CPC Networks Corp. v McDougall Gauley LLP, 2021 SKCA 127

Court of Appeal for Saskatchewan Docket: CACV3503 Citation: CPC Networks Corp. v McDougall Gauley LLP , 2021 SKCA 127 Date: 2021-09-22 Between: CPC Networks Corp. Appellant (Applicant) And McDougall Gauley LLP and Robertson Stromberg LLP Respondents (Respondents) And Between: CPC Networks Corp. and Larry Ayers and Jack Adams Appellants (Respondent and Applicants) And Ronald Miller, Clayton Barry and McDougall Gauley LLP Respondents (Intervenors) And Between: CPC Networks Corp.

Appellant (Plaintiff) And Ronald Miller, Clayton Barry, Scott Spencer, McDougall Gauley LLP and Robertson Stromberg LLP Respondents (Defendants) Before: Ryan-Froslie, Leurer and Barrington-Foote JJ.A. Disposition: Appeal allowed in part Written reasons by: The Honourable Mr. Justice Barrington-Foote In concurrence: The Honourable Madam Justice Ryan-Froslie The Honourable Mr. Justice Leurer On appeal from: 2019 SKQB 251 , Saskatoon Appeal heard: May 22, 2020 Counsel: Larry Ayers for the Appellants Karen Prisciak, Q.C., for the Respondents Barrington-Foote J.A. I.

INTRODUCTION [ 1 ] CPC Networks Corp. [CPC], which was incorporated pursuant to The Business Corporations Act , RSS 1978, c B-10 [ BCA ], was the developer, owner and operator of a fiber-optic network in Saskatoon. Larry Ayers and Jack Adams were founding shareholders of CPC and are now its sole directors. Mr. Ayers represented CPC on this appeal with the consent of CPC and Jack Adams. Ronald Miller and Clayton Barry are partners in McDougall Gauley LLP, a law firm that represented CPC.

Scott Spencer is a partner in the Robertson Stromberg LLP law firm, which also represented CPC. [ 2 ] This decision relates to an appeal of the September 25, 2019, decision [QB decision] of a judge of the Court of Queen’s Bench for Saskatchewan [Chambers judge], which disposed of applications in five actions. All of these actions – and several others which have now been resolved – had their roots in a dispute between a group of minority shareholders, which included Mr. Ayers and Jack Adams, and a group of majority shareholders who no longer have an interest in CPC.

These actions asserted claims in debt, unjust enrichment, conspiracy, oppression, and intentional interference with economic interests, and for breaches of fiduciary duty, against former directors and the respondents. Mr. Ayers, Jack Adams and companies they owned have either succeeded in or settled claims against CPC and members of the majority shareholder group, leaving only their claims against the respondents.

The fiber-optic network has been liquidated. [ 3 ] The appellants have appealed the following four orders made by the Chambers judge in the QB decision: QBG 176 of 2012 CPC Networks Corp. and Larry Ayers and Jack Adams v Ronald Miller, Clayton Barry and McDougall Gauley LLP [QB 176] Action: Application for leave to bring a derivative action on behalf of CPC against Mr. Miller, Mr. Barry and McDougall Gauley LLP for breaches of fiduciary duty to CPC as its solicitors. Order : Application to commence derivative action dismissed [Derivative Order].

QBG 1004 of 2013 CPC Networks Corp. v McDougall Gauley LLP and Robertson Stromberg LLP [QB 1004]

Action: Application for an order pursuant to ss. 207(1) (

b) and 234(3) of the BCA directing liquidation and dissolution of CPC. Order: Dismissed application by CPC for McDougall Gauley LLP and Robertson Stromberg LLP to produce all CPC property in their possession [Documents Order]. QBG 1535 of 2017 CPC Networks Corp. v Ronald Miller, Clayton Barry, Scott Spencer, McDougall Gauley LLP and Robertson Stromberg LLP [QB 1535] Action: Action for damages for breach of fiduciary duty. Order : Application by the respondents to intervene in this action granted [Intervention Order].

Order: Application to strike statement of claim granted [Strike Order]. [ 4 ] For the reasons that follow, I would allow this appeal in relation to the Derivative Order, the Documents Order and the Strike Order. It is not necessary to rule on whether the Intervention Order should have been granted. II. BACKGROUND [ 5 ] The acrimonious dispute between CPC shareholders and directors began in 2009, shortly after Jack Adams and Mr. Ayers allege that a plan was hatched by a member of the majority shareholder group to acquire the shares owned by Jack Adams and Mr. Ayers. On December 13, 2009, Mr.

Ayers was removed by the board of directors as President of CPC. On December 17, 2009, three members of the majority shareholders group offered to purchase Mr. Ayers’s and Jack Adams’s shares. That offer was refused. On January 7, 2010, Jack Adams was removed by the board of directors as Chief Financial Officer. [ 6 ] Jack Adams’s investment company, Eagle Eye Investments Inc. [Eagle Eye], promptly demanded payment by CPC of a loan made by Eagle Eye. CPC refused to pay the loan, resulting in an action by Eagle Eye against CPC (QBG 160 of 2010 [QB 160]) to enforce its debt claim.

The appellants claim that this litigation was unnecessary and contrary to the best interests of CPC, as the directors had resolved that CPC should negotiate repayment terms and that Eagle Eye would have agreed to terms acceptable to CPC. Indeed, the appellants say that contesting the Eagle Eye claim was a tactic adopted by the majority in pursuit of their attempt to squeeze out Jack Adams and Mr. Ayers and acquire their shares at a discount. [ 7 ] McDougall Gauley LLP and, in particular, Mr.

Miller, were retained by some of the directors who were majority shareholders in either February or March of 2010, to represent CPC in QB 160. Mr. Ayers and Jack Adams assert – and Mr. Miller denies – that McDougall Gauley was also retained to represent the majority shareholders in their attempt to acquire Mr. Ayers’s and Jack Adams’s shares. The position of Jack Adams and Mr. Ayers is that CPC had different interests than the majority shareholders, and that this placed Mr. Miller in a conflict. They say that Mr. Miller and Mr.

Barry – who was later retained – assisted the majority shareholders in their pursuit of their scheme, including, among other things, by filing documents that they knew to be false in the course of QB 160. QB 160 went to trial and judgment was awarded to Eagle Eye. Jack Adams and Mr.

Ayers claim that, as a result, CPC incurred unnecessary legal costs and suffered other consequential losses, and that CPC was forced to liquidate its assets at a substantial discount to pay its debts. [ 8 ] These allegations of misconduct were pursued in ten different proceedings asserting various causes of action against CPC and CPC directors, and against Mr. Miller, Mr. Barry and McDougall Gauley LLP [McDougall Gauley parties]. The nature and progress of those actions are summarized in the QB decision (at paras 5–50).

They included QBG 676 of 2011, being an application for an order removing the existing directors of CPC and replacing them with Jack Adams, Mr. Ayers and David Anderson. Justice Allbright dismissed that application, but did appoint Ivan Gidluck, a minority shareholder, as an additional director ( Ayers v Summach , 2011 SKQB 360 , 383 Sask R 170). They also included QB 176, which was an application initially brought by Jack Adams and Mr. Gidluck to commence a derivative action against six directors or shareholders of CPC and the McDougall Gauley parties for breach of their fiduciary duties.

That application was first scheduled to be heard on February 7, 2012, but, after several adjournments, was adjourned sine die by consent on May 8, 2012. It would finally be dismissed on September 25, 2019, by the Derivative Order. [ 9 ] As noted above, the Derivative Order is one of the orders made in the QB decision that is before the panel on this appeal. [ 10 ] The McDougall Gauley parties withdrew from representing CPC in QB 160 in March of 2013. CPC then retained Mr. Spencer and Robertson Stromberg LLP [Robertson Stromberg parties] to represent it in that action. Mr.

Ayers and Jack Adams allege that they too committed various breaches of their duties to CPC in the course of providing that representation. [ 11 ] QB 1004 was another of the actions which resulted from this dispute. QB 1004 began as an oppression application by Mr. Ayers pursuant to s. 234 of the BCA for an order to, among other things, remove the directors of CPC. On September 6, 2013, the majority shareholders responded by applying for an order imposing a shotgun buy-sell on the shareholders and, in the alternative, for an order pursuant to s. 207(1) (

b) and s. 234(3) of the BCA to liquidate and dissolve CPC. There was an attractive opportunity to sell CPC’s assets and, as a result, the minority shareholders, including Mr. Ayers and Jack Adams, consented to a liquidation order as a means of taking advantage of that opportunity [Liquidation Order]. The Liquidation Order, which was granted by Mills J. on October 31, 2013, provided in part as follows: The Court orders: A. Appointment of Liquidator 1.

