DIVISIONAL COURT FILE NO.: 517/14
SUPERIOR COURT OF JUSTICE – ONTARIO
DIVISIONAL COURT
RE: JOHN MASK, Plaintiff
AND:
SILVERCORP METALS, INC., RUI FENG, AND MENG TANG, Defendants
BEFORE: C. Horkins J.
COUNSEL: Dana M. Peebles, for the applicants/defendants
Matthew M. Stroh, for the respondent/plaintiff
HEARD at Toronto: December 4, 2104
ENDORSEMENT
BACKGROUND
1The plaintiff brought a motion on October 1, 2014 to compel answers to questions refused on cross-examination. On October 6, 2104, Justice Belobaba ordered that seven questions refused be answered, with reasons to follow ("the first order").
2Before the reasons were delivered, the defendants brought a motion to vary the first order in part based on evidence that they stated arose after the first order was made. On October 16, 2014, Justice Belobaba dismissed the defendant's second motion with reasons endorsed on the motion record ("the second order").
3Reasons for the first order were released on October 22, 2014.
4The defendants bring this motion for leave to appeal the two interlocutory orders of Justice Belobaba.
5Rule 62.02(4) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 sets out the test for granting leave to appeal:
(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.
6The defendants rely on rule 62.02(4) (a) and (b).
7This is a putative secondary market securities class action. Pursuant to the Securities Act, R.S.0. 1990. c. S.5, the plaintiff is required to bring a motion for leave to proceed with statutory claims under Part XXIII.1 of the Securities Act (the OSA leave motion).
8The following background facts are set out in the October 22, 2014 reasons:
2 Silvercorp Metals, Inc. ("SVM") is a Canadian publicly-traded company that owns mining properties in China. Dr. Feng was the CEO and is now the Chairman and Ms. Tang is the CFO. Mr. Mask was a shareholder.
3 During the proposed class period, March 1, 2010 to September 12, 2011, SVM released periodic public reports about its mining operations, including a Technical Report in each of 2010 and 2011 which set out the company's estimates of the mineral resources in its properties. Because mineral estimates must be approved for publication by a "qualified person" SVM hired BK Exploration Associates ("BKEA'') to review and certify certain aspects of the 2010 and 2011 Technical Reports.
4 In the late summer of 2011, SVM shares were targeted by short-sellers -- one or more persons that were betting that the SVM share price was about to suddenly decline. Anonymous postings appeared on the internet questioning the company's financial accounting, its mineral estimates and its mineral production. The SVM share price dropped dramatically. The company denied the accusations and stood by its past disclosures. After investigating the matter, the B.C. Securities Commission laid fraud charges against an individual named Jon Carnes, believing that he was behind the anonymous internet postings and highly profitable short-selling.
5 After the internet attacks, SVM took steps to protect itself. It hired a large mining engineering firm, AMC Mining Consultants (Canada) Ltd. ("AMC"), to prepare SVM's next Technical Report, with updated mineral resource and reserve estimates for the China mines. In June 2012, SVM released the Technical Report prepared by AMC.
9The June 2012 Technical report ("2012 Technical Report") included AMC's summary of Silvercorp's mine production results. The 2012 Technical Report stated that Silvercorp had "overstated" its production numbers.
10In May 2013, the plaintiff issued his claim alleging that Silvercorp and its executives were responsible for several misrepresentations, including misrepresentations about the mine production. For that allegation, the plaintiff relied on the 2012 Technical Report, in which he pleaded AMC had "concluded" that Silvercorp had "overstated" its production numbers:
... at the Ying Mining Project for the years 2009 to 2011 (comparing Silvercorp's quarterly reports to that of the AMC (2012) Technical Report).
11In February 2014, the plaintiff served his motion record for the OSA leave motion. The Securities Act requires the plaintiff to demonstrate both his good faith and an adequate evidentiary foundation for each allegation. The plaintiff did not file any affidavit evidence to support his allegations of error against Silvercorp in its mine production. Instead, the plaintiff filed the 2012 Technical Report.
12In response to the OSA leave motion, Silvercorp retained Patrick Stephenson, the principal geologist at AMC who was responsible for the 2012 Technical Report. Mr. Stephenson swore an affidavit that the defendants filed on the OSA leave motion.
