SWARTOUT v QUINNCORP HOLDINGS INC, 2012 ABQB 610
1.2: Purpose and intention of these rules
1.4: Procedural orders
5.2: When something is relevant and material
5.25: Appropriate questions and objections
5.3: Modification or waiver of this Part
5.33: Confidentiality and use of information
The Plaintiffs entered into a Joint Venture Agreement with one of the Defendants, 268981 Alberta Ltd., in 1998. 268981 Alberta Ltd. amalgamated with Quinncorp Holdings Inc. (“Quinncorp”) in 2001. Under the Joint Venture Agreement, Quinncorp was to develop a neighbourhood in phases, using funds provided by a number of investors, including the Plaintiffs. After deducting Quinncorp’s expenses and a management fee, net profits were to be distributed 70% to the investors and 30% to Quinncorp. The Plaintiffs commenced this Action in 2011, alleging that they had not received all of the net profits they were entitled to under the Joint Venture Agreement. The Plaintiffs sought the return of their initial contributions, payment of net profits owing under the Joint Venture Agreement, and an accounting of all revenues, expenses and profits. Quinncorp alleged that repayment of initial contributions was not due, that net profits had been properly distributed and that the Plaintiffs had been overpaid. Quinncorp further alleged that the Joint Venture Agreement did not require Quinncorp to report or account directly to the Plaintiffs.
Quinncorp presented two issues to the Court for advice and direction. The first issue related to Quinncorp’s ability to defer production of source documents. During the Questioning of Quinncorp’s corporate representative, some Undertakings were given which related to source documents underlying summary information that had been produced by Quinncorp. Quinncorp argued that it was not required to produce these source documents until entitlement to an accounting was established at Trial. Quinncorp further argued that production should be delayed because its accountant was preparing a report on the underlying revenues and expenses of the Joint Venture Agreement, and because it would be too difficult to produce the source documents. Quinncorp argued that the Plaintiffs were using disclosure Rules to obtain accounting relief that could only be granted after liability was established at Trial. Quinncorp argued that the general rule is that while that there must be full Discovery on all issues prior to Trial, if liability and remedies are easily severable, it is appropriate to defer Discovery on remedies until liability has been established.
Master Mason held that the records sought by the Plaintiffs were not solely relevant to the accounting. Rather, the records were also relevant to whether Quinncorp had paid the net profits under the Joint Venture Agreement. Quinncorp’s calculation methodology was at the heart of the dispute, and as such, source documents showing costs and revenues were relevant, material and necessary to resolve the issue at Trial. Any documents that also related to other projects could be redacted and would be subject to an Undertaking pursuant to Rule 5.33.
Quinncorp further argued that the Plaintiffs’ representative on the Joint Venture Agreement agreed that Quinncorp’s accountant would review and substantiate the distribution of net profits. Quinncorp argued that this agreement bound the Plaintiffs and prevented them from seeking production of the source documents until the report was complete. Master Mason held that the Joint Venture Agreement did not constitute contracting out of the production requirements of the Rules of Court. Relevance and materiality govern the production of documents in litigation, not a paragraph in a Joint Venture Agreement.
Quinncorp further argued that, pursuant to Rules 1.2 and 1.4, the litigation would be more timely and cost effective if the Plaintiffs’ production requests were held in abeyance pending the review by Quinncorp’s accountant. Master Mason held that the Plaintiffs were entitled to access source documents for their own review, and that it would be inconsistent with Rules 1.2 and 1.4 to delay production of the documents.
Quinncorp also argued that, pursuant to Rule 5.25, it would be unduly onerous to respond to Undertakings relating to source documents. Further, the production requirements should be modified in relation to the source documents because, pursuant to Rule 5.3, the difficulty of producing them would be disproportionate to their likely benefit. However, Master Mason held that a Party seeking to modify or limit another Party’s rights under the Rules faces an onerous test. Alberta Courts have recognized that the process of responding to Undertakings requires time and money, and the Party giving the Undertaking will have to devote some resources to ensure that the Undertakings have been met. The fact that it will take time is not a sufficient excuse for not responding. The Costs of responding to Undertakings will be addressed in the normal course of the Action.
The second issue before the Court related to whether the U.S. counsel and a staff member of one of the Plaintiffs was entitled to view a real time transcript at a future Questioning. At the Questioning of Quinncorp’s corporate representative, real time reporting was used, which generated a live transcript. The transcript was streamed to a computer in an adjacent conference room, where it was observed by U.S. counsel and a staff member. Quinncorp argued that this violated the general rule that only the Parties and Counsel of record have the right to attend Questioning. The Plaintiffs argued that because the real time software does not permit communication or interaction between those in the Questioning room and those observing elsewhere, the presence of others in a separate room watching a live transcript is not tantamount to attendance at the Questioning. Any concerns identified with additional attendees at Questioning, such as disruption, distraction and delay, do not arise where attendees are passively observing the transcript.
Master Mason held that observers in the next room were not allowed to communicate or interact with those in the Questioning room. The transcript remained confidential and was not broadcast to the public at large, but only to individuals who would be provided with a copy of the transcript in any event. Indeed, passively observing a real time transcript is not substantially different from receiving a copy of an expedited transcript the following morning. Provided that the attendees do not interrupt, communicate with those in the Questioning room during the Questioning or cause delays in the proceeding, such observation does not amount to attendance at the Questioning.View CanLII Details