Meyers Norris Penny Limited, having offices at 700, 119 - 4th Avenue South, Saskatoon, Saskatchewan shall be and is hereby appointed liquidator (the “ Liquidator”), pursuant to s. 207(2) of The Business Corporations Act (Saskatchewan) (the “ Act ”), without security, and subject to paragraph 5(

a) of this Order, of any and all of the assets, property and undertaking of CPC Networks Corp. (“CPCN”), whether real or personal, wherever situate (the “ Property”) with authority to liquidate the Property, and to perform such

duties, exercise such powers and act in such capacities as set forth in the Act and/or this Order, until further order of this Honourable Court. 2. Upon issuance of this Order, the duties and powers of the directors and officers of CPCN shall cease, and shall vest in the Liquidator, except as may be delegated to the directors or shareholders pursuant to s. 212(2) of the Act , and subject to those duties and powers specifically authorized by paragraph 5(

a) of the Order to be retained by the directors. 3. Except as may be authorized by the Liquidator or permitted by the Court, the officers and directors of CPCN shall be prohibited from collecting or receiving any debt or other property from CPCN or paying out or transferring any property of CPCN to any party. 4. From and after the date of this Order, CPCN shall continue in existence, and shall only carry on such business that is, in the opinion of the Liquidator, required for an orderly liquidation. 5. The appointment of the Liquidator shall continue until otherwise ordered by this Court. 5A.

CPCN’s rights and interest in a proposed derivative action being Queen’s Bench Action 176 of 2012, Judicial Centre of Saskatoon (the “Derivative Action”) which may, subject to leave of this Court, be brought in the name of CPCN shall be excluded from the Property as set out in paragraph 1 of this Order. Further, the directors of CPCN shall retain the duties and powers to determine whether CPCN should oppose or support the Derivative Action and if the directors so decide, to retain and instruct counsel on behalf of CPCN on such application.

In the event the Court grants leave to the Applicants to bring the Derivative Action, the Liquidator shall not exercise any powers or duties with respect to such action. … [ 12 ] The liquidator disposed of CPC’s operating assets pursuant to the Liquidation Order. [ 13 ] On January 9, 2015, Mills J. granted the liquidator’s application to be discharged [Discharge Order]. The Discharge Order provided as follows: 2.

The activities of the Liquidator up to and including the date hereof, including but not limited to those activities more particularly described in the Report of the Liquidator dated December 2, 2014 (the “Liquidator’s Fourth Report”) are approved. … 8.

The Liquidator is directed to pay the balance of the Proceeds including the balance of the Generator Funds in due course, into Court and in the event that the amount of the Fees Provision exceeds the value of the time and costs required to close the Liquidator’s file, to pay such surplus funds remaining in the Fees Provision into Court, in due course, along with a final accounting. … 10. The Liquidator is hereby discharged as Liquidator of the assets, property and undertaking of CPCN provided however that notwithstanding its discharge herein (

a) the Liquidator shall remain Liquidator for the completion of payment of the Proceeds as set out in paragraph 5 hereof; and (

b) for the performance of such incidental duties as may be required to complete the administration of the liquidation herein; and (

c) the Liquidator shall continue to have the benefits of the provisions of all Orders made in the within liquidation proceedings, including all approvals and protections in favour of MNP Ltd. in its capacity as Liquidator. 11. The Liquidator is hereby released and discharged from all obligations and responsibilities under the Liquidation Order and from any and all liability that MNP Ltd. now has or may hereafter have by reason of, or in any way arising out of, the acts or omissions of MNP Ltd. while acting in its capacity as Liquidator… [ 14 ] When the liquidator was discharged, Mr.

Gidluck was still the court-appointed member of the CPC board of directors. All other directors were associated with the majority shareholder group. On March 29, 2016, Mr. Gidluck was replaced by James Adams (not to be confused with Jack Adams), another minority shareholder. [ 15 ] Effective September 1, 2016, the directors and shareholders of CPC settled all matters in dispute between them, and all of the directors except James Adams resigned. The settlement did not deal with the potential claims against the McDougall Gauley parties, or the Robertson Stromberg parties. On October 6, 2016, Mr.

Ayers and Jack Adams were elected as directors of CPC. [ 16 ] Shortly after the liquidator was discharged and Mr. Ayers and Jack Adams were elected directors of CPC, CPC retained James Ridgway of Prairie Law Group. Mr. Ridgway demanded delivery of all of CPC’s property – that is, CPC’s client files – from the McDougall Gauley parties on behalf of CPC. The McDougall Gauley parties refused to comply with that request. They initially took the position that the CPC’s files were subject to solicitor/client privilege and were part of two of the Queen’s Bench actions involving CPC shareholders, directors and lawyers.

They also requested clarification of James Adams’s authority to ask for CPC’s files. [ 17 ] CPC, through Mr. Ridgway, continued to insist that it was entitled to delivery of the files as a result of its past solicitor-client relationship with the McDougall Gauley parties. It also contended that their refusal to deliver the files was a breach of a November 4, 2013, order made by Mills J. in QB 1004 that CPC’s solicitors “shall forthwith give up possession and control of any Property in their possession or control…to the Liquidator…including…papers, records or documents of any kind”.

Further, on March 29, 2016, Mills J. had ordered that the former liquidator deliver CPC’s documents in its possession to James Adams. [ 18 ] The McDougall Gauley parties remained unmoved. It was their position that the November 4, 2013, Mills J. order did not apply to CPC’s files. They claimed that the release of the files might breach duties of confidentiality. They also asserted that there were potential claims of privilege. They based the privilege claim on the allegations by Mr.

Ayers and Jack Adams that they had acted not only for CPC but for members of the majority shareholder group, despite that they have denied those allegations throughout.

[19] In the result, CPC applied in QB 1004 for an order that the respondents deliver all documents in their possession that are theproperty of CPC to James Adams, the court-appointed director of CPC [documents application]. That application was originally set to beheard by Dufour J. on December 16, 2016. It was finally heard on August 19, 2019, by the Chambers judge. As noted above, theChambers judge denied the documents application and refused to grant the Documents Order.

The Documents Order is the second orderthat has been appealed that is dealt with in this judgment. [20] A third action resulting from the shareholders’ dispute and related matters was QB 1535, which was commenced by CPC by astatement of claim issued January 12, 2018. CPC there claimed against the respondents for, among other things, damages for legal feesand related costs incurred as a result of the dispute between majority and minority shareholders; increased interest costs incurred as a resultof the failure to agree to pay Eagle Eye; loss of income by CPC; and punitive damages.

The respondents filed a defence denying allallegations of misconduct and asserting that QB 1535 was multiplicitous or an abuse of process, as it asserted claims that had been eitheradjudicated or were still being pursued in other actions, including the potential derivative action which was the subject of QB 176. Therespondents also pled that the claims made in QB 1535 were statute-barred pursuant to The Limitations Act, SS 2004, c L-16.1. [21] On August 2, 2019, the respondents applied to strike QB 1535. As noted above, that application was granted by the Chambersjudge [Strike Order].

This is the third order made in the QB decision that has been appealed that is dealt with in this judgment. [22] I will now address the merits of the appeal relating to the Documents Order, the Derivative Order and the Strike Order. III. DOCUMENTS ORDER A. Did the appellants require leave to appeal the Documents Order? [23] The respondents submit that this Court has no jurisdiction to hear the appeal of the Documents Order, as the appellants have notbeen granted leave to appeal.

They rely on s. 8(1) of The Court of Appeal Act, 2000, SS 2000, c C-42.1, which provides (subject to theexceptions specified in s. 8(2), which have no application here) that no appeal lies to the Court from an interlocutory decision of the Courtof Queen’s Bench unless leave to appeal is granted. The respondents note that CPC claims that it needs access to these documents topresent or defend its position as against the respondents in QB 176 or QB 1535; and that this, in turn, means that the Documents Order isan interlocutory decision made in the course of those actions.

The respondents also contend that the liquidation is at an end and that thereare no legal issues to be resolved in QB 1004. [24] The appellants submit that leave was not required, as QB 1004 was a “miscellaneous” action, rather than one relating to a singleclaim or issue, being the claim against the lawyers. They note that it began as an oppression claim, became an application for liquidation,was used by Jack Adams and Mr. Ayers to seek indemnity for legal fees, and had been used to deal with other minor matters.

