A. INTRODUCTION

[1] John Mask, who was an investor in the shares of Silvercorp Metals, Inc., is the Plaintiff in a proposed class action under the Class Proceedings Act, 1992, S.O. 1992, c.6. He seeks to advance: (1) a common law negligent misrepresentation claim; and (2) a statutory claim under Part XXIII.1 of the Ontario Securities Act, R.S.O. 1990, c. S. 5, for which leave to commence the action is required. The certification motion and the motion for leave are scheduled to be heard October next.

[2] The Defendants are Silvercorp, and Dr. Rui Feng, and Meng Tang, who are respectively the CEO and CFO of the corporation.

[3] After the Defendants delivered affidavits to respond to the motion for leave under the Securities Act and for certification of the action as a class proceeding under the Class Proceedings Act, 1992, Mr. Mask served Requests to Inspect Documents under rule 30.04(2) of the Rules of Civil Procedure. He demanded that hundreds of documents be produced for inspection before the cross-examinations. When the Defendants declined to do so but said that they would answer reasonable requests for production at the cross-examinations, Mr. Mask moved for an order that the documents be produced for inspection.

[4] Justice Belobaba, who is case managing the proposed class action, dismissed the production motion and made rulings about the relevance, proportionality, or privilege of some of the requests for production. See Mask v. Silvercorp Metals Inc., 2014 ONSC 4161.

[5] Mr. Mask now seeks leave to appeal Justice Belobaba’s Order.

[6] For the reasons that follow, Mr. Mask’s motion is dismissed.

B. ANALYSIS AND DISCUSSION

1. The Test for Leave

[7] The test for leave to appeal from an interlocutory order of a motions judge to the Divisional Court is set out in rule 62.02(4) of the Rules of Civil Procedure, which reads:

62.02(4) Leave to appeal shall not be granted unless,

(a) there is a conflicting decision by another judge or court in Ontario or elsewhere on the matter involved in the proposed appeal and it is, in the opinion of the judge hearing the motion, desirable that leave to appeal be granted; or

(b) there appears to the judge hearing the motion good reason to doubt the correctness of the order in question and the proposed appeal involves matters of such importance that, in his or her opinion, leave to appeal should be granted.

[8] In order for leave to be granted under rule 62.02(4)(a), the moving party must show both: (a) a conflicting decision; and also (b) the desirability of leave to appeal being granted. A conflicting decision is one in which different legal principles are chosen to decide a comparable legal problem or to guide the exercise of the court's discretion: Benincasa v. Agostino, [2008] O.J. No. 4172 (S.C.J.) at para. 12; Comtrade Petroleum Inc. v. 490300 Ontario Ltd. (1992), 1992 7405 (ON SC), 7 O.R. (3d) 542 (Div. Ct.).

[9] If leave to appeal is to be granted on the grounds of conflicting decisions, the court must be satisfied not only that there is a conflicting decision, but also that it is desirable that leave to appeal be granted having regard to such factors as what is at stake in the order being challenged, the likelihood of the appeal being successful, the sufficiency of the record for the purposes of deciding the issues on the appeal, and the problems of expense and delay: Minnema v. Archer Daniels Midland Co., [2000] O.J. No. 1685 (S.C.J.) at paras. 34-42.

[10] In order for leave to be granted under rule 62.02(4)(b), the moving party must show both: (a) good reason to doubt the correctness of the order; and also (b) a matter of general importance.

[11] In order to show that that there is good reason to doubt the correctness of the order, the moving party need not show that the order is wrong or probably wrong, but rather, that the soundness of the order is open to very serious debate: Ash v. Lloyd's Corp. (1992), 1992 7652 (ON SC), 8 O.R. (3d) 282 (Gen. Div.) at pp. 284-5; Oberlander v. Canada (Attorney General), [2004] O.J. No. 1574 (S.C.J.) at paras. 8-9; Brownhall v. Canada (Ministry of Defence) (2006), 2006 7505 (ON SC), 80 O.R. (3d) 91 (S.C.J.) at para. 30; Walker v. Woodstock District Chamber of Commerce, [2000] O.J. No. 1994 (S.C.J.); Judson v. Mitchele, 2011 ONSC 6004.

[12] In order to show that a matter is of general importance, the moving party must show that the matter is of importance to the public or to the development of the law or to the administration of justice and that the importance of the order transcends the importance of the matter to the particular parties: Greslik v. Ontario Legal Aid Plan (1988), 1988 4842 (ON SCDC), 65 O.R. (2d) 110 (Div. Ct.) at p. 112; Rankin v. McLeod, Young, Weir Ltd. et al. (1986), 1986 2749 (ON SC), 57 O.R. (2d) 569 (H.C.J.) at p. 575; Brownhall v. Canada (Ministry of Defence) (2006), 2006 7505 (ON SC), 80 O.R. (3d) 91 (S.C.J.) at para. 29.

