent _______________________________________________________ Reasons for Decision of the Honourable Justice Colin C.J.

Feasby _______________________________________________________ Introduction [ 1 ] The Respondent, Resource Land Fund V, LP (“RLFV”), guaranteed the obligations of its wholly owned subsidiary, JMB Crushing Systems Inc. (“JMB Inc.”) as part of JMB Inc.’s acquisition of JMB Crushing Systems ULC (“ULC”) from the Applicants (the “Sellers”) pursuant to a Share Purchase Agreement dated November 18, 2018 (the “SPA”). [ 2 ] The parties agreed in the SPA that part of the purchase price would be held back by JMB Inc. to account for potential tax liabilities of ULC.

At the completion of the transaction, JMB Inc. and ULC amalgamated and then, after a time, became insolvent. The Sellers seek

summary judgment against RLFV as guarantor in the amount of the tax holdback. RLFV says that the Sellers are not entitled to the tax holdback yet as the status of the tax obligation remains unresolved. [ 3 ] RLFV asserts that it and JMB Inc. were induced to enter the SPA by misrepresentations by the Sellers concerning the financial condition of ULC. RLFV and JMB Inc. commenced a separate proceeding against the Sellers seeking damages. RLFV defended the present action by, among other things, asserting equitable set-off in the amount of the losses claimed in the parallel action.

RLFV asserts that even if the Sellers are entitled to the tax holdback, it would be inequitable for the Court to grant

summary judgment because the holdback funds exist only because of the SPA which, in turn, was induced by the misrepresentations of the Sellers. [ 4 ] This application requires me to decide whether the Sellers have established that there is no triable issue that they are entitled to the tax holdback funds. If so, I must decide whether RLFV has satisfied its burden to establish that there is a triable issue as to whether the Sellers’ claim to the holdback funds is defeated by the defence of equitable set-off.

Summary Judgment Standard

[ 5 ] A five-member panel of the Court of Appeal set out the approach to

summary disposition applications in Weir-Jones Technical Services Incorporated v Purolator Courier Ltd , 2019 ABCA 49 . Slatter JA, writing for the Court, summarized the “key considerations” at para 47 as follows:

a) Having regard to the state of the record and the issues, is it possible to fairly resolve the dispute on a

summary basis, or do uncertainties in the facts, the record or the law reveal a genuine issue requiring a trial?

b) Has the moving party met the burden on it to show that there is either “no merit” or “no defence” and that there is no genuine issue requiring a trial? At a threshold level the facts of the case must be proven on a balance of probabilities or the application will fail, but mere establishment of the facts to that standard is not a proxy for

summary adjudication.

c) If the moving party has met its burden, the resisting party must put its best foot forward and demonstrate from the record that there is a genuine issue requiring a trial. This can occur by challenging the moving party’s case, by identifying a positive defence, by showing that a fair and just

summary disposition is not realistic, or by otherwise demonstrating that there is a genuine issue requiring a trial. If there is a genuine issue requiring a trial,

summary disposition is not available.

d) In any event, the presiding judge must be left with sufficient confidence in the state of the record such that he or she is prepared to exercise the judicial discretion to summarily resolve the dispute [emphasis in original]. [ 6 ] Following Weir-Jones , some confusion remained over what was meant by a “genuine issue requiring a trial.” Wakeling and Feehan JJA clarified in Hannam v Medicine Hat School District No. 76 , 2020 ABCA 343 at paras 158-161 that the definition of “genuine issue requiring a trial” to be used in Alberta is that set out by Karakatsanis J in Hryniak v Mauldin , 2014 SCC 7 at para 49 : There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits.

This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result. [ 7 ] RLFV submits that the Sellers bear the onus of proving that the RLFV’s defence of equitable set-off has no merit. RLFV relies on 776826 Alberta Ltd. v Ostrowercha , 2015 ABCA 49 at paras 10-11 which, in my view, does not stand for the proposition that the moving party bears the onus of proving that the non-moving party’s defence has no merit.