In this wayand from the opposite perspective, they, like the respondents, focus their argument as to the Documents Order on the relationship betweenthe documents application and their claims against the respondents. [25] Both parties have adverted to the key issue in relation to this matter; that is, does the fact that the appellants seek delivery of theclient files for the purpose of CPC’s claims against the respondents mean that the Documents Order is interlocutory?

The law on thispoint was usefully summarized by Kalmakoff J.A. in Poffenroth Agri Ltd. v Brown, 2020 SKCA 68, [2021] 2 WWR 302 [Poffenroth], isas follows: [15] At a very general level, an interlocutory decision is one made during the progress of an action or other proceeding that relates tosome intermediate matter at issue in the case, not to the ultimate matter in issue (see Stuart J.

Cameron, Civil Appeals in Saskatchewan:The Court of Appeal Act & Rules Annotated, 1st ed (Regina: Law Society of Saskatchewan Library, 2015) at 118 [Cameron]). … [16] Notwithstanding the importance of the distinction, determining whether an order is final or interlocutory is not always easy,particularly where there has been no prior decision of an appeal court resolving the status of the particular type of order in question(see Cowessess First Nation v Phillips Legal Professional Corporation, 2018 SKCA 101 at para 9, 43 CPC (8th) 237[Cowessess]; Stadnyk v Saskatchewan, 2011 SKCA 30 at para 4).

The answer often depends heavily on the facts of the particular case(Rekken v Malan, 2012 SKCA 86 at para 8, 399 Sask R 241 [Rekken]). [17] In Saskatchewan Medical Association v Anstead, 2016 SKCA 143 [Anstead], Ottenbreit J.A. described interlocutory and finalorders in this way: [56] It has long been the law in this jurisdiction that orders which do not finally dispose of the “substantive issue” in an action are notfinal but interlocutory: Beaver Lumber Co. Ltd. v Cain, (SK CA), [1924] 3 WWR 332 (Sask CA), per Martin J.A. (as hethen was) at 334.

Conversely, an order is final when, if allowed to stand, it finally disposes of the rights of the parties: AlexanderHamilton Institutes v Chambers (1921), (SK CA), 65 DLR 226 (Sask CA), per Turgeon J.A. (as he then was) at 228.In Silcorp Ltd. v KJK Holdings Inc. (1992), (SK CA), 90 DLR (4th) 488 (Sask CA), this Court approved the view thatorders may be final for one purpose but interlocutory for another (per Cameron J.A. at 489). [18] This does not mean that an order must bring the litigation to a conclusion in order to be final in nature; not all final orders do so.Nor does the fact that an order is a mere step in the litigation process, or leaves other issues outstanding for determination, necessarilyclassify it as interlocutory (Cowessess at paras 27–28). …The determination of whether an order is final or interlocutory in nature turns onwhether the order effectively disposes of the rights of the parties, in a final and binding way, with respect to a substantive issue.

If it does,the order is a final order (see, for example, PCL Construction Management Inc. v Saskatoon (City), 2020 SKCA 12 at paras 59–65 [PCLConstruction]; Stevenson Estate v Bank of Montreal, 2011 SKCA 51 at para 10, 371 Sask R 198 [Stevenson Estate]; and D.B. v M.C.,2001 SKCA 129 at para 8, 213 Sask R 272 [D.B.]). [26] After citing Van de Wiel v Blaikie, 2005 NSCA 14, 230 NSR (2d) 186, where Cromwell J.A. (as he then was) described finalorders as orders which have “a terminating effect on an issue or on the exposure of a party” and interlocutory orders as orders which “set

the stage for determination on the merits” (at para 13), Kalmakoff J.A. said this: [20] The approach set out in Van de Wiel is, in my view, consistent with the line of analysis that runs through this Court’s decisions inAnstead, Cowessess, PCL Construction and Stevenson Estate, among others.

That is to say, an order need not bring the entire disputebetween the parties to an end to constitute a final order; an order can be final if it finally determines the particular proceeding before thecourt, notwithstanding that there may be some other issues left to be determined in some other proceeding or by some other process. [21] However, one must be careful not to expand this proposition beyond its limits as, in one sense, any decision could be seen asconstituting a final decision, in that it finally resolves the particular application that was made in the broader proceedings.

Thedetermination as to whether an order is final or interlocutory must take into account the context of the action as a whole. It is not the lossof every potential “right” that gives rise to a final decision…. See also Koroluk v KPMG Inc., 2021 SKCA 10 at paras 32–37, which adopts the analysis in Poffenroth. [27] Where, then, does the Documents Order fit within this framework?

In my opinion, the fact the appellants assert that access tothese documents is necessary to enable them to pursue CPC’s claims against the respondents does not mean the documents application isproperly characterized as a step in QB 176 or QB 1535 or as setting the stage for determination of the merits of those claims.

It is not anapplication to enforce a right to disclosure of documents in the course of litigation, as in Preece v Clements, 2014 SKCA 63, 438 Sask R222, or Bayer Cropscience Inc. v Gulka Enterprises, 2009 SKCA 68, 331 Sask R 280. [28] Rather, CPC contends that it has the right to the files as CPC property, as they are CPC client files that were created in thecourse of a solicitor and client relationship. The right of a client or former client to demand the delivery of their client files is independentof the existence of any claims against the respondents.

Section 66(3) of The Legal Profession Act, 1990, SS 1990-91, c L-10.1, providesfor a possessory lien on client property. The following description of that lien was adopted in Wright (Bankrupt), Re (1995), (SK KB), 136 Sask R 262 (QB), where MacLeod J. also confirmed that “property” at common law and in s. 66 includes documents: [8] The contents of the file were owned either by the lawyers or the client. It is not necessary that I attempt to identify which parts ofthe file apply to which category. It is only the papers owned by the client on which a lien is needed by the lawyer.

For purposes of thiscase, the following is an acceptable statement of the law in this respect. “The common law rights of solicitors, commonly called liens, are two in number.

One is the ‘general’ or ‘retaining lien’ -- the right of thesolicitor to retain all papers or other chattels of his client, which come into his possession as the client’s solicitor, until all his costs andcharges as solicitor have been paid. ...” (The Supreme Court Practice 1976 (English), vol. 2 at p. 3229.) [9] I am satisfied that s. 66(3) does not reduce a general lien entitlement to something less than that mentioned in the statement, and“property” in that

section includes papers. [29] Here, there is no suggestion that the respondents have a possessory lien on CPC’s client files. Absent such a lien, a lawyer isnot entitled to retain those parts of their client’s file that belong to the client, and a court may order that they be delivered to the clientpursuant to s. 66(5) of The Legal Profession Act, 1990, which is as follows: 66(5) On application by a client, the court may, on any terms and conditions that the court considers appropriate, order the delivery of anyof the client’s property in a member’s possession that is held pursuant to subsection (3).

See for example, Tapp v Spelliscy, 2003 SKQB 217. [30] That is sufficient to dispose of the issue. However, The Code of Professional Conduct [Code] adopted by the Law Society ofSaskatchewan, pursuant to its authority under The Legal Profession Act, 1990, is also of interest. In Abrametz v Law Society ofSaskatchewan, 2020 SKCA 81, the Court confirmed that the Code is delegated regulatory legislation and, as such, binds members.

Rule3.5 imposes an obligation on lawyers to preserve clients’ property, which it defines as including “original documents such as wills, titledeeds, minute books, licences, certificates and the like, and all other papers such as client’s correspondence, files, reports, invoices andother such documents”. The commentaries to the Rules explain and illustrate the application and meaning of the Rules.

Commentary 3 toRule 3.5-1 provides that “[s]ubject to any rights of lien, the lawyer should promptly return a client’s property to the client on request or atthe conclusion of the lawyer’s retainer”. [31] Given that the documents application was an application by CPC to enforce its right to possession of its property, I concludethat the Documents Order was not an interlocutory decision within the meaning of s. 8(1) of The Court of Appeal Act, 2000. The fact thatthe directors of CPC have a particular motive in seeking this relief is neither here nor there.

The Documents Order was a final decision andleave to appeal was not required. This Court has jurisdiction to hear this appeal. B. Did James Adams, as a director, have the right to demand possession ofCPC’s client files? [32] The respondents submit that the documents application was an application by James Adams, a CPC director, and should bedenied because directors have limited rights to obtain corporate records. With respect, this argument is a red herring. [33] The documents application, which was made on December 1, 2016, was not an application by James Adams.

