Court File and Parties

COURT FILE NO.: CV-14-10684-00CL DATE: 20160805 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Cosimo Borrelli, in his capacity as trustee of the SFC Litigation Trust, Plaintiff AND: Allen Tak Yuen Chan, Defendant

BEFORE: Penny J.

COUNSEL: Derek Bell and Jason Berall for the Plaintiff Robert Reuter, Sara J. Erskine and Malik Martin for the Defendant

HEARD: July 15, 2016

Endorsement

Background

[1] On July 15, 2016 I heard a motion by the defendant for the issue of a commission to take the evidence for the defence of this action in Hong Kong. I granted that motion in part in a brief endorsement with written reasons to follow. These are those reasons.

[2] In June 2016, I was assigned as the trial judge in this action so that certain pretrial matters affecting the trial could be resolved. Chief among them was the issue, raised by the defendant, of taking evidence for the trial on commission in Hong Kong. The trial is scheduled to commence in December 2016.

[3] In the action, the plaintiff seeks damages of $3 billion for breach of contract, negligence, breaches of fiduciary and other duties, knowing participation in a breach of trust, conspiracy, fraud oppression and unjust enrichment. The claims arise out of the failure of Sino-Forest Corporation in 2011.

[4] By virtue of a litigation trust agreement, a plan of compromise and reorganization under the Companies’ Creditors Arrangement Act and a CCAA plan sanction order of the Ontario Superior Court of Justice (Commercial List), the SFC Litigation Trust was established and authorized to pursue claims for damages and other relief for the benefit of investors, creditors and other stakeholders of SFC.

[5] Mr. Chan is sued in his capacity as the chairman of the board and chief executive officer of SFC. It is alleged that he, and other members of SFC management, were responsible for the demise of SFC through a variety of activities which ranged from mismanagement to “outright fraud.”

[6] Mr. Borrelli, the Trustee of the Litigation Trust, resides in Hong Kong. Mr. Chan also resides in Hong Kong.

[7] The defence anticipates calling five witnesses in addition to the defendant. Each of these witnesses resides in either Hong Kong or the PRC: Chiang Wai Yan Yosanda; Zeng Haibin; Xu Ni; Alfred Hung; and Lei Guangyu. Although Mr. Chan has attorned to the jurisdiction of the Ontario Superior Court of Justice, his witnesses, who are not parties, have not. As such, the defence witnesses, other than Mr. Chan, are not compellable in the Ontario court proceedings.

[8] The defence evidence before me on this motion takes the form of two affidavits: one from David Barbaree, an associate with the law firm of Reuters LLP, lawyers for the defendant; and the other from Hanqiong Xu, a legal assistant with Reuters LLP, who is fluent in English and Mandarin. Mr. Barbaree deposes that three of the proposed witnesses, Chiang, Zeng and Lei, have previously sworn affirmations for Mr. Chan’s motion to set aside the Mareva injunction originally granted by The Honourable Mr. Justice Hainey on August 28, 2014. Ms. Chiang was cross-examined in Hong Kong on July 21, 2015 and Mr. Zhang was cross-examined in Hong Kong on July 31, 2015. Mr. Barbaree also deposes that Mr. Chan is advising and assisting with the recovery of assets, ultimately for the benefit of the SFC Litigation Trust, and that to pursue these recoveries it is important that Mr. Chan be present in Hong Kong or the PRC. It is said that Mr. Chan is the only one pursuing these recoveries “who knows the forestry business and is well acquainted with relevant government officials in the PRC who can assist in the recovery efforts.”

[9] Ms. Hanqiong attaches to her affidavit emails received from the other five defence witnesses. In one case, she has translated the email from Chinese into English. These emails all say, in effect, that the proposed witness lives and works in Hong Kong or the PRC and that work and/or family commitments prevent them from travelling to Canada to testify; but, that they will voluntarily testify in Hong Kong.

[10] Mr. Chan relies on Rule 36 (and Rule 34) in support of his request that this Court issue a commission to take the defence evidence, including his own, in Hong Kong. He says that he cannot compel his witnesses to testify here and that, while they are willing to testify, they will not travel to Canada to do so. While Mr. Chan himself has voluntarily submitted to the jurisdiction of the Ontario Superior Court of Justice (he has defended the proceeding, opposed the grant of a Mareva injunction and sought and obtained leave to appeal the Mareva injunction to the Divisional Court), he argues that his presence is needed in China to pursue recovery efforts for the benefit of all SFC stakeholders. He asks therefore that his evidence be taken in Hong Kong on commission as well.