To the extent that there is any doubt what Ostrowercha means in terms of the onus on a non-moving party in a

summary disposition application, that should be resolved by looking to Weir-Jones, which was decided later. [ 8 ] Weir-Jones , quoted above, provides that the moving party has the obligation to prove its case on the balance of probabilities. If that is done, then the non-moving party has an obligation to establish that its defence or claim, as the case may be, raises a genuine issue for trial. As the Court of Appeal put it in Weir-Jones at para 47, the non-moving party “must put its best foot forward and demonstrate from the record that there is a genuine issue requiring a trial” [emphasis added].

Background [ 9 ] ULC was in the business of extracting, producing, and supplying aggregates throughout Alberta for the oil and gas industry, industrial projects, municipal road building, and other projects. [ 10 ] On November 18, 2018, JMB Inc., RLFV, and the Sellers executed the SPA. The SPA provided that JMB Inc. would acquire ULC from the Sellers for $40.15 million. [ 11 ] At closing, JMB Inc. and ULC were amalgamated.

The combined entity will be referred to hereafter as JMB Inc. [ 12 ] Following the closing of the transaction, two of the former principals of ULC, Jeffrey Buck and Eugene Buck, were hired as the President and Controller, respectively, of JMB Inc. [ 13 ] On May 1, 2020, Justice Eidsvik granted JMB Inc. an Initial Order pursuant to the Companies’ Creditors Arrangement Act , RSC 1985, c C-36 . [ 14 ] Pursuant to the CCAA , the Court granted a Reverse Vesting Order (“RVO”) on October 16, 2020 in favour of Mantle Materials Group, Ltd. (“Mantle”). The RVO: (

a) approved the sale of certain assets of JMB Inc. to Mantle, vesting those assets free and clear of any security interests or other claims other than permitted encumbrances; (

b) granted an order vesting all JMB Inc.’s remaining assets and liabilities in 2324159 Alberta Inc. (“ResidualCo”); and (

c) sanctioned an amended and restated joint plan of arrangement. [ 15 ] On February 24, 2021, RLFV and JMB Inc. commenced an action against the Sellers for fraudulent and negligent misrepresentation, breach of contract, and several other causes of action (the “First Action”). The essence of the claim by RLFV and JMB Inc. against the Sellers is that the Sellers misrepresented the financial assets and condition of ULC. RLFV and JMB Inc. sought $18.767 million in damages and other relief in the Statement of Claim.

RLFV now says the damages are higher. [ 16 ] On November 23, 2021, the Sellers commenced the present action against RLFV seeking $2,480,120, which is the amount of the purchase price held back for unresolved tax liabilities (the “Second Action”). [ 17 ] A Consent Order dated August 12, 2022 directed that the two actions “shall proceed together as if they had been consolidated,

subject to the discretion of the presiding trial judge.” The Consent Order provided that it did not prevent specific claims or issues from being tried separately or determined on a

summary basis. The Sellers’ Tax Holdback Claim The Tax Holdback [ 18 ] The parties to the SPA agreed that the purchase price would be reduced to account for any unresolved tax liabilities identified in a pre-closing report prepared by accounting firm Grant Thornton (the “Unresolved Tax Liabilities”). Accordingly, t he purchase price was reduced by $2,480,120. This has been referred to by the parties as the tax holdback. [ 19 ] The holdback mechanism for the Unresolved Tax Liabilities is provided for in

section 5.8 of the SPA: 5.8 Unresolved Tax Liabilities The Purchaser and the Company shall, following Closing, comply with any commercially reasonable requests of the Sellers in order to reduce or resolve any Unresolved Tax Liabilities, including the filing of any Tax elections, voluntary disclosures or other documents with the applicable Governmental Entity. For a period of the longer of (a) 24 months following the Closing Date, and (

b) the date on which any claims made or actions taken by the Sellers during the 12 month period following Closing to reduce or resolve any Unresolved Tax Liabilities are resolved or ruled upon by the applicable Governmental Entity, the Purchaser shall pay to the Sellers’ Counsel, in trust on behalf of the Sellers, on a dollar-for-dollar basis any positive difference arising from a reduction or resolution of any Unresolved Tax Liabilities as compared to the final estimated Unresolved Tax Liabilities to be included in the Closing Statement. [ 20 ] On September 19, 2019, the parties submitted a voluntary disclosure application (“VDA”) to the Canada Revenue Agency (“CRA”) to reduce or resolve the Unresolved Tax Liabilities.

