Abdulhussein v Rezz Investments Ltd., 2022 SKCA 123

Court of Appeal for Saskatchewan Docket: CACV3873 Citation: Abdulhussein v Rezz Investments Ltd. , 2022 SKCA 123 Date: 2022-10-26 Between: Sameer Abdulhussein, 1215972 Alberta Ltd., 1432416 Alberta Ltd. and Allaudin Abdulhussein Appellants (Defendants) And Rezz Investments Ltd., Shaheen Kassam and Hanif Kassam Respondents (Plaintiffs) And Nargis Abdulhussein Non-Party (Defendant) Before: Caldwell, Kalmakoff and McCreary JJ.A. Disposition: Appeal dismissed Written reasons by: The Honourable Mr. Justice Caldwell In concurrence: The Honourable Mr.

Justice Kalmakoff The Honourable Madam Justice McCreary On appeal from: QBG 925 of 2013, Saskatoon Appeal heard: September 12, 2022 Counsel: Terry J. Zakreski, K.C., for the appellants Anita G.

Fraser for the respondents Caldwell J.A. [ 1 ] In this matter, Sameer Abdulhussein, 1215972 Alberta Ltd., 1432416 Alberta Ltd. and Allaudin Abdulhussein [appellants] appeal against the decision of a Court of Queen’s Bench case management judge to strike their statement of defence as well as a counterclaim brought by one of the corporate appellants (see Rezz Investments Ltd. v Abdulhussein (6 July 2021) Saskatoon, QBG 925/2013 [ Striking Decision ]).

I would dismiss the appeal with one set of costs to Rezz Investments Ltd., Shaheen Kassam and Hanif Kassam [respondents]. [ 2 ] The striking of the appellants’ pleadings occurred pursuant to Rule 5-36 of The Queen’s Bench Rules [ Rules ] in the course of the pre-trial management of the respondents’ action against the appellants. Relevant to this appeal, that Rule states: 5-36(1) This rule applies to a person who: … (

d) having undertaken at the questioning to answer at a later date any lawful question put to him or her, fails to do so within a reasonable time after the questioning.

(2) A person described in subrule (1) is liable: … (

b) if the person is a defendant, to have his or her defence, if any, struck out and to be placed in the same position as if he or she had not defended.

(3) If a person described in subrule (1) is an officer or employee of a corporation, the corporation is liable: … (

b) if the corporation is a defendant, to have its defence, if any, struck out and to be placed in the same position as if it had not defended.

(4) The party questioning a person described in subrule (1) may apply to the Court for an order pursuant to subrule (2) or (3). [ 3 ] A decision to strike pleadings pursuant to Rule 5-36 is discretionary. The power exercised under the Rule is a codified aspect of the inherent authority of the Court of King’s Bench to control the court process in what has been described as “a form of contempt of court proceeding” ( Prestige Commercial Interiors

(1992) Ltd. v Graham Construction and Engineering Inc. , 2008 SKCA 27 at para 16 , 307 Sask R 134 [ Prestige ]).

As it is discretionary, this Court may not interfere with the Striking Decision unless we are convinced that the judge made a palpable and overriding error in his assessment of the facts, failed to correctly identify the legal criteria that governed the exercise of his discretion under Rule 5-36, or misapplied those criteria (see Kot v Kot , 2021 SKCA 4 at paras 15-20 , 63 ETR (4th) 161). [ 4 ] In this case, the appellants, who were questioned in early 2019, gave undertakings with respect to documents that were in third-party hands.