It was anapplication by CPC for an order that the respondents deliver the documents to James Adams “as agent for, and director of CPCN”. JamesAdams was not off on a frolic of his own. On October 19, 2016, shortly after Jack Adams and Mr. Ayers were re-elected as directors, CPCdirected that all documents and like property be released to Mr. Ridgway, CPC’s new corporate solicitor. McDougall Gauley LLP andRobertson Stromberg LLP refused to comply with that direction.

[34] On November 23, 2016, Mr. Ayers, Jack Adams and James Adams, who were then the directors of CPC, passed the followingresolutions: McDougall Gauley and Robertson Stromberg and their agents and employees are hereby directed to deliver up to James Adams,immediately, original and all copies of all emails, documents, reports, notes, invoices, detailed billing records, letters, in paper orelectronic format, produced by them during their engagement by CPCN and received by them in that capacity.

James Adams has the authority, privilege and support of the total board of CPCN to demand and receive all property of CPCN. McDougall Gauley and Robertson Stromberg be advised that Tim Tkachuk, Scott Summach and Kenton Summach no longer have anyinterest in CPCN as shareholders or directors, directly or indirectly. [35] The respondents did not comply with this direction. It is for that reason that Mr. Ridgway filed the documents application onbehalf of CPC. He was authorized to do so by the board of CPC.

In the result, the argument that the CPC documents application should bedenied because a director is not entitled to demand possession of documents of this kind is without merit. For the same reasons, thedecisions in Gardner v Viridis Energy Inc., 2014 BCSC 204, and Dublin v Montessori Jewish Day School of Toronto (2007), (ON SC), 281 DLR (4th) 366 (Ont Sup Ct J), are of no assistance to the respondents. C. Did the Liquidation Order preclude CPC from making the documentsapplication? [36] The Chambers judge refused to order the delivery of the CPC documents on two grounds.

The first was the effect of theLiquidation Order on the authority of the directors and CPC. The second was based on the possibility that some of the documents may beprivileged. I shall deal with these arguments in order. [37] The Chambers judge characterized the Liquidation Order as “an order for liquidation and dissolution of [CPC]” (at para 59).She noted that s. 210(

o) of the BCA empowered the Court to make an order dissolving the corporation after the liquidator had rendered hisfinal account. She commented that s. 212 of the BCA was important to the analysis. That

section provides as follows: 212(1) If a court makes an order for liquidation of a corporation: (

a) the corporation continues in existence but shall cease to carry on business, except the business that is, in the opinion of the liquidator,required for an orderly liquidation; and (

b) the powers of the directors and shareholders cease and vest in the liquidator, except as specifically authorized by the court.

(2) The liquidator may delegate any of the powers vested in him by clause (

b) of subsection (1) to the directors or shareholders. [38] The Chambers judge then made the following observation: [61] The liquidation of CPCN provides for the continuation of the application for the commencement of the derivative action, as statedin paragraph 5A of that order. This is the only specific power granted to the directors of CPCN.

Until that application for thecommencement of the derivative action has been dealt with, the court is unable to complete the final stage of the liquidation, that is,dissolution of CPCN. [39] In her view, the Court had an “obligation to dissolve” CPC pursuant to the following provisions in s. 216 of the BCA: 216(5) If the court approves the final accounts rendered by a liquidator, the court shall make an order: (

a) directing the Director to issue a certificate of dissolution; (

b) directing the custody or disposal of the documents and records of the corporation; and (

c) subject to subsection (6), discharging the liquidator.

(6) The liquidator shall forthwith send a certified copy of the order referred to in subsection (5) to the Director.

(7) Upon receipt of the order referred to in subsection (5), the Director shall issue a certificate of dissolution in accordance with

section 255.

(8) The corporation ceases to exist on the date shown in the certificate of dissolution. [40] The Chambers judge next explained that Mr. Ayers and Jack Adams and the majority shareholders had settled their differences,and that on September 1, 2016, the remaining majority shareholders had surrendered their shares and the two majority shareholders whowere directors of CPC had resigned. Those changes in the shareholdings and the governance of CPC resulted from the settlement of QBG799 of 2012 [QB 799], an action brought by Mr.

Ayers, Jack Adams and other minority shareholders against the majority shareholdersclaiming oppression, abuse of process, conspiracy and intentional interference in the economic interests of the plaintiffs, and against theMcDougall Gauley parties for knowingly assisting them in committing those torts [Settlement]. Jack Adams, Mr. Ayers and othersreceived monetary compensation pursuant to the Settlement. [41] As is noted above, Mr. Ayers and Jack Adams were elected to the board on October 6, 2016, joining James Adams. When theapplications which resulted in the Chambers decision were heard, Mr.

Ayers and Jack Adams were the sole remaining directors, and allvoting shares were held by Eagle Eye Investments Trust, Jack Adams and Mr. Ayers.

[ 42 ] Having reviewed these facts and this law relating to the effect of the Liquidation Order on the authority of the directors, the Chambers judge concluded as follows: [69] Counsel for the defendants is entirely correct to be concerned as to whether this entity describing itself as CPCN has any lawful authority to act. As stated in s. 212(1)(

b) of the SBCA , the powers of the directors cease and vest in the Liquidator upon the making of an order for liquidation. The only power specifically authorized by the court in the liquidation order is the power of the directors to determine the position of CPCN in the derivative action. [70] While this issue of the lawful authority of CPCN was not specifically argued before me, it remains an outstanding issue to be determined by the court in due course.

In the meantime, it would be premature to grant the order for production of documents as requested by counsel for CPCN at this stage. [ 43 ] The appellants take issue with this conclusion on two grounds. First, they submit that the Chambers judge should not have made her decision on the basis of the authority of CPC to apply for the delivery of its files, as the issue was not argued before her. I agree. The respondents did not argue that CPC, Jack Adams and Mr. Ayers lacked the necessary authority to make the documents application. Accordingly, the appellants did not have the opportunity to address that issue.

As the Chambers judge acknowledged, there was an outstanding issue as to the effect of the Liquidation Order and the Discharge Order, and the appellants were denied a fair hearing in relation to these issues. [ 44 ] Further, the respondents did not take the position that the Liquidation Order meant that CPC could do nothing but determine the position of CPC in QB 176. They did not claim that it precluded CPC from advancing this appeal. Nor did they argue that Jack Adams and Mr.

Ayers were not entitled to exercise the powers of directors specified in s. 97 of the BCA , which provides as follows: 97(1) Subject to any unanimous shareholder agreement, the directors of a corporation shall: (

a) exercise the powers of the corporation directly or indirectly through the employees and agents of the corporation; and (

b) direct the management of the business and affairs of the corporation. [ 45 ] To the contrary, counsel for the respondents agreed at the hearing of this appeal that these s. 97 powers reverted to the directors when the liquidator was discharged. Indeed, she specifically conceded that the directors had the power to authorize the commencement of QB 1535, and that the issue in relation to that action was whether it was well founded.

If that is so, the directors must also have had the authority to apply for the delivery up of client files that they say are relevant to QB 1535 and QB 176. [ 46 ] It is also of interest that Mr. Miller had been of the same mind as counsel for the respondents as to the effect that the Discharge Order would have on the authority of the directors of CPC. In a January 5, 2015, email to Tim Tkachuk and Mr. Barry, for example, Mr. Miller advised as follows: The Liquidator has applied to be discharged and pay the remaining funds into Court.

If granted, upon the Liquidator being discharged, and if no further Order is made, the Board would resume to have authority over the business and affairs of CPCN. If the Liquidator is discharged, then the Board will have authority to retain and instruct counsel on all matters and claims. … [ 47 ] Similarly, on March 26, 2015, Mr. Miller emailed Kenton Summach, Mr. Gidluck and Mr. Tkachuk as follows: As you are aware, pursuant to the attached Order, the Liquidator has been discharged.

Concurrent with the discharge, the powers and authority of the directors which were vested in the liquidator pursuant to the Liquidation Order, return to the board of directors. Although the company is not actively operating, each of you continues to have ongoing obligations as directors of the corporation. We suggest it would be prudent to consider what those obligations are, as well as the matters that remain to be addressed by the Corporation, and take such steps as the Board considers reasonable and appropriate to address them.

As the Corporation has ceased to operate as an ongoing business and its assets have been liquidated, at some point the Board may want to consider whether the corporation should be wound up and discontinued…. [ 48 ] Mr.