The VDA was denied by the CRA. The Sellers made a second VDA application on December 30, 2020, which was denied on March 4, 2021. [ 21 ] On January 31, 2022, JMB Inc. was issued a tax assessment for $1,721,991.61. [ 22 ] On April 29, 2022, RLFV, on behalf of JMB Inc. and with the agreement of the Sellers, filed a Notice of Objection with the CRA arguing that the CCAA proceedings and the RVO released and discharged any potential liability flowing from the Unresolved Tax Liabilities and requesting that the tax claim be vacated. The CRA has not rendered a decision on the Notice of Objection.

Did the RVO Extinguish JMB Inc.’s Liability to the CRA? [ 23 ] SPA s. 5.8 does not expressly contemplate the present scenario. SPA s. 5.8 contemplates the Unresolved Tax Liabilities being resolved by actions taken by the Sellers. JMB Inc. is required to cooperate with the Sellers’ efforts to resolve the Unresolved Tax Liabilities. What happened in the present case, according to the Sellers, is that the Unresolved Tax Liabilities were resolved by JMB Inc. obtaining the RVO in the CCAA proceeding. [ 24 ] This requires me to consider the nature and purpose of the tax holdback.

The purpose of the tax holdback was to protect JMB Inc. and RLFV from having to pay for the Unresolved Tax Liabilities. The portion of the purchase price held back to cover the Unresolved Tax Liabilities was never intended by the parties to remain in the hands of JMB Inc. or RLFV. It was to be paid either to the CRA or to the Sellers. As such, I agree with the Sellers that if the Unresolved Tax Liabilities have been resolved without payment to the CRA, the funds should flow to the Sellers. [ 25 ] The Sellers submit that the Unresolved Tax Liabilities were resolved by the RVO issued in the CCAA proceedings.

RLFV submits that the Unresolved Tax Liabilities remain unresolved and can be resolved only by a CRA ruling. [ 26 ] RVOs allow a restructuring business to continue to operate through the debtor company, as opposed to migrating to a new entity, where the debtor company was a corporate vehicle that owned valuable assets that could not be transferred. An RVO involves the purchase of shares of the debtor company and the vesting out of the debtor to a new company of unwanted assets, obligations, and liabilities. [ 27 ]

Section 4(

a) of the RVO provided that JMB Inc. retained title to all retained assets, free and clear of all interests, including taxes. RVO s. 4(

a) provides: JMB shall retain all of its right, title and interest in and to the JMB Retained Assets, free and clear of any and all caveats, security interests, hypothecs, pledges, mortgages, liens, trusts or deemed trusts, reservations of ownership, actions, judgements, executions, levies, taxes , writs of enforcement, charges, or other claims, whether contractual, statutory, financial, monetary or otherwise, whether or not they have attached or been perfected, registered or filed and whether secured, unsecured or otherwise... [emphasis added]. [ 28 ] RVO s. 4(

a) extinguishes tax liabilities and, accordingly, resolves the Unresolved Tax Liabilities. However, a finding that the RVO extinguished JMB Inc.’s tax liabilities would prevent the CRA from deciding on the Notice of Objection filed by RLFV with the support of the Sellers.

The normal operation of the CRA process should not be foreclosed by an order of this Court operating under the CCAA without the CRA having an opportunity to take a position on the appropriateness of the order being sought. [ 29 ] Following the hearing, I wrote to the parties to inquire whether the CRA had been given an opportunity to take a position on the appropriateness of the RVO. Counsel pointed me to the various reports of the Monitor in the CCAA proceedings that demonstrate that the CRA was engaged in discussions with the Monitor.