2. The Proposed Issues for which Leave to Appeal is Sought

[13] In the case at bar, Mr. Mask raises several purported grounds of appeal, and he argues that there are conflicting decisions and that there is good reason to doubt the correctness of Justice Belobaba’s order.

[14] As I shall explain below, these arguments about the grounds of appeal are incorrect, and, therefore, leave to appeal should not be granted.

[15] Moreover, as I shall explain below, even if the arguments were correct, it is not desirable that leave to appeal be granted and despite Mr. Mask’s arguments that the matter is important to the development of the law, this is also not true. The order does not transcend the importance of the matter to the parties to a matter of general importance to the development of the law.

[16] The truth of the matter is that Mr. Mask has been hoisted on his own procedural petard. He had the choice of proceeding to cross-examinations in accordance with the agreed schedule, but he chose instead to serve Requests to Inspect Documents with 28 separate requests, demanding thousands of pages of otherwise confidential corporate documents, and he did not file any evidence to explain the relevance of, or the necessity of, reviewing all those documents before the cross-examinations.

[17] Mr. Mask was making a tactical maneuver to obtain an examination for discovery and advance rulings on the production of documents in a case for which leave to proceed had not been granted. It was a trip to the tackle and bait store before a fishing expedition and Justice Belobaba, for a variety of reasons, put a stop to it.

[18] Mr. Mask submits that Justice Belobaba erred in his interpretation and application of rule 30.04, which states:

INSPECTION OF DOCUMENTS

Request to Inspect

30.04 (1) A party who serves on another party a request to inspect documents (Form 30C) is entitled to inspect any document that is not privileged and that is referred to in the other party’s affidavit of documents as being in that party’s possession, control or power.

Court may Order Production

(5) The court may at any time order production for inspection of documents that are not privileged and that are in the possession, control or power of a party.

Court may Inspect to Determine Claim of Privilege

(6) Where privilege is claimed for a document, the court may inspect the document to determine the validity of the claim.

Divided Disclosure or Production

(8) Where a document may become relevant only after the determination of an issue in the action and disclosure or production for inspection of the document before the issue is determined would seriously prejudice a party, the court on the party’s motion may grant leave to withhold disclosure or production until after the issue has been determined.

[19] Mr. Mask submits that Justice Belobaba erred and it is a matter of importance to the public that he misinterpreted rule 30.04(8): (1) by applying it in the absence of the Defendants first moving for leave to withhold production of the documents referred to in their affidavits; (2) by reversing the onus on the Defendants to establish that the test under that rule had been met; and (3) by finding that the Defendants would be prejudiced if production of documents was ordered when the Defendants tendered no evidence of prejudice at all.

[20] Mr. Mask’s submission ignores that it was his motion pursuant to rule 30.04 that brought the matter to the court and that his overreaching motion was made in the context of a claim for which leave was required under s. 138.8 of the Ontario Securities Act, which states:

Leave to proceed

138.8(1) No action may be commenced under section 138.3 without leave of the court granted upon motion with notice to each defendant. The court shall grant leave only where it is satisfied that,

(a) the action is being brought in good faith; and

(b) there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff.

Same

(2) Upon an application under this section, the plaintiff and each defendant shall serve and file one or more affidavits setting forth the material facts upon which each intends to rely.

Same

(3) The maker of such an affidavit may be examined on it in accordance with the rules of court.

[21] Mr. Mask’s submission also mischaracterizes what Justice Belobaba did, which with some exceptions - where he ruled on the production of certain documents - was to dismiss the motion for production.

[22] Justice Belobaba did not order divided discovery under rule 30.04(8), but rather he used the analogy of that rule to delay production until the cross-examinations, and, in any event, Mr. Mask’s submission does not elevate the production orders beyond a discretionary decision for the parties. The order for which leave to appeal is sought does not transcend to something important to the public.

[23] The use of rule 30.04(8) came as a very fair suggestion from the Defendants, who were successful in resisting a preemptive, overbroad, almost indeterminate request for the production of documents. This all becomes clear from paragraphs 46 and 47 of Justice Belobaba’s judgment, where he states:

The request to inspect documents under Rule 30.04(2) is an important remedy when used fairly and appropriately. But it was never designed nor has it been judicially interpreted to allow counsel for Mr. Mask to request (with a straight face) all of the local exploration, production and financial records from every one of Silvercorp's offices in China over the 18 months of the class period just because Ms. Tang, the company CFO, mentioned in her affidavit that "E&Y attended at Silvercorp's offices in China where we retain local exploration, production and financial records." Rule 30.04(2) was never designed nor has it been judicially interpreted to allow counsel for Mr. Mask to request all of Silvercorp's quarterly and annual financial records without any further specification and without regard to any notions of relevance or proportionality just because they were generally mentioned in an affidavit narrative.
And if it was so designed, then class action judges have wisely restricted the Rule's scope and content to a manageable dimension that accords not only with the first principles of documentary production but also with the statutory language and underlying policy of the OSA leave provisions. Rule 30.04(2) cannot be used as a fishing rod whether in regular litigation or especially before cross-examinations have been conducted in an OSA leave motion.

