CPC Networks Corp. v Miller, 2022 SKCA 95

Court of Appeal for Saskatchewan Docket: CACV4046 Citation: CPC Networks Corp. v Miller , 2022 SKCA 95 Date: 2022-08-15 Between: CPC Networks Corp. Applicant/Prospective Appellant (Plaintiff) And Ronald Miller, Clayton Barry, McDougall Gauley LLP, Scott Spencer and Robertson Stromberg LLP Respondents/Prospective Respondents (Defendants) Before: Barrington-Foote J.A. (in Chambers) Disposition: Application partially granted Written reasons by: The Honourable Mr.

Justice Barrington-Foote On application from: QBG 1004 of 2013 and QBG 1535 of 2017, Saskatoon Application heard: August 9, 2022 Counsel: Larry Ayers for the Appellant Randall Sandbeck, Q.C. and Ramses Miki-Hanson for the Respondents Barrington-Foote J.A. I.

INTRODUCTION [ 1 ] On July 8, 2022, a judge of the Court of Queen’s Bench [Chambers judge] issued a fiat which dealt with six applications brought in three related actions for which she had been appointed as a case management judge [Fiat]: Gidluck v CPC Networks Corp. ; Blanch v Eagle Eye Trust ; CPC Networks Corp. v Miller (8 July 2022) Saskatoon, QBG 176 of 2012; QBG 1004 of 2013; QBG 1535 of 2017.

The applicant, CPC Networks Corp. [CPC], seeks leave to appeal her decisions in two of those applications. [ 2 ] First, it seeks leave to appeal the dismissal by the Chambers judge of an application by CPC that she recuse herself [recusal decision]. That application was based on an allegation that there was a reasonable apprehension of bias against CPC, and against Larry Ayers and Jack Adams, who are CPC directors and shareholders.

Second, it applies for leave to appeal the order granting an application by the respondents that it post security for costs [costs decision]. [ 3 ] For the reasons that follow, I would grant leave to appeal the costs decision and dismiss the application for leave to appeal the recusal decision. II. BACKGROUND [ 4 ] This application for leave to appeal is the latest

chapter in an acrimonious dispute that began in 2010. In CPC Networks Corp. v McDougall Gauley LLP , 2021 SKCA 127 , [2022] 3 WWR 291 [ CPC CA ] – one of the many decisions of this Court and of the Court of Queen’s Bench made in the course of the various actions it has spawned – that dispute was described as follows: [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. [ 5 ] In CPC CA , this Court allowed CPC’s appeal of three orders that had been granted by the Chambers judge in Gidluck v CPC Networks Corp. , 2019 SKQB 251 [ Gidluck ]. As a result, the matter was returned to the Court of Queen’s Bench.

Various applications were filed by both the applicant and the respondents, including the two which have given rise to this application for leave to appeal; that is: (

a) An application by CPC that the Chambers judge recuse herself as the case management judge for three actions, being QBG 1535 of 2017, QBG 1004 of 2013 and QBG 176 of 2012, based on an allegation of a reasonable apprehension of bias against Mr. Ayers, Mr. Adams and CPC; and (

b) An application for security for costs by the respondents in QBG 1535 of 2017, an action by CPC for damages based on an alleged breach of fiduciary duty by the respondents. [ 6 ] In the Fiat, the Chambers judge gave only the following reasons for dismissing the recusal application: [2] [CPC] applies that I recuse myself as case management judge … on the basis of “reasonable apprehension of bias or prejudice against the applicants Ayers, Adams and [CPC]”. [3] It is evident from the notice of application dated March 31, 2022, and supporting affidavit of Jack Adams sworn March 30, 2022,

that this application is without merit. I decline to recuse myself as case management judge. This application is dismissed. No costs. [7] The Chambers judge gave somewhat more extensive reasons for her decision to order security for costs. She noted that CPCalleged that it was insolvent as a result of the prospective respondents’ wrongful conduct and submitted that CPC’s impecuniosity shouldpreclude an order for security for costs. She referred to Bechir v Gowling Lafleur Henderson LLP, 2017 ABQB 214 at para 28 [Bechir],which was cited by CPC in support of that proposition.