In particular, the Monitor’s 14 th Report indicates that the Monitor brought an application to set a deadline for the CRA to advance a claim in the CCAA process for taxes owed by JMB Inc. The Report indicates that,

in response to the application, the CRA advised the Monitor that it did not have a priority claim with respect to the Unresolved TaxLiabilities. [30] Though the Monitor’s reports contain hearsay, the evidence is necessary in the circumstances and is reliable because theMonitor was appointed by and is responsible to the Court. Romaine J concluded in Re: SemCanada Crude Company (CelticExploration Ltd.), 2010 ABQB 531 at para 100 that Monitors’ reports are admissible despite containing hearsay.

Farley J in BellCanada International (Re) [2003] OJ No 4738, (ONSC) at para 6 observed that “a report by a court appointedofficer is recognized by the common law as being admissible evidence in a proceeding.” [31] RLFV submits that the CRA’s failure to respond to the Notice of Objection filed on April 29, 2022 indicates that the CRAdoes not accept that the RVO extinguishes JMB Inc.’s tax liability. In my view, because the CRA has not responded to the Notice ofObjection, its position is not clear.

However, given that the CRA was a participant in the CCAA proceedings and could have taken aposition on the appropriateness of the extinguishment of JMB Inc.’s tax liability prior to the Court issuing the RVO, I conclude that theUnresolved Tax Liabilities were resolved by the RVO. RLFV’s Guarantee [32] The Sellers submit that RLFV is responsible for paying the tax holdback funds because JMB Inc.’s responsibility wasextinguished in the CCAA process and RLFV guaranteed JMB Inc.’s obligations under SPA s. 5.3.

SPA s. 5.3 provides that RLFVguarantees payment of the purchase price which includes the tax holdback funds if the Unresolved Tax Liabilities are resolved. RLFVdid not contest the validity of the guarantee. Accordingly, I find that RLFV is responsible for payment of the tax holdback funds to theSellers subject to RLFV’s set-off defence considered in the following

section of these Reasons. RLFV’s Equitable Set-Off Defence Equitable Set-off [33] Wilson J in Telford v Holt, (SCC), [1987] 2 SCR 193 at para 33 adopted Macfarlane JA’s

summary of theprinciples of equitable set-off from Coba Industries Ltd v Millie's Holdings (Canada) Ltd and Tsang, (BC CA),[1985] 6 WWR 14 (BCCA) at 22: 1. The party relying on a set-off must show some equitable ground for being protected against his adversary's demands: Rawson v.Samuel, [1841] Cr. & Ph. 161, 41 E.R. 451 (L.C.). 2. The equitable ground must go to the very root of the plaintiff's claim before a set-off will be allowed: [Br. Anzani (Felixstowe) Ltd. v.Int. Marine Mgmt (U.K.) Ltd., [1980] Q.B. 137, [1979] 3 W.L.R. 451, [1979] 2 All E.R. 1063]. 3.

A cross-claim must be so clearly connected with the demand of the plaintiff that it would be manifestly unjust to allow the plaintiff toenforce payment without taking into consideration the cross-claim: [Fed. Commerce and Navigation Co. v. Molena Alpha Inc., [1978]Q.B. 927, [1978] 3 W.L.R. 309, [1978] 3 All E.R. 1066]. 4. The plaintiff's claim and the cross-claim need not arise out of the same contract: Bankes v. Jarvis, [1903] 1 K.B. 549 (Div. Ct.); Br.Anzani. 5. Unliquidated claims are on the same footing as liquidated claims: Nfld. v. Nfld. Ry. Co., [1888] 13 App.

C. 199 (P.C.)]. [34] Equitable set-off is a substantive defence. Blair J held in Grand Financial Management Inc v Solemio Transportation Inc,2016 ONCA 175 at para 97: Equitable set-off is a defence that is particularly rooted in the circumstances of the individual case. It requires, amongst other things, thatthe set-off claim go directly to impeach the plaintiff’s demands, the “plaintiff” in this case being Solemio and the “claim” being anaward of damages to compensate it for harm suffered as a result of an intentional wrongdoing – the tort of interference with economicrelations.

