Questioning Service Providers to Corporations: Recent Decision on the Operation of Rule 5.18

25 février 2019 | Nick Willis

( Disponible en anglais seulement )

In Alberta, litigants are limited in their ability to question those who are not parties to the litigation. However, Rule 5.18 of the Alberta Rules of Court creates an exception that allows parties to question those who provide services to corporate litigants. In 1218388 Alberta Ltd v Reifel Cooke Group Limited, 2019 ABQB 76, the Court provides some useful guidance on the operation of Rule 5.18.

Background on Rule 5.18

Rule 5.18 allows a party to question persons providing services to a corporation if the following criteria are met:

  1. The party cannot obtain relevant and material information from a current or former officer or employee of the corporation;
  2. It would be unfair to require the party to proceed to trial without the chance to question on that information; and
  3. The questioning would not cause undue hardship, expense, delay or unfairness to the person to be questioned.

Rule 5.18(2) states that questioning under this Rule can only take place with the Court’s permission or by written agreement of the parties.

The Rule cannot be used to question an expert engaged in the action, and any evidence obtained is treated as if it were the evidence of the corporation.

Finally, the party questioning must bear the cost of doing so unless the parties agree or the Court otherwise orders.

Facts

This case involved a dispute over a commercial property in Fort McMurray. The Plaintiff, 1218388 Alberta Ltd. (“388”), claimed that the Defendant, Reifel Cooke Group Limited (“RCGL”), wrongfully failed to close on an agreement to purchase the property.

There had previously been a gas bar on the property, and there were issues with contamination. RCGL entered into an offer to purchase the land from 388 but imposed a condition precedent that it receive proof from 388 that the contamination had been remediated.

RCGL’s environmental consultant in relation to the sale was Shelby Engineering. Shelby helped draft the condition precedent and was heavily involved in the transaction. RCGL planned to call Shelby as an expert witness and potentially as a fact witness at trial as well.

Ultimately, RCGL took issue with the proof that 388 provided regarding the remediation efforts and refused to close the deal. 388 filed a Statement of Claim, and RCGL counterclaimed. Both alleged bad faith.

Subsequently, the parties agreed to produce Shelby’s file on the Project. 388 then brought an application under Rule 5.18 to question two Shelby employees.

Decision Below

At the initial application, Master Farrington granted 388’s request to question Shelby’s employees. He found that based on RCGL’s reliance on Shelby in relation to the environmental dispute, it was arguable that Shelby’s knowledge could be seen as that of RCGL.

During questioning, it was clear that RCGL’s representative had little knowledge of the environmental issues and showed great reliance on Shelby. The Master also held 388 deserved answers to its questions about Shelby’s involvement as it was likely relevant and material to the issues in dispute. He also held that ordering further questioning was reasonable at this stage of the Action.

Decision of the Court

On appeal, Justice Grosse reversed this decision. She found that during questioning, it was clear that RCGL’s representative had little to no recollection of his conversations with Shelby, even with the assistance of documentary evidence.

However, 388 did not request RCGL’s representatives to make any inquiries about these matters. Both RCGL and Shelby stated on the record that they would cooperate with such requests if the questions were otherwise permissible. Therefore, the Court held that the information 388 was seeking from Shelby was likely available from RCGL by way of undertaking.

Justice Grosse rejected 388’s argument that questioning Shelby’s representatives would be more efficient and would produce better evidence than relying on undertakings, because “the Rules contemplate direct questioning as the exception or the backstop only.”

Assuming there would be some relevant and material information that 388 was unable to obtain through undertakings, the Court held that whether subparagraphs (b) and (c) of Rule 5.18(1) are satisfied “would depend on the exact information sought, the details about why it cannot be obtained and other such contextual factors.” The Court made clear that failure to obtain information via undertaking was not automatically grounds for 388 to question Shelby’s representatives.

The Court stated: “Rule 5.18 is not a third party discovery rule. In Alberta, we do not have pre-trial discovery of mere witnesses. Parties are generally limited to questioning other parties prior to trial.” It stated that rules like “5.18 are in place in recognition of the fact that a corporation only acts and speaks through people, and often, relevant and material information of a corporation will be spread across multiple people.”

The Court noted that the predecessor rule under the old Rules of Court referred only to the questioning of officers and employees of corporate parties; and although that the Rules of Court Committee chose to expanded the Rule to cover service providers, it expressly rejected expanding it to witnesses.

Finally, the Court took notice of the fact that Rule 5.18(4), which states that evidence from a person questioned under this rule is to be treated as if it were evidence of an employee of the corporation, was unique to Alberta.

Justice Grosse stated that when determining whether Rules 5.18(1)(b) and (c) are satisfied in any particular case, the relevant considerations include the nature of the information sought and the nature of the relationship between the corporate litigant and the service provider in relation to that information. The fact that a party relies on a consultant for advice in a particular area – even heavily – does not necessarily mean that the test will be satisfied.

She, therefore, granted the appeal on this issue.

Conclusion

The key takeaways from this case are as follows:

  1. A party seeking to question a service provider under Rule 5.18 must first attempt to gather that information from the corporation’s officers or employees; and
  2. The Court will consider the nature of the information sought and the relationship between the corporate litigant and the service provider in relation to that information. The fact that a party relies heavily on a consultant in a particular area is not necessarily sufficient.