[11] The defendant acknowledges that credibility and the assessment of the credibility of witnesses will be critical to adjudicating and resolving the plaintiff’s allegations. It is clear there will be factual conflicts between the evidence to be proferred by the plaintiff and the defence witnesses on key events and transactions. The evidence for the defence will likely occupy the majority of the trial (about six of the eight weeks currently scheduled). The defendant acknowledges that the cost of a commissioner and the cost for upwards of six lawyers travelling to and staying in Hong Kong for six weeks to take the defence evidence will also be very significant. For these reasons, the defence proposes that I appoint myself as the commissioner for purposes of taking the defence evidence in Hong Kong. This will overcome the potential problems of making credibility assessments on the basis of watching videotapes and/or reading transcripts, eliminate the cost of a separate commissioner travelling to Hong Kong and eliminate the cost of all of the lawyers having to sit through the evidence twice, once when it is taken on commission in Hong Kong and the second time when it is presented in an Ontario court room before the trial judge.

Analysis

[12] The plaintiff opposes the motion on essentially three grounds:

(1) lack of jurisdiction; (2) test under Rule 36 has not been met; and (3) the “open court” principle.

Jurisdiction

[13] The plaintiff argues that while the motion is styled as a motion to take evidence prior to trial in another jurisdiction, if the trial judge sits as commissioner, it will effectively move the trial, or a major portion of the trial, to a foreign jurisdiction. The plaintiff says the Ontario Superior Court of Justice has no jurisdiction to conduct proceedings extra-provincially. In making this argument, the plaintiff relies on several cases involving joint sittings of the superior courts of the provinces on nation-wide class proceedings. The B.C.C.A. has said, in Ewachniuk v. Law Society of British Columbia (1998), 156 D.L.R. (4th) 1 that in Canada, the jurisdiction of the superior courts of the provinces is determined internally by the Constitution and externally by the boundaries of the provinces. While courts do project their authority beyond their boundaries through the exercise of in personam jurisdiction, domestic courts do not sit outside their boundaries.

[14] Similarly, in Endean v. British Columbia, 2014 BCCA 61, the B.C.C.A. held that “British Columbia judges cannot conduct hearings that take place outside the province.” A divided Court of Appeal for Ontario arrived at a different result in Parsons v. Ontario, 2015 ONCA 158. Appeals to the Supreme Court of Canada in Endean and Parsons are currently under reserve.

[15] This argument can be dealt with quite succinctly. Ewachniuk, Endean and Parsons all involved a judge of the superior court of one province sitting as a superior court judge in the courtroom of another province. This is fundamentally different from taking commission evidence in another country.

[16] When a commissioner travels to another jurisdiction, he or she is not exercising, or purporting to exercise, jurisdiction in a foreign country. Indeed, the commissioner relies entirely on the powers of the foreign jurisdiction in order to obtain the evidence. The commissioner has no power to compel attendance or to force an attending witness to answer questions. The commissioner must rely, for these powers, either on the powers of the foreign jurisdiction (as in the case of letters of request issued on his or her behalf by an Ontario court to the foreign court) or on in personam jurisdiction of the Ontario court, if it exists.

[17] This distinction was explicitly recognized in the reasons of the B.C.C.A. in Endean at paras. 51 and 52. There, the court acknowledged a distinction between a judge hearing evidence as a judge in a foreign jurisdiction and a judge taking evidence in a foreign jurisdiction as a commissioner or “examiner.”

[18] Rule 36 does not preclude a judge appointing him or herself as a commissioner. Rule 34.07(1) says that the court may determine “the person before whom the examination is to be conducted” and “any other matter respecting of the holding of the examination”. Rule 34.07(5) refers to the obligations of the “commissioner” conducting the examination. Although commissioner is undefined in the rules, O. Reg. 386/12 under the Commissioners for Taking Affidavits Act, R.S.O. 1990, c. C.17, deems a judge to be a commissioner for taking affidavits in Ontario. Judges of the superior courts in Canada appear to have taken on the role of commissioner for purposes of taking evidence outside their jurisdiction in a variety of circumstances where required in the interests of justice. Indeed, the present Chief Justice of Canada, while a trial judge, herself travelled to Seattle to take evidence as a commissioner in a case where a witness refused to come to Canada to testify at trial, Norlympia Seafoods Ltd. v. Dale & Co., 1983 CarswellBC 762 (B.C.S.C.), referred to in Endean, supra at para. 52. See also O.E.X. Electromagnetic Inc. v. Coopers & Lybrand, [1991] B.C.J. No. 3465 (B.C. S.C.). This seems to me to be one of those circumstances where the interests of justice are served by the trial judge taking on the role of commissioner under Rule 36.

Test Under Rule 36

[19] Rule 36 constitutes an exception to the general rule that the evidence of witnesses should be given in the presence of the trier of fact so as to enable credibility and weight to be better assessed. Rule 36 provides that a person who intends to introduce the evidence of a person at trial may, with leave of the court, examine the person on oath or affirmation before the trial for the purpose of having the person’s testimony available to be tendered as evidence at the trial.