She also pointed to CPC’s contention that the order should not be granted as theprospective respondents’ legal costs were covered by insurance paid for by their clients, including CPC. [8] The Chambers judge then explained her view of the law and key facts, commenting as follows: [34] Rule 4-24 provides guidance to the Court in exercising its discretion to award security for payment of costs. In this case, if thedefendants are successful at trial, there will be no ability to enforce an order for costs against [CPC].

It is a liquidated corporation with noassets in Saskatchewan. [35] This is, at the very least, a novel claim against the former solicitors of [CPC]. Whether the defendants caused the plaintiffsinsolvency is to be determined at trial. Furthermore, whether the claim is statute-barred remains a live issue.

Because [CPC] presentlyonly has assets of $10,000 resulting from the costs awarded to [CPC] and the other appellants is not a reason to disallow security for costs.There is no evidence that this corporation is unable to raise the necessary monies to provide security. [9] Having emphasized these circumstances, the Chambers judge at paragraph 36 adopted the following statement as to “theobjective” of Rule 4-24 of The Queen’s Bench Rules from the reasons in Busch-Vishniac v Wall, 2019 SKQB 120, 47 CCPB (2d) 85[Busch-Vishniac]: [45] The objective of the security for costs rule is to ensure equality between litigants.

If a plaintiff does not reside in the province anddoes not have sufficient assets within the province to satisfy an award of costs, that plaintiff is not at risk on an equal footing with theresident defendants. Simply put, security for costs “... is designed to protect a defendant from a plaintiff who wants to gamble and collectif he wins, but not pay if he loses”: Crothers v Simpson Sears Ltd., 1988 ABCA 155 , [1988] 4 WWR 673 (Alta CA). [10] The Chambers judge then commented that this was “certainly the situation with [CPC]” and that an order to provide securitywas appropriate (at para 37).

In the result, she ordered that CPC post security, as follows: [38] It is hereby ordered that [CPC] shall pay the following amounts into court: 1. The sum of $10,000.00 within 30 days of the date of this fiat; 2. The sum of $35,000.00 no later than 30 days prior to the date that questioning of any of the parties is set to commence; 3. The sum of $50,000.00 no later than 30 days prior to the date set for the trial to commence. [11] There is one other application that was decided by the Fiat that is of particular interest in the context of this application.

CPChas long sought to obtain possession of its client files from the respondent law firms. In CPC CA, this Court held that it was entitled tothose files, and that if the respondents removed or claimed the right to remove any documents from them, any resulting dispute would beresolved by the Court of Queen’s Bench. Robertson Stromberg LLP delivered CPC’s files, including all solicitor’s notes and internalmemoranda.

McDougall Gauley LLP asserted that it need not produce documents of that kind when it produced CPC’s files. [12] The Chambers judge concluded that McDougall Gauley LLP was correct, as the case law affirmed that the documents theyrefused to produce were, unlike the remainder of the file, not the property of the client. She also pointed out that CPC may becomeentitled to disclosure of those documents in its proposed derivative action against the respondents, with any dispute as to whether that is soto be decided by the case management judge.

CPC has separately appealed the refusal to order that these documents be produced. III. ANALYSIS A. The Rothmans test [13] The test that applies on an application for leave — which is concerned with the merit and importance of the proposed appeal —is that specified by Cameron J.A. in Rothmans, Benson & Hedges Inc. v Saskatchewan, 2002 SKCA 119, 227 Sask R 121 [Rothmans]: [6] The power to grant leave has been taken to be a discretionary power exercisable upon a set of criteria which, on balance, must beshown by the applicant to weigh decisively in favour of leave being granted: Steier v.

University Hospital, (SK CA),[1988] 4 W.W.R. 303 (Sask. C.A., per Tallis J.A. in chambers). The governing criteria may be reduced to two—each of which features asubset of considerations—provided it be understood that they constitute conventional considerations rather than fixed rules, that they arecase sensitive, and that their point by point reduction is not exhaustive.