13As Justice Belobaba stated in his reasons at para. 10"[t]he stated purpose of Mr. Stephenson's affidavit was to "correct the erroneous statements" that were made in the statement of claim about the contents of the 2012 Technical Report that had been prepared by Stephenson and five of his colleagues at AMC."
14The plaintiff cross-examined Mr. Stephenson on his affidavit on September 16, 2014. There were seven questions refused that led to the motion before Justice Belobaba. The questions were grouped into two categories: (i) five questions refused because they relate to issues that were not raised in Mr. Stephenson's affidavit and (ii) two questions refused on the ground of litigation privilege.
ANALYSIS
Category One Questions- First Order
15As explained above, Justice Belobaba ordered on October 6, 2012, that all seven questions be answered. On October 7, 2014, the parties continued the cross-examination of Mr. Stephenson on his affidavit. Mr. Stephenson answered the five questions in category one. The two questions in category two required him to produce drafts of his affidavit. He did not produce the drafts.
16The plaintiff argues that since Mr. Stephenson answered the category one questions, there is no basis for seeking leave since Silvercorp's objection to answering the questions is now moot.
17During the motion I expressed some reservation as to whether this is a fair characterization of what happened on October 7, 2014. I have since reviewed the transcript from the continued examination held on October 7, 2014. In my view, this transcript reveals that the category one questions were answered and is it accurate to say that the dispute is moot. The following excerpts from the transcript support this conclusion.
18At the start of the continued cross-examination, plaintiff's counsel, Mr. Groia, explained to Mr. Stephenson how he was going to proceed:
And, Mr. Stephenson, what I'm going to do is to take you through some of the questions that were objected to the last time we were here ... I'm going to defer a couple of questions pursuant to an understanding I have with Ms. Lam ....
19Mr. Stephenson was then asked and answered the category one questions. When the cross-examination ended, Mr. Groia made the following statement concerning questions 82 and 84, the category two questions:
So what I understand to be the case, Mr. Stephenson, is that there are a couple of questions that remain to be answered, question 82 and question 84. Both of those relate to what I'll call the production of the file in connection with the work you did on the preparation of this affidavit. Ms. Lam has advised me that she is in the process of trying to determine whether her client wants to try and seek leave to appeal, and maybe I'm wrong about this, but my understanding is just those two questions would be the subject of the appeal.
So what we have agreed to do is to defer any questions about the file and the work that was done in connection with the preparation of your affidavit and questions that would arise from what would be in the file if it was made available. We have agreed to defer that until [Ms. Lam's] in receipt of those instructions, and I guess I can tell you that if we get the file, we may or may not have additional questions and we may or may not be able to do those in writing or on the telephone.
I would be hopeful that we wouldn't have to have you come back and me come back for a third time, but I won't know the answer to that until Ms. Lam has instructions from her client, and if the decision is not to give us the file, then I assume the motion will be brought to try and appeal that part of the judge's order, because at the moment, Justice Belobaba has ordered that those questions be answered, but I'm prepared to wait to see whether or not an appeal is brought before I pursue that line of questioning any further.
So is that a fair summary, Ms. Lam, or do you want to add anything to the record?
[Emphasis added]
20Ms. Lam, counsel for the defendants, did not add anything to the record dealing with the questions in category one. Her remarks on the record that followed were directed at the scope and type of documents to be produced under category two.
21There is no evidence that Mr. Stephenson answered the category one questions conditional on the outcome of a leave to appeal motion. I expect that if that was the case, Ms. Lam would have said so on the record and she did not. As the transcript reveals, she was given an opportunity to correct Mr. Groia. Clearly, the defendants had decided to answer the category one questions without any conditions attached.
22Counsel for the defendants argues that the leave motion for the category one questions is still important and if the defendants succeed, the answers given could be removed from the record.
23Leave to appeal should be refused when an issue on appeal is moot. Except in extraordinary circumstances, no purpose is served by entertaining appeals when the substratum of the dispute has disappeared. There are no circumstances that would justify allowing this leave motion to proceed on the moot questions. As explained by the Supreme Court of Canada in Borowski v. Canada (Attorney General), 1989 123 (SCC), [1989] 1 S.C.R. 342 at para. 15:
The doctrine of mootness is an aspect of a general policy or practice that a court may decline to decide a case which raises merely a hypothetical or abstract question. The general principle applies when the decision of the court will not have the effect of resolving some controversy which affects or may affect the rights of the parties. If the decision of the court will have no practical effect on such rights, the court will decline to decide the case.