Delays in satisfying the undertakings led the case management judge to order the appellants to fulfil them by November 27, 2020, but that deadline was not met. The judge then ordered the appellants to satisfy their undertakings by January 22, 2021, but that second deadline was also not met. As 48 of 66 undertakings remained unfulfilled, the respondents applied under Rule 5-36(4) for an order striking the appellants’ pleadings pursuant to Rules 5-36(2)(

b) and 5-36(3)(b). In an earlier fiat ( Rezz Investments v 1215972 Alberta (3

March 2021) Saskatoon, QB 925/2013 [ Last Chance Fiat ]), the case management judge adjourned sine die the respondents’ application, writing: [8] I cannot escape the feeling that the defendants are not taking seriously their obligation to supply the information requested. Certainly, there is no indication they are interested in doing so in a timely manner. Not only does this violate the letter of applicable Rules of The Queen's Bench Rules , it violates the spirit of same. … [13] We are very, very, very near to the point where the defendants’ pleadings will be struck out.

Seeking and genuinely trying to obtain the information requested must be the first priority of the defendants and their counsel. I believed the Court’s view on this delay had been made clear at the September 2020 case management teleconference.

If not, they should be clear now. [14] I will grant the defendants one last chance to genuinely try to obtain the information outstanding, but in the overall circumstances of this action the time must necessarily be limited. [ 5 ] In the Last Chance Fiat , the case management judge imposed a third and last chance deadline by ordering the appellants to fulfil their undertakings by 4:00 p.m. on April 12, 2021. [ 6 ] It is undisputed that the appellants produced documents after the last chance deadline.

The respondents, taking the position that responses to the undertakings still remained outstanding, brought their Rule 5-36(4) application back before the case management judge. In the Striking Decision , the judge found that the appellants had failed to answer their undertakings within a reasonable time, writing: [19] Even on the most generous review of this matter for them, the conclusion that the defendants have been dilatory, neglectful and even obstructive is inescapable. It is now approximately two and one-half years since the questioning of the defendants occurred.

They have been the subject of three prior orders to produce the information required to answer their undertakings. The defendants have not complied with any of those orders. As matters stand, many of their undertakings remain outstanding. [20] As well, a careful examination of the history of this matter reveals that not only did the defendants breach the prior orders, they flouted same. The best example is my order of September 25, 2020, wherein I ordered the balance of the undertakings to be addressed by November 27, 2020. Some information was required from third parties.

Correspondence was not even sent to those third parties until November 26,·2020, one day before the court-imposed deadline. To borrow an adjective from plaintiffs’ counsel, this is “shocking”. [21] I have detailed above the issue with the Wachovia documents. I have no basis to conclude that the failure to produce those documents in a timely way was intentional on the defendants’ part, but there is ample room to conclude that the defendants were careless and neglectful of their legal duties.

The evidence before me is that these documents were given to the defendants’ former solicitors in 2015 yet were not disclosed until April 2021, despite the plaintiffs’ repeated requests for same. … [25] While defendants’ counsel [note: the appellants have different counsel in this appeal] did his very best to attempt to explain or justify the acts and omissions of the defendants, those explanations fall short. Many of the efforts and dealings he described fall into the category of “too little, too late”.

The defendants have had two and one-half years to deal with third parties and to assiduously pursue the required information. They failed to do so. That they made very last-minute efforts to salvage their position does not explain, much less justify, their inactivity following the questioning in January 2019. [26] I am entirely satisfied the defendants have failed to answer their undertakings from questioning within a reasonable time. Two and one-half years, in this context, is simply too long.

By “context” I refer to the complexity of the action, the scope of the undertakings, the consistent failure of the defendants to abide by orders of this Court (both those made by me and those made by other judges, preceding my involvement in this matter), and the meagre efforts of the defendants to comply with their obligations. [ 7 ] In their appeal against this finding, the appellants assert that they had substantially complied with their undertakings.

They acknowledge that they produced two sets of documents after the last-chance deadline; however, they point out that the first set was overdue by mere minutes (having been delivered electronically at 4:08 p.m. on April 12, 2021) and the second set was only eight days late (and had not been available before then).

They argue that the judge misinterpreted what the undertakings required, and then he erroneously concluded that undertakings remained outstanding and that they had failed to use reasonable efforts to satisfy them. [ 8 ] Preliminary to the appeal proper, the respondents applied pursuant to Rule 59 of The Court of Appeal Rules to adduce fresh evidence, which largely consists of information drawn from the lower court file and their solicitors’ files, some of which would not have been available to the case management judge.