Generally, leave is granted or withheld on considerations of meritand importance, as follows: First: Is the proposed appeal of sufficient merit to warrant the attention of the Court of Appeal? • Is it prima facie frivolous or vexatious? • Is it prima facie destined to fail in any event, having regard to the nature of the issue and the scope of the right of appeal, for instance, orthe nature of the adjudicative framework, such as that pertaining to the exercise of discretionary power?

• Is it apt to unduly delay the proceedings or be overcome by them and rendered moot? • Is it apt to add unduly or disproportionately to the cost of the proceedings?

Second: Is the proposed appeal of sufficient importance to the proceedings before the court, or to the field of practice or the state of thelaw, or to the administration of justice generally, to warrant determination by the Court of Appeal? • does the decision bear heavily and potentially prejudicially upon the course or outcome of the particular proceedings? • does it raise a new or controversial or unusual issue of practice? • does it raise a new or uncertain or unsettled point of law? • does it transcend the particular in its implications? (Emphasis in original) [14] As Jackson J.A. commented in Saskatoon (City) v North Ridge Development Corporation, 2015 SKCA 13 at para 50, 451 SaskR 265, “the Chambers judge must decide whether he or she is sufficiently concerned about the correctness of a decision to warrantgranting leave, including determining whether the appeal is prima facie destined to fail, and must also consider importance”.

B. Recusal application [15] CPC’s allegation that there is a reasonable apprehension that the Chambers judge is biased is based almost entirely on thereasoning and results in CPC CA. Among other things, it alleges that the Chambers judge made findings of fact in CPC CA that were notsupported by the evidence. It notes that she had erred by refusing to order that CPC have access to CPC client files in the hands of therespondent law firms, despite that the law firms claimed that they had acted only for CPC.

CPC points out that the Chambers judge raisedthe issue of whether it had the lawful authority to request its client files on her own accord. It emphasizes that in CPC CA, this Courtconcluded that there had been a denial of natural justice in relation to one issue. [16] CPC also refers to two other matters as supporting its allegation of apprehended bias. It notes that after the recusal applicationwas filed, the Chambers judge directed that the other applications decided in the Fiat be heard on the same day. In its view, thatdemonstrated that the Chambers judge had prejudged the matter.

Further, CPC alleges that the Chambers judge had “threatened” todeclare Mr. Ayers and Mr. Adams to be vexatious litigants. [17] This is not the first application for leave to appeal a recusal decision involving these parties. In Ayers v Miller, 2019 SKCA 2,44 CPC (8th) 12 [Ayers], Jackson J.A. dealt with an application for leave to appeal the dismissal by a prior case management judge of arecusal application brought against him by Mr. Adams, Mr. Ayers and CPC. There, the applicants had complained to the CanadianJudicial Council of inordinate delay in the case management process.

Shortly after that complaint was made, the judge issued an orderscheduling several applications. The applicants believed that the order favoured the respondents and asked the judge to recuse himself.The judge declined to do so. [18] In her reasons in Ayers – which was concerned with the fourth recusal application brought by one or more of the applicants –Jackson J.A. noted that there is a debate as to whether a bare recusal order is justiciable at all. However, she did not finally decide thatissue, concluding that she should resolve the application as presented. I am of the same mind in this case.

I need not address thejusticiability issue further. [19] Justice Jackson also summarized the law relating to an apprehension of bias. It is useful to reproduce that

summary in itsentirety: [24] … [T]he proper functioning of the administration of justice depends on decision-making by independent and impartialadjudicators. A judge must step aside when the applicant has demonstrated bias or a reasonable apprehension of bias (failing a claim ofnecessity).

That principle is not in issue and requires no further exposition. [25] In [Aalbers v Aalbers, 2013 SKCA 64, 417 Sask R 69], this Court reviewed the law in determining when a judge should step asidebased on a reasonable apprehension of bias: [75] The test is whether an informed person, viewing the matter realistically and practically – and having thought the matter through –would think that it is more likely than not that the decision-maker, whether consciously or unconsciously, would not decide fairly(Committee for Justice and Liberty [ (SCC), [1978] 1 SCR 369] at p. 394).

The grounds for an apprehension of bias must be“substantial” (Committee for Justice and Liberty at p. 395). A real likelihood or probability of bias must be demonstrated; a meresuspicion is not enough ([R v R.D.S., (SCC), [1997] 3 SCR 484] at para. 112).