24Where an issue of mootness is raised, Borowski directs the court to perform a two-step analysis: (1) determine whether a tangible and concrete dispute has disappeared and the issues have become academic; and (2) if there is no longer a live controversy affecting the rights of the parties, the court must decide whether to exercise its discretion to hear the case in any event.
25On the first branch of the test, it is not enough to show (as here) that a party has a continuing interest in the outcome of the litigation. An issue is moot if the question the court is asked to resolve on appeal has been overtaken by events occurring after the initial decision was made. Here the fact that the questions have been answered, without reservation, is the event that has "overtaken" the defendants' initial refusal to answer the questions.
26On the second branch of the test, the relevant criterion to consider when exercising discretion to hear a moot issue include, inter alia: (1) the existence of an adversarial relationship between the parties; (2) the need to preserve scarce judicial resources; and (3) a consideration of the proper role of the court.
27The questions were answered on October 7, 2014. The underlying controversy about the questions refused has evaporated. Although there continues to be an adversarial relationship between the parties in the action itself, the adversarial relationship as it relates to the category one questions, no longer exists. The concern for judicial economy is real. The motion judge plays an important gatekeeping role with respect to motions for leave to appeal interlocutory orders of the court. In the circumstances of this case, the court should not allow leave to appeal.
28In summary the category one questions are now moot because they have been answered and there is no reason why I should exercise my discretion to allow the leave motion to proceed for these moot questions.
29In any event, I wish to add that the defendants have not satisfied either branch of rule 62.02 (4).
30As the defendants state in their factum, the proposed claim is unique because it is founded on anonymous internet rumours alleged by the British Columbia Securities Commission to have been released in part by a fraudulent short seller. The nature of the pending OSA leave motion is also unique. Counsel confirm that there is only one other OSA leave motion decision where the defendant has filed affidavit evidence and the scope of cross-examination on that defence evidence has been determined by the court (see Silver v. Imax Corp., [2008] O.J. No. 1844). Counsel agree that the scope of cross-examination that Justice Belobaba allowed is consistent with Justice Van Rensburg's decision in Imax. Leave to appeal Imax was denied. In these circumstances, the defendants in the case before me have not satisfied the requirements in rule 62.02(4)(a) or (b).
31Leave to appeal the category one questions is refused.
Category Two Questions and the Second Order
32The category two questions were directed at the preparation of Mr. Stephenson's affidavit. He was asked if anyone other than Mr. Stephenson and Mr. Smith suggested items for inclusion in the affidavit. He was also asked to produce drafts of his affidavit that remain in his file.
33As noted above, the defendants brought a motion to vary the first order (dealing with category two questions) on the basis of new evidence. Justice Belobaba refused the motion to vary because he was not convinced that there was any "new evidence" that was not available when the first motion was argued. This is a fact specific ruling unique to what transpired in this case. As a result, it is not desirable that leave to appeal be granted and the proposed appeal on this second order does not involve matters of such importance that leave to appeal should be granted. Neither s. 62.02(4)(a) or (b) are satisfied. Leave to appeal is refused.
34Turning to the category two questions, the issue before the motion judge was whether Mr. Stephenson was a simple fact witness or not. The motion judge found that Mr. Stephenson's affidavit combined factual and expert opinion and that on this ground alone the plaintiff was entitled to ask the questions. The motion judge went on to consider and reject the position that litigation privilege attached.
35It is clear from the reasons that the motion judge relied on the unique facts of the case before him to arrive at his decision. In these circumstances, it is not desirable that leave to appeal be granted and further the proposed appeal on these two questions does not involve matters of such importance that leave to appeal should be granted. Neither s. 62.02(4)(a) or (b) are satisfied. Leave to appeal is refused.
36In summary, this motion is dismissed. Costs have been agreed upon and no ruling is required.
C. Horkins J.
Date: December 19, 2014