Introduction and overview
The Alberta Court of Appeal’s decision in CNOOC Petroleum North America ULC v 801 Seventh Inc, 2023 ABCA 97 [CNOOC Petroleum] summarizes the discovery regime under the Alberta Rules of Court, Alta Reg 124/2010 [Rules], and provides helpful guidance as to when third parties can be questioned in Alberta pursuant to Rule 5.18.
Background and procedural history
CNOOC Petroleum North America ULC (“CNOOC”) was the primary tenant of a commercial building in Calgary, Alberta. CNOOC terminated their lease early, arguing that the landlord, 801 Seventh Inc. (“801 Seventh”), was in breach of the lease, primarily due to the presence of asbestos in the building. CNOOC commenced an action against 801 Seventh for a determination that it was entitled to vacate the leased premises. 801 Seventh counterclaimed for unpaid rent and damages.
801 Seventh attempted to mitigate its losses by retaining Colliers (CMT Calgary Inc.) to try to sell the building or re-lease the space. They also retained Altus Group to negotiate with the City of Calgary on the property tax assessment and to potentially appeal the assessment to the Calgary Assessment Review Board.
The parties engaged in an extensive questioning period, which included questioning on the work performed by Altus Group and Colliers.
After the deadline for questioning had passed and the trial had begun, CNOOC applied to, among other things, compel further document production from Altus Group and Colliers and question representatives of Altus Group and Colliers pursuant to Rule 5.18, on the basis that the entities provided services to 801 Seventh (the “Amended Application”).
Rule 5.18 states, in part:
5.18(1) Subject to subrules (2) and (3), if
- a party cannot obtain relevant and material information from an officer or employee or a former officer or former employee of a corporation or partnership that is a party adverse in interest,
- it would be unfair to require the party seeking the information to proceed to trial without having the opportunity to ask questions about the information sought, and
- the questioning will not cause undue hardship, expense or delay to, or unfairness to, any other party or to the person to be questioned,
the party may question, under oath, a person who has provided services for the corporation or partnership and who can provide the best evidence on the issue.
(2) A person described in subrule (1) may be questioned only
- by written agreement of the parties, or
- with the Court’s permission.
…
(4) Evidence from a person questioned under this rule is to be treated as if it were evidence of an employee of the corporation or partnership.
…
CNOOC alleged that Colliers and Altus Group had material information relating to liability and damages which could not be acquired from the 801 Seventh witnesses. CNOOC also argued that examination of the Colliers and Altus Group representatives would be more efficient than making numerous requests of 801 Seventh’s corporate representative, who would then have to make the requests of Colliers and Altus Group. CNOOC took the position that it would be unfair to proceed to trial without the opportunity to question Colliers and Altus Group, and that such questioning would not cause undue hardship.
801 Seventh opposed the application on the basis that they had produced all relevant and material documents, that it was too late to reopen questioning, and that CNOOC could not show that the documents they were seeking actually existed.
The case management judge’s decision & analysis
The case management judge (“CMJ”) granted CNOOC’s application to examine Altus Group and Colliers representatives. The CMJ accepted that the services performed by Altus Group and Colliers were “hands-off” and, as a result, 801 Seventh’s representative knew nothing about their activities.[1]
The CMJ concluded that it would be unfair for CNOOC to go to trial without being fully informed of 801 Seventh’s mitigation efforts and that the questioning would not cause undue hardship, expense, delay, or unfairness.[2] The final order of the CMJ placed virtually no limits on the topics or duration of the questioning, or the costs that would be incurred by the parties. However, the CMJ declined to order further document production and clarified that Altus Group and Colliers were under no obligation to produce documents in advance of the questioning.[3]
The CMJ further found that, in this case, an application under Rule 5.13 for an order to produce records would be of no assistance because there were no specific documents which were known to exist in the hands of Altus Group and Colliers. Rather, this was a case where CNOOC had only a suspicion that there were additional relevant and material documents in the hands of Colliers and Altus Group which had not been produced.[4]
The Alberta Court of Appeal’s decision & analysis
801 Seventh appealed, arguing that the requirements of Rule 5.18 were not met. The Alberta Court of Appeal (“ABCA”) determined the CMJ erred in this regard and allowed the appeal, setting aside the CMJ’s order.[5]