The Supreme Court of Canada has alsoconsistently rejected the notion that the reasonableness of an apprehension of bias depends on the “very sensitive or scrupulousconscience” ([Wewaykum Indian Band v Canada, 2003 SCC 45, 2003 SCC 45] para. 76). [26] Relying on R v R.D.S., (SCC), [1997] 3 SCR 484 [R.D.S.], the Court in Aalbers confirmed the following (at para76): (a) “the threshold for a finding of a reasonable apprehension of bias is high” because “the courts recognize a presumption that judges willcarry out their oath of office”; and (b) “‘cogent evidence’ is required to displace the presumption that judges will carry out their oath of office”. [27] The Court in Aalbers also referred, with approval, to the minority concurring opinion in R.D.S., where L’Heureux-Dubé and

McLachlin JJ. (as the latter then was) spoke in terms of the “presumption of impartiality”, which requires “clear evidence that the judge in question had improperly used his or her perspective in the decision-making process”, before “concluding that there exists a reasonable apprehension of bias in the conduct of a judge …” (at para 49).

When the appeal is with respect to a stand-alone recusal decision, proving bias or a reasonable apprehension of bias is a particularly difficult hurdle to overcome. [ 20 ] Applying these principles to the facts of this case, including, in particular, the matters identified by the applicants as demonstrating a reasonable apprehension of bias, I conclude that the application fails on the merit aspect of the Rothmans test.

My reasons are as follows. [ 21 ] It is self-evident that the mere fact a judge has decided against a party, whether in relation to one or many issues, does not raise a reasonable apprehension of bias. Nor does the mere fact that a reviewing court has determined that there has been a denial of natural justice or that the judge has erred in some other way. [ 22 ] In CPC CA , this Court concluded that the Chambers judge had committed several errors which called for appellate intervention. There is nothing out of the ordinary in that.

This Court did not suggest that the Chambers judge had acted injudiciously in any way and, having reviewed Gidluck in light of the applicant’s submissions and the record on this application, I see no reasonable basis to do so.

There is nothing, either in what the Chambers judge decided or in her reasons that might be found to constitute clear, cogent or substantive evidence that could persuade an informed person, viewing the matter realistically and practically — and having thought the matter through — that it is more likely than not that the Chambers judge, whether consciously or unconsciously, would not carry out her duties as case management judge fairly. [ 23 ] Further, the decision to

schedule the recusal application and other applications at the same time does not move the needle. That decision can be readily explained as an intention to move this long-delayed litigation forward, but only if the Chambers judge decided that she would not recuse herself. The allegation that the Chambers judge “threatened” to make a vexatious litigant order was a comprehensible comment made in the context of an application for such order. [ 24 ] I would finally note that, in the Fiat, the respondents were not successful on all counts. The Chambers judge decided two important applications in favour of CPC.

She decided that Mr. Ayers, who is not a lawyer, could continue to represent CPC for the time being. She also rejected the respondents’ application to strike CPC’s claim as frivolous, vexatious or an abuse of process. When asked what this success signalled, CPC suggested that the merits of these applications were “obvious”. That is an overstatement.

With respect, the fact that the parties enjoyed mixed success is evidence that weighs against CPC’s allegation of apprehended bias, and as such, in favour of the respondents’ position that the proposed appeal of the recusal application is without merit. [ 25 ] For these reasons, the application for leave to appeal the recusal decision is denied. C. Security for costs application [ 26 ] An application for an order for security for costs is subject to

Part 4, Division 4 of The Queen’s Bench Rules . Rule 4-22 provides for such applications and Rule 4-24 describes the considerations that must be taken into account by the judge hearing the application: Security for costs in the discretion of the Court 4-22

(1) Subject to the express provisions of any enactment and notwithstanding any other rule, the Court: (

a) has discretion respecting security for costs; and (

b) may order security for costs against any party to a proceeding, including a party who is ordinarily resident in Saskatchewan.