[20] Rule 36.01(3) provides that in exercising its discretion to order such an examination, the court shall take into account:

(a) the convenience of the person whom the party seeks to examine; (b) the possibility that the person will be unavailable to testify at the trial by reason of death, infirmity or sickness; (c) the possibility that the person will be beyond the jurisdiction of the court at the time of the trial; (d) the expense of bringing the person to the trial; (e) whether the witness ought to give evidence in person at the trial; and (f) any other relevant consideration.

[21] Rule 36.03 provides for the issuance of a commission and letter of request under Rule 34.07(2) and (3) where the examination sought is of a witness outside Ontario.

[22] The use at trial of the commission evidence of a party is subject to the further discretion of the court under rule 36.04(4) and (5). The court must, in exercising its discretion in that case, take into account:

(a) whether the party is unavailable to testify by reason of death, infirmity or sickness; (b) whether the party ought to give evidence in person at the trial; and (c) any other relevant consideration.

[23] The transcript and a videotape or other recording of commission evidence may be filed with the court at trial and need not be read or played at trial unless a party or the judge requires it, Rule 36.04(7).

[24] In addition to the requirements listed in Rule 36.01(2), the test for commission evidence applied by the courts under Rule 36 requires that the court is satisfied that the application is made bona fide, the issue is one which the court ought to try, the witnesses can give evidence material to the issue, and that there is some good reason why they cannot attend, see Miller v. MacKinnon, [2007] O.J. No. 5764 (Master). The main consideration, however, is “a fair and full trial,” Simpson v. Vanderheiden, [1985] O.J. No. 2426 (Ont. Ct. Gen. Div.).

[25] By reason of the Rules themselves and for reasons of substantive law, I find that different considerations apply depending upon whether one is considering a request to take evidence on commission of a non-party witness living in a foreign jurisdiction as opposed to a party. I will, therefore, deal with these two situations separately.

The Non-party Witnesses

[26] The plaintiff concedes that it would be more convenient for the defence witnesses (and Mr. Chan for that matter) to give their evidence in Hong Kong. However, the plaintiff argues that significant additional cost will result from taking the evidence in Hong Kong. Cost is clearly a relevant consideration which I will return to below.

[27] The plaintiff points out that none of the witnesses have claimed to be unable to testify by reason of death, infirmity or sickness. These categories do not, however, exhaust the scope of possible reasons why witnesses will be unavailable, particularly those who are citizens of and ordinarily live and work in a foreign country.

[28] The plaintiff argues that none of the witnesses have put forward evidence of what the cost would be of them travelling to Toronto. Nor have the witnesses relied on cost as a reason for their refusal to travel here. Common sense suggests that taking commission evidence in Hong Kong would be more expensive but perhaps not as additionally expensive as the plaintiff suggests. There would, obviously, be the significant cost of five or six lawyers and the commissioner travelling to and living in Hong Kong while the evidence is being taken. However, there is also a cost of bringing five witnesses to Toronto and housing them here as well. Their evidence will presumably occupy the same amount of time in either case.

[29] I accept that Hong Kong is a more expensive city than Toronto. However, if the trial judge is the commissioner, as requested by the defendant, at least the additional daily cost of retaining a private commissioner will be avoided. In addition, if the trial judge is the commissioner, there will be no need for all the lawyers and the trial judge to sit through the evidence a second time while being replayed in an Ontario court room. I also note that, while the evidence of these witnesses is unlikely to be brief, the estimate is that it will likely occupy about two weeks of an eight week trial.

[30] The plaintiff argues that this is a case where the witnesses will testify on controversial factual issues and that it is crucial for the court to see the witnesses testify in person to be able to assess credibility and the weight to be afforded their evidence. This would be lost if the court were obliged to rely upon transcripts, or even videotapes. Accordingly, the plaintiff says, it is important that the witnesses give evidence in person at the trial.

[31] This particular problem, of course, is obviated if the trial judge acts as commissioner because he or she is present when the evidence is recorded viva voce for the trial.

[32] The plaintiff complains that none of the non-party witnesses filed affidavits providing direct evidence, under oath or affirmation, of the reasons they are not prepared to travel to give evidence in Ontario. The plaintiff argues, therefore, that I should give little or no weight to their reasons and conclude, therefore, that they have no good reason not to attend the trial.

[33] This issue, it seems to me, because we are dealing with non-party witnesses who are citizens of and live and work in a foreign country, is the crux of the matter in this case. The defendant, Mr. Chan, is entitled to a fair trial. This means, among other things, that he is entitled to put forward evidence in his defence. The only evidence before me is that, besides himself, his proposed witnesses are citizens of and live and work in China and that, while they are willing to testify, they are not willing to travel to Canada to do so.