Miller’s position, which is the same in substance as that taken by the respondents’ counsel on this appeal, cannot be reconciled with the conclusion of the Chambers judge that the respondents were “correct to be concerned as to whether this entity describing itself as [CPC] has any lawful authority to act” (at para 69). [ 49 ] In the result, I find the first reason given by the Chambers judge for denying the documents application was based on errors of law.

The Liquidation Order did not preclude CPC or the directors from making the documents application. [ 50 ] It is convenient to make one other point at this stage; that is, that I interpret paragraph 5A of the Liquidation Order more broadly than the respondents and the Chambers judge. The

interpretation of a court order is a matter of law, and therefore subject to a correctness standard of review: Onion Lake Cree Nation v Stick , 2020 SKCA 101 at para 61 , [2021] 2 WWR 614 – followed in Fontaine v Canada (Attorney General) , 2020 ONCA 688 at para 29 . To reiterate, paragraph 5A is as follows: 5A. CPCN’s rights and interest in a proposed derivative action being Queen’s Bench Action 176 of 2012, Judicial Centre of Saskatoon (the “Derivative Action”) which may, subject to leave of this Court, be brought in the name of CPCN shall be excluded from the Property as set out in paragraph 1 of this Order.

Further, the directors of CPCN shall retain the duties and powers to determine whether CPCN should oppose or support the Derivative Action and if the directors so decide, to retain and instruct counsel on behalf of CPCN on such application. In the event the Court grants leave to the Applicants to bring the Derivative Action, the Liquidator shall not exercise any powers or duties with respect to such action.

[51] This paragraph does not deal solely with the authority of the directors to determine whether CPC will oppose or support the QB176 application. That is the subject of the second sentence. The first sentence says that CPC’s “rights and interest” in the proposedderivative action are not transferred to the liquidator. Those rights remain with CPC. [52] What are the rights and interests of a company in a derivative action?

At common law, the general rule was that only acorporation could sue for wrongs it had suffered – which was based on the decision in Foss v Harbottle (1843), 2 Hare 461, 67 ER 189(Ch) – and majority shareholders could approve or ratify breaches of duty to the corporation: J. Anthony VanDuzer, The Law ofPartnerships & Corporations, 4th ed (Toronto: Irwin Law, 2018). Under modern company legislation, that is no longer the case.

Acomplainant may, subject to the approval of the court, prosecute an action in the name and on behalf of the company to enforce a right,duty or obligation owed to the corporation that could be enforced by the corporation.

Section 232 of the BCA provides for such derivativeactions: 232(1) Subject to subsection (2), a complainant may apply to a court for leave to bring an action in the name and on behalf of acorporation or any of its subsidiaries, or intervene in an action to which any such body corporate is a party, for the purpose of prosecuting,defending or discontinuing the action on behalf of the body corporate.

(2) No action may be brought and no intervention in an action may be made under subsection (1) unless the court is satisfied that: (

a) the complainant has given reasonable notice to the directors of the corporation or its subsidiary of his intention to apply to the courtunder subsection (1) if the directors of the corporation or its subsidiary do not bring, diligently prosecute or defend or discontinue theaction; (

b) the complainant is acting in good faith; and (

c) it appears to be in the interests of the corporation or its subsidiary that the action be brought, prosecuted, defended or discontinued. [53] Accordingly, the rights that Mr. Ayers and Jack Adams seek to assert in a derivative action are CPC’s rights to claim against therespondents. Those rights are a chose in action, which are a species of property: see, for example, Gaumont v Luz (1980), 1980 ABCA 155, 111 DLR (3d) 609 (Alta CA), where Laycraft J.A. described a chose in action as follows: [20] The usual definition of a “chose in action” is derived from that stated by Channell J. in Torkington v.

Magee (1902) 2 K.B. 427 at430: “Chose in action is a known legal expression used to describe all personal rights of property which can only be claimed or enforced byaction, and not in taking physical possession.” [21] Legal choses in action are those which could be claimed or enforced in a common law action; equitable choses in action are thosewhich could be claimed or enforced by an action in Chancery. [54] Similarly, in CIT Financial Ltd. v LeGrow Holdings Ltd., 2007 NLCA 24 at para 9, 264 Nfld & PEIR 318 [CIT], the Courtadopted the definition in Blackstone’s Commentaries, which, among other things, said this: …If a man promises, or covenants with me, to do any act, and fails in it, whereby I suffer damage; the recompense for this damage isa chose in action: for though a right to some recompense vests in me, at the time of the damage done, yet what and how large suchrecompense shall be, can only be ascertained by verdict; and the possession can only be given me by legal judgment and execution. … (Emphasis in CIT) [55] This chose in action was not transferred to CPC by the Liquidation Order.

That property – and not only the right to pursue thederivative action – continued to be the property of CPC. D. Did the Chambers judge err by deciding that the documents applicationshould be refused based on a potential claim of privilege? [56] The Chambers judge also identified a second ground for refusing the documents application: [71] Because of the settlement among the shareholders, of which neither the court nor the defendants have any specific details, itbecomes problematic for the defendants to know whether any documents they have in their possession are subject to solicitor-clientprivilege.

When [McDougall Gauley] and then, [Robertson Stromberg], represented CPCN, they received instructions from and providedadvice to the directors who were adverse in interest to Ayers and Adams. The only procedure for disclosure of documents that ensuresonly the proper documents are released to CPCN, as it now constitutes itself, is through the disclosure provisions provided in The Queen’sBench Rules. [57] In this context, I would first reemphasize that the privilege claim is founded on a conflict allegation that the respondents haveconsistently and repeatedly denied when it has been to their benefit to do so.

They have deposed that they acted for and took instructionssolely from CPC throughout, and never acted for any director or shareholder in their individual capacity in relation to the matters at issue.There is no evidence that any of the former majority shareholders or directors assert that they retained the respondents on their ownaccount, or that there would be a breach of privilege or of a duty of confidentiality if the files are released.

Nor have the respondentsidentified any particular documents that could be privileged as against the current directors of CPC or as against CPC itself. [58] It would be a truly startling proposition if a lawyer could deny a former client access to what the lawyer insists is that client’sfile, on the basis that the client may be proven correct in their assertion that they had also acted for another party in the matter – therebydenying the client access to evidence relating to that very point. No authority was offered for this proposition.

This would enable therespondents to use privilege as shelter for their own benefit, rather than that of CPC, which they assert was their only client.

[59] CPC also submits that the Chambers judge appeared to have alluded to the possibility of a joint retainer. The respondentsdisagree. However, if, as Jack Adams and Mr. Ayers allege, the respondents were retained not only by CPC, but by majority shareholderson their own behalf in relation to the same matters, there was a joint retainer.

Such a retainer may be inferred from the conduct of theparties; that is, the conduct of CPC on the one hand, and the majority shareholders and directors associated with that group on the other.As between two clients, no privilege attaches to communications made to a lawyer by either client during the period when the lawyer isworking for both of them pursuant to a joint retainer: Sidney N. Lederman, Alan W. Bryant & Michelle K.

Fuerst, The Law of Evidence inCanada, 4th ed (Markham, Ont: LexisNexis, 2014) at 936–938; Bank of Nova Scotia v Lennie, (AB KB), [1996] 5WWR 565 (Alta QB); Willits v Willits Estate (1981), (SK KB), 128 DLR (3d) 436 (Sask QB) at para 16;Rule 3.4-5(

b) of the Code. [60] Again, it is of interest that Rule 3.4-5(

b) of the Code reflects the same approach in relation to the duty of confidentiality in thecontext of a joint retainer, providing that “no information received in connection with the matter from one client can be treated asconfidential so far as any of the others are concerned”. [61] For these reasons, it is my respectful opinion that the second ground relied on by the Chambers judge to deny the documentsapplication was also based on material errors of law, resulting in the misapplication of the criteria governing the exercise of her discretion. [62] For these reasons, the respondents were obliged to deliver CPC’s files when asked to do so by CPC.

IV. DERIVATIVE ORDER [63] The Chambers judge denied the QB 176 application for leave to bring a derivative action in the name and on behalf of CPC onthe ground that the action against the McDougall Gauley parties would be statute-barred by The Limitations Act. She noted that QB 176was originally returnable on February 7, 2012, and that as of the appointment of the liquidator on October 31, 2013, the McDougallGauley parties were no longer solicitors for CPC. On that basis, she concluded that any breaches of fiduciary duty had to have occurredprior to October 31, 2013.