(2) The Court has discretion to determine the amount and form of security for costs. … Considerations for a security for costs order 4-24 The Court may order a party to provide security for payment of a costs award if the Court considers it just and reasonable to do so, taking into account all of the following: (

a) whether it is likely the applicant for the order will be able to enforce an order or judgment against assets in Saskatchewan; (

b) the ability of the respondent to the application to pay the costs award; (

c) the merits of the action in which the application is filed; (

d) whether an order to give security for payment of a costs award would unduly prejudice the respondent’s ability to continue the action; (

e) any other matter the Court considers appropriate. [ 27 ] The applicant alleges that the Chambers judge erred in considering the factors specified in Rule 4-24(c), (

d) and (e). As to subsection (c) – the merits of the underlying action – it contends that the decision in CPC CA confirms that the action is not frivolous or vexatious. As to (d) – the potential prejudice to CPC’s ability to continue the action – it argues that the Chambers judge failed to consider material evidence of its impecuniosity. It notes that it has only $10,000 in assets – being the amount awarded as costs in its favour in CPC CA – and contends that is so as a result of the alleged breaches of duty by the respondents that are the subject of its claim.

It submits that an order for security for costs should not be made in such circumstances. It points out that payment of the first $10,000 installment will exhaust its assets, and that it has only been able to pursue its claim because of resources provided by its two shareholders.

[ 28 ] In response, the respondents emphasize the discretionary nature of the decision. They submit that the Chambers judge correctly identified the legal criteria specified in Rule 4-24, considered all relevant matters, and made no palpable and overriding errors. On that basis, they assert that there is no error that would justify appellate intervention. [ 29 ] A decision as to whether to order for security for costs is discretionary.

Further, the parties agree that the standard of review that applies to an appeal of a discretionary decision is that specified in Kot v Kot , 2021 SKCA 4 , 63 ETR (4th) 161 [ Kot ]: [20] …[A]ppellate intervention in a discretionary decision is appropriate where the judge made a palpable and overriding 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 their discretion or misapplied those criteria, thereby committing an error of law.

Such errors may include a failure to give any or sufficient weight to a relevant consideration. [ 30 ] This standard of review is a relevant consideration when assessing the merits of the proposed appeal or the purpose of the Rothmans test. [ 31 ] The evidence is clear, and the Chambers judge concluded, that CPC has only $10,000 in assets – leaving aside a potential claim against the respondents that she described as “novel” and subject to potentially limitations defence.

However, she also decided that the evidence CPC had been liquidated and had only $10,000 in hand was not sufficient to show that an order to post $95,000 in security for costs might unduly prejudice CPC’s ability to pursue its claim. In her view, there was “ no evidence ” that the company could not raise the money to post this security (at para 35, emphasis added). [ 32 ] CPC suggests that this comment could only refer to getting the necessary funds from Mr. Adams and Mr. Ayers.

The respondents agreed that the Chambers judge could have been referring to that possibility or to the potential to borrow money from a specialty lender. [ 33 ] Further, although the Chambers judge noted that CPC had referred to Bechir , she did not discuss whether it should be adopted or applied in her analysis, or to the related fact that CPC has as yet been unsuccessful in obtaining access to its client files from McDougall Gauley LLP. [ 34 ] It is my opinion that these aspects of the costs decision raise arguable questions as to the assessment of the facts by the Chambers judge, and as to the identification and application of the legal criteria governing the exercise of her discretion, that could be found to justify appellate intervention under the Kot standard.

In addition, her conclusion that “the objective” of security for costs orders is “to protect a defendant from a plaintiff who wants to gamble and collect if he wins, but not pay if he loses” also raises an arguable issue as to the legal test (Fiat at para 36 and Busch-Vishniac at para 45 ). [ 35 ] For these reasons, I conclude that the proposed appeal of the costs decision meets the merits aspect of the Rothmans test. As for the second element of the test, the proposed appeal is of sufficient importance to the proceedings, and to the meaning and application of Rule 4-24. IV.

CONCLUSION [ 36 ] In the result, leave to appeal is granted in relation to the decision to order that CPC post security for costs and denied in relation to the recusal decision. [ 37 ] Given that each of the parties succeeded in part on this application, there shall be no order as to costs. “Barrington-Foote J.A.” Barrington-Foote J.A.