[34] These non-party witnesses are not compellable. No adverse inferences can or should be drawn from their flat-out refusal to travel to Ontario. They are under no obligation to do so. It is their right to remain at home with their families. In the absence of some evidence that what they are claiming is simply untrue (and that, for example, they are in fact willing to travel to Canada to testify), I have no alternative but to accept, at face value, their assertion that they will not come to Ontario to testify voluntarily.

[35] To deny Mr. Chan’s request that the evidence of the non-party witnesses be taken on commission would be to deny his right to call evidence in his defence. At the end of the day, as Pennell J. said in Simpson, supra, “the main consideration is a fair and full trial.” That principle, in my view, requires that the motion to take the evidence of the non-party witnesses on commission in Hong Kong be granted.

[36] The main obstacles to doing so - the importance of the trier of fact seeing the witnesses testify in person and additional cost (retaining a commissioner and requiring all the lawyers having to sit through the evidence twice) - will be avoided if I take on the role of commissioner. I am prepared to take on that role and so order. Letters of request shall issue if the defendant requires them.

Mr. Chan

[37] While many of the same considerations apply in the case of Mr. Chan, Mr. Chan is, in my view, in a fundamentally different position. Mr. Chan is a party. He has attorned to the jurisdiction of this Court. He has filed a defence. He has opposed a motion in this Court for a Mareva injunction against him and has sought and obtained leave to appeal the granting of that injunction to the Divisional Court. Mr. Chan, although he lives and works in Hong Kong, is an active participant in this action and, as a party, has a direct stake in the outcome.

[38] Further, like the non-party witnesses, Mr. Chan has filed no affidavit stating his reasons for not being able to attend to testify in Toronto. Unlike the non-party witnesses, however, in my view, because he is a party and has attorned to the jurisdiction to assert his defence, Mr. Chan is under a higher burden to demonstrate why he cannot attend. Mr. Chan’s reasons, unlike those of the non-party witnesses, are also not self-evident.

[39] Through counsel, Mr. Chan has represented that he is busy trying to recover assets and that no one else can do this. It is not explained why no one else in China can carry on this work while he is testifying in Toronto. It is also not explained what difference to that project it will make whether he testifies in Hong Kong or Toronto at all. I say this because, in either case, Mr. Chan will be otherwise engaged giving evidence every day, by the current estimate for about four weeks, whether he does so in Hong Kong or in Toronto. I am not satisfied that Mr. Chan has advanced any good reason why he cannot attend in Toronto to give his evidence.

[40] Cost, as I have said, is a relevant consideration. This is especially so because the cost of taking Mr. Chan’s evidence will very likely have to be paid out of the Litigation Trust’s limited resources. Because Mr. Chan’s evidence is expected to take up to four weeks, very considerable cost will be incurred in housing five or six lawyers and the commissioner in Hong Kong. This cost can be avoided if Mr. Chan, as a party defendant with a direct stake in the litigation, comes to Toronto to testify.

[41] For these reasons, Mr. Chan’s request for an order that his evidence be taken on commission in Hong Kong is dismissed.

The “Open Court” Principle

[42] The plaintiff also opposes the defendant’s motion on the basis that taking evidence on commission in Hong Kong will violate the open court principle.

[43] Section 135 of the Courts of Justice Act requires all hearings to be open to the public. The Court of Appeal stated in Parsons, supra, that s. 135 is an express statutory limitation on the court’s inherent jurisdiction to hold a hearing outside of Toronto.

[44] The plaintiff argues that if the trial judge takes evidence on commission in Hong Kong, a substantial portion of the trial would effectively be held outside of Ontario. The Court of Appeal in Parsons held that in order to comply with the open court principle, a video link to a court room in Ontario is required when a hearing is conducted from outside the province.

[45] Because Hong Kong time is 12 hours ahead of Ontario time, it is not feasible to conduct Hong Kong proceedings by video link to Ontario. The plaintiff argues that there is no practical way to conduct a significant portion of the trial in Hong Kong which does not do violence to the open court principle.

[46] In my view, this argument suffers from the same defect as that which undermined the plaintiff’s first argument relating to jurisdiction. Taking evidence on commission in Hong Kong is not conducting an Ontario legal proceeding in a foreign jurisdiction. The evidence taken on commission in Hong Kong will be videotaped and transcribed and filed as an exhibit at the trial. While it may indeed be the case that it will not be necessary to sit through the entirety of that videotaped evidence during the trial, these exhibits will be available to the public and can be read and/or viewed at the public’s request.

[47] For these reasons, I do not think that an order for the taking of commission evidence of the non-party witnesses in Hong Kong offends s. 135 of the Courts of Justice Act or the principle of open courts.

[48] Costs in the cause.

Penny J. Date: August 5, 2016