To put it another way, the defence requires that the set-off claim be so closely connected to the plaintiff’s demands that itwould be “manifestly unjust” to allow the plaintiff (Solemio) to enforce payment without taking into account the set-off claim [citationsomitted]. [35] If the pleading of set-off in the present case raises a triable issue, which is considered later in this

section of these Reasons, theSellers do not dispute that the requirements of equitable set-off are satisfied. RLFV asserts that it and JMB Inc. were induced to enter theSPA by misrepresentations by the Sellers. The Sellers’ claim to the funds held back for the Unresolved Tax Liabilities is rooted in theSPA. If RLFV’s misrepresentation claims raise a triable issue, it would be inequitable to grant the Sellers

summary judgment in respectof the funds held back for the Unresolved Tax Liabilities. Pleading Issue [36] RLFV has pleaded equitable set-off as a defence. The Sellers submitted that RFLV pleaded equitable set-off only in respect ofnegligent misrepresentation and that the pleading did not include the fraud claims pleaded in the First Action.

This is significant becauseSPA s. 7.3 provides that notice of any claims in respect of the representations and warranties other than “intentional misrepresentation orfraud” must be provided by December 1, 2019, failing which “the Sellers are released from all obligations and liabilities in respect ofsuch representations and warranties made by the Company and the Sellers and contained in this Agreement....” The Sellers submit thatnotice of JMB Inc.’s claims was delivered late and that the claims are now barred.

[37] RLFV’s pleading of equitable set-off does not use the words “intentional misrepresentation or fraud” but does incorporate byreference pleadings of “wrongful conduct” in the First Action. This reference is a sufficient pleading of intentional misrepresentation orfraud because it directs the Sellers to the pleading in the First Action, of which they were well aware and which pleads intentionalmisrepresentation and fraud with appropriate particularity.

I do not need to decide on this application whether JMB Inc.’s notice wasdelivered late as the notice requirement did not apply to intentional misrepresentation and fraud claims. Purchase Price Adjustment [38] The Sellers submitted that RLFV’s pleading in the First Action is, in effect, seeking an adjustment of the purchase price. Theysay that this is improper because the SPA provides a process for the adjustment of the purchase price, which was followed andculminated in a mutual release.

Essentially, the Sellers are asserting that this issue already has been determined. [39] SPA s. 2.5 provided that the purchase price could be adjusted post-closing to account for changes in the Net Working Capitaland Reserves of ULC. SPA s. 2.6 set out the post-closing purchase price adjustment process, which involved JMB Inc. engaging GrantThornton to prepare a post-closing report to be submitted to the Sellers.

If the Sellers did not accept Grant Thornton’s conclusions, theSPA provided that an Independent Accountant would be appointed by the parties to determine the whether the purchase price should beadjusted. [40] JMB Inc. obtained a post-closing report from Grant Thornton indicating that there should be a purchase price adjustment of$7,387,639.67. The Sellers, supported by reports from their accounting advisors KPMG and PwC, disputed the purchase priceadjustment. The Independent Accountant, Deloitte, determined that the purchase price should be adjusted by $1.37 million.

Followingthe determination of the purchase price adjustment by the Independent Accountant, the parties executed a Mutual Release datedNovember 21, 2018 with respect to all matters “arising out of the adjustments to the Purchase Price contemplated by

Article 2 of thePurchase Agreement....”. [41] JMB Inc. now says that its losses from the Sellers’ wrongful actions pleaded in the First Action and repeated in the equitableset-off claim in the Second Action are: (a) $15 million with respect to Accounts Receivable; (b) $7 million with respect to inventory; and(c) $4.9 million with respect to prepaid expenses.

Based on these descriptions, it is possible that there is some overlap between thealleged losses and the subject matter of the purchase price adjustment. [42] Based on the record before me, however, I cannot find that the purchase price adjustment decision of the IndependentAccountant and the Mutual Release extinguish JMB Inc.’s right to advance the claims made in the First Action and the defence ofequitable set-off in the Second Action. The evidence is insufficient for me to determine whether the subject matter of the purchase priceadjustment is the same as the subject matter of the alleged misrepresentations.