The ABCA emphasized that while the discovery regime under the Rules is designed to ensure that parties are fairly informed of each other’s case, the procedures adopted in the pretrial discovery process must be proportionate to the issues. To that end, a court is permitted under Rule 5.3(1)(b) to limit the rights and powers of Part 5 discovery where the expense, delay, danger, or difficulty in complying with the Rule would be grossly disproportionate to the likely benefit.[6]
The ABCA considered the purpose and history of Rule 5.18, which codified a common law practice that developed as services that were historically provided by employees came to be provided by “consultants.” The former Rules referred to persons who “were employed by the other party,” not just “employees.” Therefore, where it was difficult to distinguish corporate consultants from employees, courts would allow questioning of consultants who were performing functions analogous to employees.[7]
The ABCA noted that the first requirement of Rule 5.18, which requires the applicant to demonstrate that it “cannot obtain relevant and material information” from the party’s corporate representative, is a “high bar” to meet.[8] It cannot be relied upon simply because it would be more “convenient” or “efficient to directly examine…consultants rather than having the information “funneled” through the [adverse party’s] corporate representative.”[9] Rather, there has to be some indication that a party could not obtain information by the normal discovery methods. In this case, the record showed that 801 Seventh, as well as Altus Group and Colliers, had been cooperative with answering the questions asked of them, and therefore, the threshold test had not been met.[10]
The ABCA also found that CNOOC failed to satisfy the unfairness requirement, set out in Rule 5.18(1)(b). In particular, the ABCA found that CNOOC would not have to proceed to trial without having an opportunity to ask questions about the information, because they had the full right to question 801 Seventh’s corporate representative and would be entitled to all relevant and material information, regardless of any perceived inefficiency in doing so.[11] Even if some information becomes known for the first time at trial, that does not equate to unfairness. The ABCA further noted that fairness is a two-way street, and that granting an “open opportunity to each party to question all potential witnesses would significantly increase the scope and expense of pre-trial discovery.[12] The ABCA found that the CMJ’s order granted a virtually unlimited right to question Altus Group and Colliers, inviting a disproportionate expenditure of resources to search for documents that may not exist, and were of questionable relevance and admissibility.[13]
Finally, the ABCA found that the order essentially used Rule 5.18 to override Rule 5.13, which requires an applicant seeking records from third parties to show in advance that they exist or are likely to exist.[14] Authorizing CNOOC to question Altus Group and Colliers to determine whether relevant and material records exist, would essentially be authorizing a “fishing expedition,” which is not permitted under the Rules.[15]
Practical takeaways
- Rule 5.18 sets a high bar and cannot be used for convenience sake. It is for cases where the records cannot be obtained through the corporate representative, not for cases where it would be more convenient to not have to go through the corporate representative.
- Rule 5.18 is intended to be a narrow exception to Rule 5.17. Parties must consider whether the individual that they wish to question meets the criteria for a “near employee,” including whether they were working under the direction and supervision of the corporation at the time of the events.
- Rule 5.18 cannot be used as a fishing expedition. A party must show some indication that there are documents which exist that cannot be obtained through the corporate representative.
- Courts are not inclined to intervene in the discovery process where the parties are largely being fair and cooperative with each other.
Miller Thomson’s Commercial Litigation Group is experienced in complex commercial litigation and is able to assist with cases involving corporate litigants. If you have questions about this decision or any other matter, please contact a member of our Commercial Litigation group.
[1] CNOOC Petroleum North America ULC v 801 Seventh Inc, 2023 ABCA 97 at paras 13, 15, 53 [CNOOC Petroleum CA], citing CNOOC Petroleum North America ULC v 801 Seventh Inc, (22 June 2022), Calgary 1901 06261 (Alta KB) [CNOOC Petroleum KB].
[2] CNOOC Petroleum CA at paras 13, 15, citing CNOOC Petroleum KB.
[3] CNOOC Petroleum CA at para 18.
[4] Ibid at para 13, citing CNOOC Petroleum KB.
[5] CNOOC Petroleum CA at para 58.
[6] Ibid at para 20.
[7] Ibid at para 31.
[8] Ibid at para 39.
[9] Ibid.
[10] Ibid at para 40.
[11] Ibid at para 54.
[12] Ibid at para 55.
[13] Ibid at para 57.
[14] Ibid at para 42, citing CNOOC Petroleum KB.
[15] CNOOC Petroleum CA at para 43, citing Esso Resources Canada Ltd v Stearns Catalytic Ltd (1989), 1989 CanLII 3423 (AB KB), 98 AR 374 at paras. 25-26, aff’d Esso Resources Canada Ltd v Stearns Catalytic Ltd (1990), 1990 ABCA 144 (CanLII), 108 AR 161.