As she pointed out, the allegations set out in the draft statement of claim filed in QB 176 related to events whichoccurred more than 18 months before the date of the Liquidation Order. [64] The Chambers judge’s reasoning on this point is brief. She cited s. 5 of The Limitations Act, which fixes a two-year limitationperiod from the date on which the claim is discovered, and s. 6, which specifies conditions which trigger a presumption as to the date aclaim has been discovered.

She then reached the following conclusions: [88] The alleged breaches of fiduciary duty by [McDougall Gauley], Miller and Barry were discovered by January 31, 2012. This claimis set out in the draft statement of claim filed with the application. By May 27, 2016, when Ayers requested that the adjourned applicationbe heard by the case management judge, over four years had passed since this application was originally filed with the court. And, twoyears and seven months has passed since the Liquidator was appointed. Therefore, the action against [McDougall Gauley], Miller andBarry would be statute-barred.

It follows that the application for leave to commence the derivative action is also statute-barred. It is of nobenefit to CPCN to permit this derivative action to be brought. It is doomed for failure. It is not in the interests of CPCN to allow theaction to proceed. See: 1186708 Ontario Inc. v Gerstein, 2016 ONSC 1331, 64 BLR (5th) 318. [65] It was on this ground that the Chambers judge dismissed the application for leave to commence a derivative action. [66] Mr. Ayers and Jack Adams raise several grounds in relation to the Derivative Order.

They assert that an action cannot be struckon the basis that it is statute barred and, accordingly, that the proposed derivative action would not have been struck if it had beenpermitted to proceed. The difficulty with this argument is that the QB 176 application is not a strike application. It is an application forleave to bring a derivative action. The Chambers judge was entitled to deal with the limitation issue, based on the test that applies in thosecircumstances. Mr. Ayers and Jack Adams also argue that the Chambers judge erred in finding that the respondents had met that test.

Theycontend that there are several viable arguments that raise triable issues in relation to the expiration of the limitation period, includingdiscoverability, fraudulent concealment and a continuing breach of fiduciary duty by refusing to deliver the client files to CPC. [67] As noted above, s. 232(2) of the BCA provides that the court must be satisfied that three conditions have been met beforeapproving an application to bring a derivative action.

Here, the issue is whether the application met the condition specified in s. 232(2)(c);that is, whether the proposed derivative action “appears to be in the interests of the corporation or its subsidiary that the action be brought,prosecuted, defended or discontinued”. More specifically, it relates to a particular aspect of that third condition, being whether theproposed derivative action has sufficient merit.

In Jahnke v Johnson, 2018 SKCA 59, 82 BLR (5th) 196 [Jahnke], this Court adopted thetest specified by Baynton J. in Schafer v International Capital Corporation (1996), (SK KB), 153 Sask R 241 (QB)[Schafer], relating to this issue, and clarified the proper scope of the inquiry into the merits: [63] A judge hearing an application for leave to commence a derivative action should not be drawn into an exercise that amounts totrying the proposed claim on its merits. Section 232(2)(

c) requires only that the action “appears to be in the interests of the corporation”.…The s. 232(2)(

c) inquiry is not a trial of the proposed action but neither is it an exercise as limited as asking whether the pleadings reveala cause of action. Regard must be had for the evidentiary record underpinning the application. [64] Numerous cases have attempted to explain how a judge should determine whether a proposed action “appears to be in the interestsof the corporation” by framing the relevant test in terms of the apparent strength or merit of the proposed claim.

In this regard, courts haveused terminology such as “an arguable issue worthy of trial” (L&B Electric at para 46); “a reasonable argument which would not bedismissed out of hand” (Primex Investments Ltd. v. Northwest Sports Enterprises Ltd. (1995), (BC SC), [1996] 4 WWR54 (BC Sup Ct) at para 39 [Primex Investments]); a claim that does not appear “frivolous or vexatious or is bound to be unsuccessful” (ReMarc-Jay Investments Inc. and Levy (1974), (ON SC), 50 DLR (3d) 45 (Ont H Ct

J) at 47); and “whether the proposedaction has a reasonable prospect of success or is bound to fail” (Jordan Enterprises Ltd. v Barker, 2015 BCSC 559 at para 35).

[65] The leading case on s. 232(2)(

c) in this jurisdiction is Schafer, the authority relied on and applied by the Chambers judge. Theparties here take no issue with it. In Schafer, Baynton J. explained that, because s. 232(2)(

c) uses the words “appears to be in the interestsof the corporation”, an applicant for leave to bring a derivative action need not prove the action is in fact in the interests of the corporation.It is enough if the applicant establishes that the application is prima facie in the interests of the corporation. Another way to make thesame point, according to Baynton J., is that the applicant must show there is an arguable case. (Emphasis in original) [68] The decision to grant or refuse leave to bring a derivative action is discretionary. The standard of review that applies in relationto discretionary decisions was summarized in Kot v Kot, 2021 SKCA 4 at para 20, 63 ETR (4th) 161: In

summary, these cases confirm that appellate intervention in a discretionary decision is appropriate where the judge made a palpable andoverriding error in their assessment of the facts, including as a result of misapprehending or failing to consider material evidence.Appellate intervention is also appropriate where the judge failed to correctly identify the legal criteria which governed the exercise of theirdiscretion or misapplied those criteria, thereby committing an error of law.

Such errors may include a failure to give any or sufficientweight to a relevant consideration. [69] In my respectful opinion, the Chambers judge committed an error that falls within this standard. As the Chambers judgeacknowledged, discoverability was at issue in this case. She found that the alleged breaches of fiduciary duty by the McDougall Gauleyparties were discovered by January 31, 2012, when Mr. Gidluck first filed the application in QB 176. As I read her decision, she reachedthat conclusion because she found that Mr.

Ayers and Jack Adams would then have had the requisite knowledge to engage thepresumption specified in s. 6(2) of The Limitations Act. [70] The appellants submit that this reasoning – that is, finding that the fact Jack Adams and Mr. Ayers had discovered the claimmeant that CPC had discovered the claim – was a reviewable error. I agree. The question of whether discovery by these minorityshareholders constituted discovery by CPC was an arguable issue that was sufficient to meet the merits aspect of the test specified inJahnke.

Let me explain. [71] As the Court noted in Hercules Managements Ltd. v Ernst & Young, (SCC), [1997] 2 SCR 165 at para 59,“[t]he rule in Foss v. Harbottle provides that individual shareholders have no cause of action in law for any wrongs done to the corporationand that if an action is to be brought in respect of such losses, it must be brought either by the corporation itself (through management) orby way of a derivative action”. The same principle was explained in Kevin P.

McGuinness, Canadian Business Corporations Law, 3d ed,vol 3 (Toronto: LexisNexis, 2017) at 621: …[I]t is an elementary principle of common law that “A cannot, as a general rule, bring an action against B to recover damages or secureother relief on behalf of C for an injury done by B to C”. Accordingly, it is implicit in the separate personality of the corporation that it isthe appropriate party (and the only appropriate party) to bring action for wrongs done to it.

Whatever interest that the shareholders of [a]corporation may have in the rights and benefits arising from its business of the corporation or its property, or in relation to any cause ofaction to which it is entitled, that interest is derivative.

Except through the corporation, the shareholders have no direct, or even indirect,relation with a person who commits a wrong against the corporation’s rights or property. (Footnotes omitted) [72] This raises the following question: in light of the separate personality of the company, whose knowledge matters for thepurpose of determining whether the company had discovered the claims at issue in QB 176? Mr.

Ayers and Jack Adams take the positionthat the Chambers judge erred by attributing their knowledge to CPC, at a time when they were merely shareholders in a companycontrolled by the majority shareholders and directors that they accused of misconduct. This raises a question of corporate discoverability. [73] The Canadian jurisprudence on corporate discoverability is sparse and has generally approached the question in the samemanner as the Chambers judge: Robert W. Thompson, Scott T. Jeffers & Codie L.

Chisholm, The Limits of Derivative Actions: TheApplication of Limitation Periods to Derivative Actions (2012) 49 Alta Law Rev 603. In Carr v Cheng, Dorset College Inc., 2007 BCSC1693, [2008] 6 WWR 348, for example, the Court treated the knowledge of a complainant as the relevant knowledge. However, while thecomplainant was not a director when the derivative action was filed, he was when the claims first arose. In Park v Sunrich ProcessorsLtd., (BCSC), the Court treated the issue as relating to the knowledge of the complainant shareholder.