In addition, Deloitte was concerned with accountingadjustments, not misrepresentations. Though the issues raised in the purchase price adjustment process and the misrepresentation claimsmay overlap to some degree, they involve different concepts and processes and may result in a different measure of loss. In particular,the Independent Accountant was not concerned with the intention of the Sellers or any alleged fraud nor did the Mutual Release purportto release such things. [43] My conclusion is further supported by the structure of the SPA.

The purchase price adjustment process in SPA s 2.5 and 2.6does not refer to the representations and warranties given in SPA s. 3 or to the survival of the representations and warranties provided forin SPA s. 7.3. If the purchase price adjustment process was intended to have the effect of extinguishing JMB Inc.’s right to rely on certainrepresentations or warranties, it would have been easy for the drafters of the SPA to specify that. Evidential Basis for Set-Off Claim [44] JMB Inc.’s onus, as I set out earlier in these Reasons, is to demonstrate that its defence of equitable set-off raises a triableissue.

A threshold problem is that some of the evidence in the Affidavit of Byron Levkulich is prefaced by statements such as “I aminformed by Gowling WLG that thus far, the experts they retained identified...” and “Mr. Ryks advised RLF, including me, that hediscovered....” This is hearsay. [45] I explained in Barry v Industrial Alliance Insurance and Financial Service Inc (IAF), 2022 ABQB 265 at paras 51-59 that aparty responding to a

summary disposition application can rely on hearsay only if the statements meet the standard of admissibility thatis applied at trial. In other words, it must be asked whether the statements fit within the traditional exceptions to the rule against hearsayor meet the criteria for admissibility – necessity and reliability – pursuant to the principled approach to hearsay: R v Bradshaw, 2017SCC 35 at para 23. [46] Counsel for RLFV in a post-hearing written submission asserted that my decision in Barry was incorrect and that it ispermissible for a party resisting

summary judgment to rely on hearsay evidence. RLFV relies on several decisions, including AttilaDogan Construction and Installation Co v AMEC Americas Ltd, 2015 ABQB 120 at para 52, for the proposition that the new approachto

summary disposition applications flowing from Hryniak “does not affect the evidentiary requirements for such applications.” [47] Wittmann CJ in Attila Dogan considered the use of hearsay by an applicant for

summary judgment, not a party seeking toresist a

summary judgment application. Citing Guarantee Co of North America v Gordon Capital Corp, (SCC),[1999] 3 SCR 423 at para 31, he observed at para 52 that “a self-serving affidavit in and of itself is not sufficient to create a triable issuein the absence of detailed facts and supporting evidence.” Iacobucci and Bastarache JJ in the para cited by Wittmann CJ from GuaranteeCo of North America affirmed the longstanding principle that a party resisting

summary judgment must provide evidence, not justassertions. This is not a proscription on use of hearsay by a party resisting

summary judgment, but it imposes a high standard that inmany cases will have the practical effect of excluding hearsay. [48] The Ontario rules permit an affidavit based on information and belief to be used in an application for

summary judgment byboth the moving and non-moving party. The Ontario Court of Appeal, however, held in Kawartha-Haliburton Children’s Aid Society v

MW , 2019 ONCA 316 at para 80 that on a

summary judgment application: The court must conduct a careful screening of the evidence to eliminate inadmissible evidence. The court should not give weight to evidence on a

summary judgment motion that would be inadmissible at trial. [ 49 ] The Ontario Court of Appeal elaborated on this approach in Drummond v Cadillac Fairview Corporation Limited , 2019 ONCA 447 at para 24 : If the evidence on information and belief in an affidavit goes to a fundamental contested aspect of the

summary judgment motion, the motion judge should first determine whether the evidence would be admissible under the rules governing admissibility at trial. If the evidence meets those criteria, it is admissible on the motion. If the evidence does not meet the criteria for admissibility at trial, the onus should fall on the party proffering the evidence to justify some expansion of the rules governing admissibility in the context of the motion. [ 50 ] Drummond sets out a pragmatic approach that is attractive and consistent with the culture change described in Hryniak .