[24] Justice Belobaba’s decision was an exercise of discretion of interest to the immediate parties, and his decision is entitled to significant deference. It may be the case, and I do not decide the point, that some issue estoppels have been established about the production of some documents for the purpose of the leave and certification motions, and perhaps, but less likely about the production of the documents should the action proceed to examinations for discovery, but if that is true, Mr. Mask has only himself to blame for jumping the procedural queue.

[25] Mr. Mask submits that there are conflicting decisions about the application of rule 30.04, but this submission is not correct. The signal feature of Mr. Mask’s motion under rule 30.04 was that it was made in the context of a claim governed by s. 138.8 of the Ontario Securities Act.

[26] What Justice Belobaba decided was a matter of first instance, and thus almost by definition, there cannot be a conflicting decision to a matter of first instance. What Justice Belobaba decided was how rule 34.04 operates when the plaintiff is advancing a claim under Part XXIII.1 of the Securities Act. While there are some decisions that have considered the policy issues associated with the procedure for advancing a claim under Part XXIII.1 of the Securities Act, these decisions do not conflict with Justice Belobaba’s exploration of what is largely unmapped legal territory. The related decisions, discussed in Justice Belobaba’s judgment, compliment but do not conflict with his decision.

[27] In determining what Justice Belobaba decided, it is necessary to recall what Mr. Mask asked him to decide. It was Mr. Mask’s argument that compliance with a request to inspect under rule 30.04(2) was “mandatory and immediate.” Justice Belobaba decided that this was not generally true but, more importantly, it was not true in the circumstances in which a claim under Part XXIII.1 of the Ontario Securities Act was being initiated. At paragraphs 15 and 16 of his judgment, Justice Belobaba stated:

The defendants take issue with the plaintiff on every level. But their core submission is more encompassing. The defendants say that Mr. Mask is scrambling to find evidence in the responding affidavits that he does not yet have for his OSA leave motion. Rather than proceeding with cross-examinations in accordance with the agreed-upon schedule, leading to the September leave and certification motions, the plaintiff is misusing rule 30.04(2) to try to obtain production of literally hundreds of confidential corporate documents before cross-examinations, and before his OSA leave motion is decided. This is a fishing expedition that is not only proscribed by the Rule 30.04(2) case law but is also precluded by the statutory language and policy behind the OSA leave motion provisions.
For the reasons that follow, I agree with the defendants. The plaintiff's rule 30.04(2) motion must be dismissed. I say this for two reasons: one, on the basis of the case law as it applies to rule 30.04(2) requests and two, on the basis of a broader policy concern about leave motions under s.138.8 of the OSA.

[28] Justice Belobaba did not decide that rule 30.04 was never available in the context of a claim being made under Part XXIII.1 of the Ontario Securities Act. He decided that a request to inspect under rule 30.04(2) was not mandatory and immediate and that the rule could not be used for a fishing expedition that is not only proscribed by the rule 30.04(2) case law but is also precluded by the statutory language and policy behind the Ontario Securities Act.

[29] To the extent that Justice Belobaba’s decision was based on the normative case law about the production of documents it was not a matter of general importance and to the extent that his decision was based on the intersection of rule 30.04 and s. 138.8 of the Ontario Securities Act, there is no good reason to doubt the correctness of Justice Belobaba’s order, which was properly employed to stop Mr. Mask from obtaining a preemptive production of documents and a preemptive and premature examination for discovery for a claim that requires leave to even be commenced.

C. CONCLUSION

[30] For the above reasons, I dismiss the motion for leave.

[31] If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with the Defendants’ submissions within 20 days of the release of these Reasons for Decision, followed by Mr. Mask’s submissions within a further 20 days.

Perell, J.

Released: August 11, 2014

CITATION: Mask v. Silvercorp Metals, Inc., 2014 ONSC 4647

Divisional Court File No.: 325-14

Court File No.: 13-CV-00480848-00CP

DATE: 20140811

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

BETWEEN:

JOHN MASK

Plaintiff

– and –

SILVERCORP METALS, INC., RUI FENG, and MENG TANG

Defendants

REASONS FOR DECISION

PERELL J.

Released: August 11, 2014

Mask v. Silvercorp Metals, Inc., 2014 ONSC 4647

Case Summary

A. INTRODUCTION

B. ANALYSIS AND DISCUSSION

1. The Test for Leave

2. The Proposed Issues for which Leave to Appeal is Sought

C. CONCLUSION

Judge

Counsel

Parties

Areas of Law

Fact Patterns

Issues

Legal Tests 1

Legislation 2