See also McAteerv Devoncroft Developments Limited, 2001 ABQB 917 at paras 724–725, [2002] 5 WWR 388. [74] The Ontario Court of Appeal addressed this issue at great length in Ridel v Goldberg, 2019 ONCA 636, 436 DLR (4th) 453[Ridel]. It upheld a decision that a claim was statute barred because a committee of shareholders knew of the facts underlying the claimand ought to have known that an action by or on behalf of the company would be appropriate. Those shareholders had the unfettered rightto appoint a majority of the board of directors at any time.

However, the decision was not based on discoverability, but on the applicationof the successor provisions in s. 12 of the Ontario Limitations Act, 2002, SO 2002, c 24, in circumstances where the shareholders hadtaken an assignment of the company’s cause of action from a trustee in bankruptcy pursuant to s. 38 of the Bankruptcy and Insolvency Act,RSC 1985, c B-3. [75] The Court also dealt with the question at issue here; that is, if the shareholders knew in 2006 of the matters referred to in s. 5 ofthe Ontario Limitations Act – a discoverability provision to the same effect as s. 6 of The Limitations Act – does that mean the claim hadbeen discovered in 2006?

Justice van Rensburg decided it did not, reasoning as follows: [47] In determining when the limitation period began to run in respect of the appellants’ claim, the question is when they, as“claimants” – that is, as persons who reasonably had the claim in question – knew or ought to have known of the matters referred to in s.5(1)(a). The application of the test in s. 5(1)(

a) requires first that the claims at issue be defined or identified: Morrison, at paras. 33, 49. [48] In this case, the claim advanced in the appellants’ action is not a claim by them personally, or one that they could have advanced

personally (as was the case in Indcondo ), but a claim they are asserting on behalf of the bankrupt, e3m, against its former principal, Goldberg. Section 5(1) applies to “the person with the claim”. When they were litigating against e3m in the Prior Action, the appellants may well have known of the various matters under s. 5(1)(

a) in the general sense, but because they were not and could not have been “the persons with the claim” at that stage, any such knowledge was immaterial. [49] Until e3m was bankrupt, any claim against Goldberg for breach of his duties as a director could only be pursued by e3m. The appellants had no right, title or interest in the claim.

They had no ability to bring the claim while the claim continued to belong to e3m. … [52] The motions judge’s conclusion that, because of their personal knowledge of the material facts in relation to e3m’s claim against Goldberg, the limitation period began to run against the appellants as early as July 2006 and as late as April 2013, was therefore in error.

Their knowledge of those matters did not become relevant until they had or ought reasonably to have had the authority to pursue the claim, which was, at the very earliest, upon the bankruptcy of e3m in January 2015. [53] Under this analysis, s. 5(1)(a)(iv) is not engaged. The question is not whether the appellants knew or ought to have known that a proceeding by the company would be an appropriate remedy for Goldberg’s alleged wrongs. Until they had control over the claim, or the means to obtain such control (by moving promptly in e3m’s bankruptcy), they were not “claimants” for the purpose of s. 5(1)(

a) and therefore their knowledge was not the knowledge of claimants under the section. [ 76 ] The reasoning in Ridel was applied in Doyle Salewski Inc. v Scott , 2019 ONSC 5108 . The Court there found that the limitation clock did not run for so long as the individual who was the only corporate officer and director controlled the company. Justice Gomery reasoned as follows: [421] In my view, a proceeding was not a legally appropriate means for Golden Oaks so long as it was controlled solely by Lacasse. Lacasse was the only corporate officer and director.

There is no evidence that anyone had the means to challenge his control of the company. There was no legal or practical route, as there was in Ridel , for the initiation of legal proceedings in the name of Golden Oaks by anyone other than Lacasse. Lacasse had no motivation to begin lawsuits on the company’s behalf.

On the contrary, bringing the actions would end the arrangement from which he was profiting personally and would expose the fraudulent Ponzi scheme that he had orchestrated. [422] Given its “abilities and circumstances” while controlled solely by Lacasse, legal proceedings by Golden Oaks, against individuals to whom Lacasse had caused the company to pay usurious interest and commission amounts, were not just inappropriate but impossible.

The claims were therefore not discoverable by Golden Oaks until the receivership on July 9, 2013, at the earliest. [ 77 ] The reference here to a legally appropriate means is to s. 5(1)(a)(iv) of the Ontario Limitations Act , which specifies that the following condition must be met before a claim is presumed to have been discovered: (iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it[.] [ 78 ] This provision is identical to s. 6(1)(

d) of The Limitations Act . [ 79 ] Mr. Ayers and Jack Adams were not directors on January 31, 2012. They were re-elected to the board only on October 6, 2016, after they settled their claim against the majority shareholders and the directors associated with that group resigned. They argue that it is only then that the claim was discovered by CPC. This raises an arguable issue as to whether the fact that Mr. Ayers and Jack Adams knew the things specified in s. 6(1) of The Limitations Act in 2012 meant that CPC had that knowledge for the purposes of the discoverability analysis.

That is sufficient to satisfy the merit aspect of the test specified in Jahnke and Schafer. Cast in terms of the standard of review, the Chambers judge, by failing to consider this issue, failed to apply one of the criteria that governed the exercise of her discretion. [ 80 ] Mr. Ayers and Jack Adams also submit that where a motion for leave to bring a derivative action has been filed prior to the expiration of the limitation period, leave can be granted nunc pro tunc .

They rely in this respect on Canadian Imperial Bank of Commerce v Green , 2015 SCC 60 , [2015] 3 SCR 801 [ Green ], where a majority of the Supreme Court adopted this approach in the context of an application for leave to commence a class action, based on a statutory cause of action where leave was required. [ 81 ] The Chambers judge did not refer to Green or to the possibility that this might be an appropriate situation to grant leave nunc pro tunc .

She did cite 1186708 Ontario Inc. v Gerstein , 2016 ONSC 1331 , 64 BLR (5th) 318 [ Gerstein ], which dealt with an application for leave to commence a derivative action. In Gerstein , the plaintiffs had filed a statement of claim in 2007 which pled that they intended to seek leave but did not file a notice of motion seeking that relief until 2016.

Justice Penny reviewed the reasoning in Green and concluded that “ nunc pro tunc orders granting leave to commence a claim may be granted where leave is sought within the limitation period but not obtained until after the period expires but not where a limitation period has expired before the motion for leave is brought” (at para 54). On the facts, Penny J. found that Gerstein was not an appropriate case to make such an order. [ 82 ] It is my view, based on the reasoning in Green and Gerstein , that there was an arguable issue as to whether the Chambers judge should have granted leave nunc pro tunc .

However, as the McDougall Gauley parties point out, Mr. Ayers and Jack Adams did not ask the Chambers judge to make such an order. Nor did they ask this Court to grant relief in that form. To the contrary, they assert that they did not claim to have demonstrated that such an order should be made.

They assert that Green stands for the proposition that the limitation period was suspended when the application for leave to commence the derivative action was filed in 2012, and that this and all other issues relating to the limitation period defence – including corporate discoverability, concealment, and continuing breaches of fiduciary duty – should be dealt with in the course of the derivative action. [ 83 ] In light of the appellants’ position, I need not decide whether leave should have been or should now be granted nunc pro tunc .

It would, of course, be difficult to find that the Chambers judge erred in failing to do so, as she was not asked to provide that relief. [ 84 ] In the result, I am satisfied that there is an arguable issue as to whether the claims that would be pursued in the proposed derivative action are statute barred, and that the Chambers judge reached the opposite conclusion as a result of having misapplied the

criteria governing the exercise of her discretion. The conclusion that the claim was statute barred was the foundation for the decision of the Chambers judge to deny the application for leave. She did not find that the proposed derivative action failed to meet the requirement that it appear to be in the best interests of CPC on any other ground.

Nor did the respondents suggest that there was any other issue relating to the merits aspect of the test. [ 85 ] For these reasons, I would set aside the Chambers judge’s findings that the limitation period had expired and that leave should be denied and would grant leave to Mr. Ayers and Jack Adams to bring the derivative action. V. THE STRIKE ORDER [ 86 ] QB 1535 was commenced by CPC after Mr. Ayers and Jack Adams regained control of the company. It is their evidence that they did so only after Mr. Ayers reviewed CPC’s records and reported his findings to the board.