Barry should not be read as precluding the party proffering hearsay evidence from justifying a departure from the rules of admissibility as contemplated in Drummond . In the present case, however, RFLV did not attempt to justify admission of the hearsay in the Levkulich Affidavit apart from asserting that it was their right to adduce hearsay in response to a

summary judgment application. [ 51 ] The statements in the Levkulich Affidavit repeating what Gowling WLG was told by their experts or saying what Gowling WLG expects their experts to say are impermissible hearsay. They do not fit within any of the traditional exceptions to the rule against hearsay nor are they necessary. The experts could have provided the information directly in the form of an affidavit with appropriate disclaimers stating that their work was not yet complete. [ 52 ] Double hearsay asserting what a lawyer says an expert witness is expected to say is problematic for two additional reasons.

First, it is indirect expert evidence from an expert who has not yet been qualified and which has not been adduced in accordance with the rules governing expert evidence: Hoffart v Carteri , 2020 SKCA 50 a t para 56 . Second, such evidence invites questioning on what the expert told the lawyer and what the lawyer told the client. Such questioning will almost certainly give rise to squabbling over the extent to which the communications were privileged and whether privilege was waived. [ 53 ] The statements in the Levkulich Affidavit that repeat information supplied by Mr. Ryks are hearsay. Mr.

Ryks was the Chief Financial Officer of JMB Inc. following the closing of the transaction. He is said to have investigated the financial affairs of JMB Inc. There is no apparent reason why he could not have reported the results of his investigation in an affidavit.

The statements do not fit within any of the traditional exceptions to the rule against hearsay nor are they necessary. [ 54 ] The question, then, is whether there is sufficient evidence without the inadmissible hearsay to establish that JMB Inc.’s equitable set-off claim raises a triable issue. [ 55 ] The Levkulich Affidavit points to the Monitor’s Second Report as evidence raising a triable issue. As discussed earlier in these Reasons, a report from a court-appointed Monitor is admissible despite containing hearsay.

The Monitor’s Second Report states that during the week ending June 19, 2020, the Chief Restructuring Advisor investigated JMB Inc.’s gravel inventories and formed the opinion that these inventories were significantly overstated. [ 56 ] The following week, the Chief Restructuring Advisor advised the Monitor of his concerns and proposed an adjustment of $9.8 million or 82.4% to eliminate the unsubstantiated inventory. On June 30, 2020, Jeffrey Buck resigned as President of JMB Inc.

On July 6, 2020, the Monitor issued its Second Report stating that the proposed inventory restatement was a material adverse change. [ 57 ] The Monitor’s Second Report does not say whether the overstated inventory arose before or after closing of the transaction. Given that Jeffrey Buck was President of JMB Inc., it is reasonable to surmise that the same approach to gravel inventory prevailed before and after the transaction.

As such, there is a triable issue as to whether there was an overstatement of gravel inventory and to what extent that overstatement is attributable to the periods before and after closing of the transaction. [ 58 ] I am satisfied that the Monitor’s Second Report provides sufficient evidence to indicate that there is a triable issue with respect to misrepresentations concerning JMB Inc.’s gravel inventory and that the magnitude of the issue may exceed that of the holdback for the Unresolved Tax Liabilities. Conclusion [ 59 ] I decline to grant

summary judgment in favour of the Sellers for the tax holdback funds on the grounds that RLFV has raised a triable issue of equitable set-off. [ 60 ] If the parties are unable to agree on costs, they may provide me with written submissions of five pages or less supported by a bill of costs. Heard on the 8 th day of May, 2023. Dated at the City of Calgary, Alberta this 25 th day of May, 2023.

Colin C.J. Feasby J.C.K.B.A. Appearances: Ken Lenz, K.C., Keely Cameron, Adam J. Williams, Bennett Jones LLP for the Applicants Alison J. Gray, Gowling WLG (Canada) LLP for the Respondent