Through this material, they seek to bolster the case management judge’s finding that undertakings remained outstanding. The appellants do not object to the admission of most of these fresh materials. They ask this Court to consider their arguments in a reply factum through which they seek to establish that they had, in fact, satisfied their undertakings.

I would deny both of these applications, without costs. [ 9 ] Although the appellants and the respondents stridently dispute whether undertakings remained outstanding at the time of the Striking Decision , I conclude that that question is a red herring in the context of this case. While the case management judge undoubtedly found that undertakings remained outstanding, he did not strike the appellants’ pleadings for that reason.

He struck them because he concluded that, in the language of Rule 5-36(1)(d), “having undertaken at the questioning to answer at a later date any lawful question put to [them], [the appellants had failed] to do so within a reasonable time after the questioning ” (emphasis added). And, looking to the court record, I do not see a palpable error in the judge’s recounting of the matters that led him to reach that conclusion—some of which I have reproduced above.

Therefore, I cannot interfere in the Striking Decision on this basis. [ 10 ] The appellants other arguments also do not persuade me to disturb the Striking Decision . They say the judge erred when he found that the respondents had suffered prejudice as a result of their failure to adhere to court orders and to comply with their

undertakings. The judge’s finding in that regard was that some relevant financial documents “have been destroyed and evidence has been lost” and that finding is amply supported by the evidence, including through the appellants’ responses to their undertakings (at para 32). I accept that the loss of relevant financial documents might not affect the respondents in the prosecution of their action—but that cannot be determined at this juncture.

Regardless, as the judge observed, the prejudice is made manifest by the respondents’ inability to obtain the now destroyed documents: [32] I have also considered the issue of prejudice. The plaintiffs have demonstrated, on a balance of probabilities, that they have actually been prejudiced by the defendants’ neglect. The material shows that even at the outset of this action the defendants made no efforts to secure relevant financial documentation. With the passage of time and with those documents remaining in the exclusive control of third parties, some have been destroyed and evidence has been lost.

This is not of the plaintiffs’ doing. It is the defendants’ lackadaisical approach to their legal obligations regarding documents, and their outright disregard for orders of this Court, that has caused this loss of evidence and this prejudice to the plaintiffs. [33] Although not argued, this conduct of the defendants comes close to spoliation. If demonstrated, that could also invite the remedy of striking pleadings. [34] This action is over eight years old. It has not moved beyond the questioning/disclosure stage. This is due largely, not entirely but largely, to the defendants.

Certainly, the two and one-half years that have elapsed since questioning without undertakings being answered lies at the defendants’ feet, and militates strongly in favour of the remedy sought by the plaintiffs. The defendants’ conduct has been far, far below the acceptable standard in litigation matters, especially when the Foundational Rules are considered.

As I have noted in previous decisions the Foundational Rules are operational, not aspirational. [ 11 ] In another argument, which draws on the immediately preceding paragraph of the Striking Decision set out above, the appellants submit that the judge improperly used the foundational Rules when interpreting their undertakings and misunderstood what they had undertaken to do.

As I comprehend it, this argument boils down to an assertion that the judge was under a misapprehension that the appellants had undertaken to produce documents when they had only undertaken to ask third parties for them. [ 12 ] I am not persuaded that the judge misinterpreted the undertakings in the way the appellants describe. I note that, in the Last Chance Fiat , he admonished the appellants by writing, “ Seeking and genuinely trying to obtain the information requested must be the first priority of the defendants and their counsel” (at para 13, emphasis added).

The judge then imposed the last chance deadline after stating, “I will grant the defendants one last chance to genuinely try to obtain the information outstanding” (at para 14, emphasis added). Then, when addressing the record on this point in the Striking Decision , the judge wrote: [8] In response to the current application, the defendants Sameer Abdulhussein and Allaudin Abdulhussein filed affidavits, as did their counsel. In large measure these affidavits set out efforts to comply and problems with achieving compliance.