They also claim that the action was commenced because they were concerned that the limitation period might expire. [ 87 ] The Chambers judge dealt with the application to strike the statement of claim in QB 1535 on the basis that it was scandalous, frivolous or vexatious within the meaning of Queen’s Bench Rule 7-9(2)(

b) and an abuse of process pursuant to Rule 7-9(2)(e). As I have noted above, she was entitled to do so, provided that she had sufficient evidence to make the necessary findings. [ 88 ] The Chambers judge granted this application on two grounds. First, she noted that she had dismissed the application by Mr. Ayers and Jack Adams to commence the derivative action because they did not proceed with their leave application in a timely manner.

She concluded – despite the fact that the QB 176 decision was issued the same day – that this meant that QB 1535 “is nothing more than an attempt to relitigate an action that the court has already made a ruling on…[and] must be struck as against Miller, Barry and [McDougall Gauley] on that basis alone” (at para 108). [ 89 ] The second ground relied on by the Chambers judge related to the authority of CPC, Mr. Ayers and Jack Adams. She noted that the Robertson Stromberg parties were retained in March of 2013 and ended their retainer on October 31, 2013.

She found that while the liquidator could have commenced an action against the Robertson Stromberg parties, CPC could not. She explained that conclusion as follows: [110] … Certainly, CPCN was not entitled to bring any action. Upon the granting of the liquidation order, s. 212(1) of the SBCA states a corporation only carries on the business that the liquidator requires for an orderly liquidation and the powers of the directors and shareholders cease. There is no court order granted authorizing Ayers and Adams to commence QBG 1535 of 2017.

The commencement of this action is an abuse of the process of the court. [ 90 ] The Chambers judge then reviewed evidence which in her view demonstrated that Mr. Ayers and Jack Adams were aware of the alleged breaches of duty by the Robertson Stromberg parties in 2013. She then commented as follows: [117] The SBCA prescribes the remedies available to shareholders and directors. An aggrieved party is required to avail himself of those remedies.

There is no provision for a shareholder of a corporation which is in liquidation to commence a lawsuit in the name of the corporation other than as permitted by the SBCA and by orders of the court. CPCN is a corporation which has continued in liquidation. Thus, there is no authority for Ayers and Adams to resurrect CPCN such that it has the standing to commence a lawsuit against the defendants. The settlement agreement that Ayers and Adams negotiated with the majority shareholders, no matter what the terms might be, cannot oust the authority of the court.

Their attempt to commence this action is simply an abuse of the court’s process. [ 91 ] In the result, she struck the statement of claim in its entirety as an abuse of process. [ 92 ] Dealing first with the limitation issue, I have concluded that there was an arguable issue as to whether the claim for breaches of fiduciary duty on the part of the McDougall Gauley parties is statute barred. The reasoning relating to corporate discoverability in the context of QB 176 applies equally to QB 1535, which is a claim against all of the respondents.

Accordingly, it is my respectful opinion that the conclusion that the statement of claim should be set aside on the basis that it related to claims that were statute barred was the result of a reviewable error. That issue should be considered in the course of QB 1535. [ 93 ] As to the second ground – whether CPC, Mr. Ayers and Jack Adams had the authority to commence QB 1535 – there is no dispute as to whether Mr. Ayers and Jack Adams are the sole directors of CPC.

The question, then, is whether and to what extent to which the Liquidation Order and the Discharge Order limited the authority of the directors or the capacity of the corporation. [ 94 ] I would first note that the Liquidation Order did not speak to the dissolution of CPC. The BCA expressly contemplates separate orders for liquidation and dissolution.

Section 210(

a) provides that the court may make an order to liquidate, while s. 210(

o) provides that it may make an order dissolving the corporation after the liquidator has rendered his final account to the court. Nor does the Discharge Order speak to dissolution. That supports the conclusion that the parties were content to terminate the liquidation by discharging the liquidator, except to the limited extent specified in the Discharge Order and did not intend to dissolve the corporation. It also accords with Mr.

Ayers’s explanation that he and Jack Adams consented to the Liquidation Order as a means of selling CPC’s assets through a court- supervised process, but never contemplated the dissolution of the corporation. [ 95 ] The BCA does not provide for an application to discharge the liquidator in these circumstances. Rather, s. 216 contemplates the discharge of a liquidator only when final accounts have been approved, as follows: 216(2) Within one year after his appointment, and after paying or making adequate provision for all claims against the corporation, the liquidator shall apply to the court: (

a) for approval of his final accounts and for an order permitting him to distribute in money or in kind the remaining property of the corporation to its shareholders according to their respective rights; or

(

b) for an extension of time, setting out the reasons therefor. …

(5) If the court approves the final accounts rendered by a liquidator, the court shall make an order: (

a) directing the Director to issue a certificate of dissolution; (

b) directing the custody or disposal of the documents and records of the corporation; and (

c) subject to subsection (6), discharging the liquidator. [ 96 ] However, s. 216(5) does not mean that every order for liquidation must inevitably result in the dissolution of the company.

Section 210 of the BCA grants broad powers to the court, including a stay or discontinuation of a liquidation mid-stream, on conditions fixed by the court: 210 In connection with the dissolution or the liquidation and dissolution of a corporation, the court may, if it is satisfied that the corporation is able to pay or adequately provide for the discharge of all its obligations, make any order it thinks fit including, without limiting the generality of the foregoing: … (

n) upon the application of any director, officer, security holder, creditor or the liquidator: (

i) an order staying the liquidation on such terms and conditions as the court thinks fit; (ii) an order continuing or discontinuing the liquidation proceedings; or (iii) an order to the liquidator to restore to the corporation all its remaining property[.] [ 97 ] Here, the Discharge Order itself confirmed that final accounts had not yet been prepared or submitted to the Court. To the contrary, it expressly contemplated a “final accounting” that was yet to occur. [ 98 ] Taking all of this into account, I conclude that after the Discharge Order had issued, CPC was no longer “in liquidation”.

For convenience, I will again cite the relevant provisions of the Order: 10. The Liquidator is hereby discharged as Liquidator of the assets, property and undertaking of CPCN provided however that notwithstanding its discharge herein (

a) the Liquidator shall remain Liquidator for the completion of payment of the Proceeds as set out in paragraph 5 hereof; and (

b) for the performance of such incidental duties as may be required to complete the administration of the liquidation herein ; and (

c) the Liquidator shall continue to have the benefits of the provisions of all Orders made in the within liquidation proceedings, including all approvals and protections in favour of MNP Ltd. in its capacity as Liquidator. 11. The Liquidator is hereby released and discharged from all obligations and responsibilities under the Liquidation Order and from any and all liability that MNP Ltd. now has or may hereafter have by reason of, or in any way arising out of, the acts or omissions of MNP Ltd. while acting in its capacity as Liquidator … (Emphasis added) [ 99 ] In substance, this Order – cast in the language of s. 210 (

n) of the BCA – discontinued the liquidation, subject to the terms specified in the Order. For the reasons explained above, the powers of the directors reverted from the liquidator to the CPC board, and the assets, property and undertaking of CPC were once again under the control of the directors rather than the liquidator. Further, s. 213(2), which provides that “[w]here…the office of liquidator is or becomes vacant, the property of the corporation is under the control of the court until the office of liquidator is filled” did not apply.

The discharge of the liquidator did not result in a vacancy within the meaning of this provision, as the liquidation – except in a limited sense noted above – was at an end. The office of liquidator would never be filled. [ 100 ] For these reasons, the directors of CPC did not require authorization from a court to commence QB 1535. With respect, the conclusion that they did was the result of errors of law relating to the meaning of the relevant provisions of the BCA and, in turn, as to the meaning of the Discharge Order.

As a result, the Chambers judge erred in the application of the criteria which governed the exercise of her discretion to strike the statement of claim. VI. CONCLUSION [ 101 ] For these reasons, I would grant the appeals in relation to the Documents Order, the Derivative Order, and the Strike Order, and would set aside all of the orders granting costs in favour of the respondents in relation to the applications for those orders.

Although the order to permit the McDougall Gauley parties to intervene in the application for leave to bring a derivative action raises an interesting issue, I did not find it necessary to address whether the Intervention Order should have been granted. [ 102 ] If the respondents have removed documents from CPC’s client files or claim that they are now entitled to do so before delivering the files to CPC, they shall identify the documents that have been withheld and the basis for doing so. Any dispute that arises in that respect may be resolved by the Court of Queen’s Bench.

[ 103 ] The appellants shall have one set of costs in the amount of $10,000 as against all of the respondents. “Barrington-Foote J.A.” Barrington-Foote J.A. I concur. “Ryan-Froslie J.A.” Ryan-Froslie J.A. I concur. “Leurer J.A.” Leurer J.A.