In Wearmouth v. Tallon Energy Corp. (2006) CarswellAlta. 1617 the Court of Queen’s Bench of Alberta had the opportunity to consider Rule 14(2) of the Bankruptcy and Insolvency Act ("BIA"), which requires leave of the Court before an adverse party may cross-examine a deponent on an Affidavit.

The alleged debtor desired to cross-examine the petitioning creditor on his Affidavit of Truth, and some other Affidavits subsequently filed in the bankruptcy proceeding. The petitioning creditor refused to submit to cross-examination and so the debtor applied to the Court for an Order granting it leave to do so.

In coming to its decision the Court considered the interaction between the bankruptcy rule referred to above, and Rule 314(1) of the Alberta Rules of Court, which gives an automatic right to cross-examine on any Affidavit, without leave of the Court.

The Court concluded that Rule 14(2) of the BIA takes precedence over the Alberta Rule as the clear federal provision obviously overrides the provincial practice in this area.

The Court next considered whether leave ought to be granted. The Court enumerated the following principles which should be followed in considering such applications:

  • The Court should only grant leave after satisfying itself by the exercise of judicial discretion that the facts of the case are such that it is in the best interest of justice to allow the cross-examination. If no useful object would be served by the cross-examination, if the utility of the examination is not justified, then, under the terms of the rule, the Court should not grant leave;

  • The wording of the bankruptcy rule, which removes the opportunity for cross-examination without leave, speaks to a definite policy decision having been adopted: the Courts have no jurisdiction to decline to follow legislation merely because they prefer a different policy;

  • The policy underpinnings of the bankruptcy rule are wise in light of the contemporary experience: the cost of litigation has increased so dramatically that Courts must be vigilant to ensure litigants with deep pockets do not hold the system hostage. The ability to control cross-examination is an important tool in the Court’s ability to manage litigation;

  • A concern expressed in certain Ontario cases relating to the congestion of the Courts caused by application for leave to cross-examine is tempered by the predictable application of costs as litigation discipline: a party who unreasonably refuses cross-examination and causes a formal application for leave to be brought before the Court will suffer the appropriate costs consequences.

In this case, the Court granted leave to cross-examine, on the basis that (1) the facts sought to be cross-examined upon were contested by the debtor’s evidence, and went to the very heart of the litigation, (2) the interests of justice required that the debtor have the opportunity of testing the allegations against it, (3) the petitioning creditor had cross-examined on an Affidavit of the debtor, and (4) although the jurisprudence surrounding the Alberta Rules of Court do not govern, they are useful, and so the Court stated that while it might be justifiable to deny cross-examination in situations of urgency, this was not such a case.

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