Notably, it is fair to say the dealings with Canada Revenue Agency have not gone smoothly. [9] Still, what is ignored in this material is the overall timeline and the lack of effort for a substantial period of time, even in the face of explicit court orders to get this material. For example, in September of 2020 the defendants were ordered to provide material answering their undertakings by November 27, 2020. The evidence before me is that they did not even write to the various institutions involved until November 26, 2020.

It is plain and obvious that the defendants would not obtain any substantive replies from various financial and government institutions they wrote to the day previously. For example, on November 26, 2020 defendants’ counsel wrote to Canada Revenue Agency seeking copies of tax returns, T4 slips and confirmation of her income for Nargis Abdulhussein for 2007 to 2013. There was no satisfactory explanation as to why they waited months and then wrote their letters the day prior to the court-imposed deadline.

The defendants could hardly have expected CRA to come up with information going back 13 years in one day. [10] What the affidavits do not accomplish is explaining the delay that occurred prior to November of 2020, when the first request for information pertinent to the undertakings was made. Again, these undertakings arose from a questioning conducted in January 2019.

It is difficult to understand how the defendants could have waited almost two years to even ask for this information, and now come before this Court pleading that some of the institutions are uncooperative. [ 13 ] Like the issue related to their fulfilment, the appellants’ arguments about misinterpretation divert attention from what the judge truly decided about their undertakings. As I read the Striking Decision , it would have made little difference whether the appellants had undertaken to ask for or to produce documents.

I say that because the judge found they had failed to do both of those things within a reasonable time after the questioning. Moreover, the judge found that the appellants had also failed to comply with court orders, at least two of which had required them to “disclose and produce numerous documents” and to “produce the documents” ( Striking Decision at para 7). At root, I remain unpersuaded that the judge erred in his

interpretation of the undertakings or court orders. [ 14 ] Lastly, the appellants assert that the Striking Decision grants a draconian remedy. I agree that the remedy is severe but that does not mean it is draconian or improper. The striking of pleadings is the remedy specifically set forth under Rule 5-36(2)(

b) and Rule 5-36(3) (

b) for a defendant’s failure to satisfy undertakings within a reasonable time after questioning. In this regard, it must be remembered that an application under Rule 5-36 is a form of contempt of court proceeding. In Prestige , Wilkinson J.A. described the availability of the remedy under the predecessor to Rule 5-36 in this way: [16] The cases relied on by the plaintiff take a strict approach to the application of Rule 231, refusing to make the contempt finding, or an order striking the pleadings, at the first stage of the process. As noted in Madison Development Group Inc. v.

Phoenix Enterprises Ltd. , a decision of Baynton, J., an application to strike pleadings under Rule 231 is a form of contempt of court proceeding, and courts in all common law jurisdictions have consistently interpreted contempt proceedings strictly. Only in the clearest of cases, where there had been a deliberate and flagrant breach, did judges exercise their discretion to in effect punish a party by striking out his pleadings.

In his view, this principle was even more applicable in a situation arising out of a disagreement between counsel for the parties, as occurred in Crane Canada Inc. v. 4 S Mechanical Ltd. et al . See also: Saskatchewan Crop Insurance Corporation v Gustafson , 2022 SKQB 5 at paras 19-24 .

[ 15 ] While the striking of a defence or counterclaim should be done sparingly and only in the clearest of cases, I am unconvinced that the judge erred by imposing that remedy in the context of this matter. I find the judge properly understood the type of conduct could attract the remedy enumerated in Rule 5-36 and he found that it had occurred.

