Executive Summary: Key Legal and Evidentiary Issues

• Defendants sought dismissal of a fraud claim under rule 4.31 of the Alberta Rules of Court on the basis of inordinate and inexcusable delay.
   
• Whether pre-claim conduct and post-claim procedural history amounted to delay causing significant prejudice was central to the analysis.
   
• Evidence obtained from questioning conducted in June 2025 was the subject of a separate application to admit a supplemental affidavit into the delay-application record.
   
• Justice weighed whether the Palmer test for fresh evidence on appeal applied to an interlocutory application still awaiting hearing.
   
• Questions of litigation and non-litigation prejudice, including lost witnesses, faded memories, and reputational harm, were assessed against the Plaintiff's conduct of the file.
   
• Responsibility for the pace of the litigation was contested, with both sides attributing delay to the other's procedural conduct.
   

Facts of the case

LJ Resources Co Ltd (formerly Goldenkey Oil Inc) alleged that former corporate officers and associated entities engaged in a scheme causing Goldenkey to transfer approximately $9.2 million to shell "Service Companies" so the individuals involved could secure a secret profit at Goldenkey's expense. Goldenkey was founded in 2007, and Shougen Song served as its CEO until his removal in January 2016. Qiping Men and Chunku Dou performed finance and engineering functions for Goldenkey and, following a 2012 Service Agreement, caused a series of service companies to be incorporated to supply drilling-related services. An internal review in 2014 found that the scope of these service companies' business exceeded what the Service Agreement contemplated and that they charged above-market prices. Goldenkey's board initiated further investigation, culminating in Mr. Song's dismissal in 2016 and the filing of the underlying Statement of Claim.

The litigation grew to include a related BC Action, an Indepth Action counterclaim, and a separate Baytech Action, later consolidated or case-managed together. Goldenkey became insolvent, filed a failed proposal under the Bankruptcy and Insolvency Act, and was assigned into bankruptcy in May 2023. Its trustee sold the Fraud Action through an auction process; LJ Resources, nominated by shareholder Luck King, acquired it for $75,000 and was substituted as plaintiff. In August 2024, the Indepth Defendants and Men Defendants applied to dismiss the Fraud Action for delay. Separately, in late 2025, the Indepth Defendants applied to admit a second supplemental affidavit of Mr. Song, sworn August 20, 2025, containing evidence obtained during June 2025 questioning of two former Goldenkey directors.

Policy and legislative provisions at issue

The dismissal applications turned on rule 4.31 of the Alberta Rules of Court, which permits dismissal of an action for inordinate and inexcusable delay causing significant prejudice, with prejudice presumed once inordinate and inexcusable delay is shown. The court also considered rule 4.34(1), governing stays and their effect on delay calculations, and rule 5.20, 5.30, and 5.5(3) regarding affidavits of records and undertakings. The Bankruptcy and Insolvency Act's automatic stay provisions (including section 69.1(1) and section 71) were examined to determine their effect on the Plaintiff's obligation to advance the claim during insolvency proceedings. The Limitations Act's discoverability and concealment provisions were noted as live issues reserved for trial. In the companion application concerning admission of Mr. Song's affidavit, the court considered rule 6.6(2) governing the exchange of application materials and Civil Practice Note 1, section 21(b)(iii), which addresses completeness of the evidentiary record before a special application is scheduled.

Reasoning and analysis

On the evidence-admission application, the court rejected the Plaintiff's argument that the fresh-evidence test from Palmer v The Queen governed, since Palmer applies to evidence sought to be introduced after a decision has been rendered, not before an application has been heard. Applying the Court of Appeal's guidance in Guillevin International Co v Barry, the court held that the applicable test is one of fairness: the rules governing exchange of affidavit material do not restrict the court's ability to hear all relevant evidence, and prejudice from late-filed evidence can typically be addressed through adjournment or costs rather than exclusion. Because Mr. Song's affidavit disclosed newly obtained evidence bearing directly on prejudice, including admissions by former directors about unsearched personal email accounts and discarded records, and was served well ahead of the hearing and briefing deadlines, the court found its admission consistent with deciding the dismissal applications on a complete record.

On the dismissal applications themselves, the court found the Fraud Action had been delayed, measuring the relevant period from the February 2016 filing to the deemed November 2024 hearing date set by an earlier order — approximately 8 years and 9 months. Applying the guiding principles from Humphreys v Trebilcock and Transamerica Life Canada v Oakwood Associates Advisory Group Ltd, the court examined discrete periods of inactivity, finding that the roughly 25-month delay in producing undertaking responses from the Plaintiff's corporate representative was inordinate, while accepting the Plaintiff's explanation for that delay as excusable given the volume of undertakings and reliance on third parties. Other periods, including delay attributable to insolvency proceedings, the COVID-19 pandemic, and defence unresponsiveness, were found not to be inordinate or were excused. The court determined that although some delay was inordinate, it was excusable overall, so the presumption of significant prejudice did not arise. Turning to actual prejudice, the court rejected claims of litigation and non-litigation prejudice tied to lost witnesses, missing records, fading memories, and reputational harm, finding the Defendants had not established that any such prejudice was caused by the Plaintiff's delay rather than by the litigation or allegations themselves. The court also found the Defendants had materially contributed to the slow pace of the litigation through prolonged unresponsiveness and delayed pursuit of steps they later characterized as essential.

Ruling and overall outcome

The court granted the Indepth Defendants' application to admit Shougen Song's August 20 Affidavit into the evidentiary record for the dismissal applications, directing that the Plaintiff be permitted to question Mr. Song remotely and awarding the Indepth Defendants costs of $2,025 against the Plaintiff for that application. On the substantive delay applications, the court dismissed the Defendants' applications to strike the Fraud Action under rule 4.31, finding that although delay had occurred and some of it was inordinate, it was excusable and did not cause significant prejudice, and that the interests of justice favoured allowing the claims to proceed to trial rather than rewarding parties who had themselves contributed to the delay. As the successful party on the dismissal applications, the Plaintiff was awarded its costs, with the amount to be determined through written submissions if the parties cannot agree.