He characterised the appellants’ conduct in these terms: (a) “what I can only term a cavalier attitude toward document disclosure” (at para 11); (b) “shocking”, adopting the language of respondents’ counsel (at paras 12 and 20); (c) “Even on the most generous review of this matter for them, the conclusion that the defendants have been dilatory, neglectful and even obstructive is inescapable” (at para 19); (d) “not only did the defendants breach the prior orders, they flouted same” (at para 20); (e) “I have no basis to conclude that the failure to produce [specific] documents in a timely way was intentional on the defendants’ part, but there is ample room to conclude that the defendants were careless and neglectful of their legal duties” (at para 21); (f) “The defendants have had two and one-half years to deal with third parties and to assiduously pursue the required information.

They failed to do so.

That they made very last-minute efforts to salvage their position does not explain, much less justify, their inactivity following the questioning in January 2019” (at para 25); and (g) “consistent failure of the defendants to abide by orders of this Court (both those made by me and those made by other judges, preceding my involvement in this matter), and the meagre efforts of the defendants to comply with their obligations” (at para 26). [ 16 ] Having made the foregoing findings, the judge directly considered whether it would be appropriate to strike the appellants’ pleadings pursuant to Rule 5-36, writing: [27] Next, the appropriate remedy must be considered.

Again, context is important. This is the plaintiffs’ fourth return to this type of application. In each prior case I declined to grant any harsher remedy, such as striking the defendants’ pleadings. In each prior case I gave the defendants more time. My orders provided the defendants with over five months’ additional time. In the case of the September 25, 2020 order the defendants used none of the two months afforded to them in any positive manner, instead waiting until the day before the deadline of that order to even begin making inquiries.

My order of March 3, 2021 was clearly expressed to the defendants as their “last chance” to comply with their obligations and provide their undertakings. [28] More broadly, since the commencement of this action the plaintiffs have had to make seven applications to obtain compliance and the defendants have been the subject of four cost orders, not all of which were fully paid. I have already cited the paragraphs where the judge found prejudice to the respondents and likened the appellants’ conduct as coming “close to spoliation” ( Striking Decision at paras 32 and 33).

After reviewing all of this context, the judge concluded he was “satisfied that the plaintiffs should obtain a striking order under Rule 5-36” (at para 35). [ 17 ] Although under a separate exercise of discretion, it is not irrelevant that the judge awarded solicitor-and-client costs to the respondents on the basis of the following analysis: [43] Even within those boundaries, there is plenty of justification for a cost order on a solicitor-client basis.

I have already noted that the proper and expedient prosecution and adjudication of this action has been delayed largely due to the defendants’ poor conduct during the litigation. The defendants have repeatedly failed to comply with orders of this Court, including three previous orders I have made regarding the provision of undertakings granted at the January 2019 questionings. The defendants have demonstrated their indifference to the law and to the orders made by this Court, such as writing to third parties for information the day before a court-imposed deadline expired.

The defendants have taken a most cavalier attitude toward their obligations pertaining to full and timely disclosure of documents. The plaintiffs have sustained actual prejudice as evidence has been lost due to the defendants’ neglect.

And while this litigation might ordinarily be somewhat complex, that complexity has been increased significantly by the defendants’ acts and omissions in the course of this litigation. [44] This is a case where I do not have the slightest hesitation in awarding solicitor-client costs against the defendants against whom the striking order pertains. [ 18 ] Having reviewed the whole of this matter, I conclude that the judge correctly identified the criteria that govern the exercise of judicial discretion to strike pleadings under Rule 5-36 and I am not persuaded that he erred in his assessment of the appellants’ conduct in this matter.

Lastly, I can see no misapplication of the governing criteria to the circumstances as the judge assessed them when he decided to strike the appellants’ pleadings. [ 19 ] I would, therefore, dismiss this appeal with one set of costs to the respondents in this appeal. As noted, I would make no award of costs in the fresh evidence application or on the application to file a reply factum. I would award the respondents fixed costs of $1000 in the aggregate for all other applications brought before the Court. “Caldwell J.A.” Caldwell J.A. I concur. “Kalmakoff J.A.” Kalmakoff J.A. I concur. “McCreary J.A.” McCreary J.A.