Jethwani v Damji, 2017 ONSC 1702
Court File No.: 02-CL-4519 Date: 20170315 Ontario Superior Court of Justice (Commercial List)
In the Matter of an Interim Receivership Order of the Honourable Mr. Justice Ground dated May 7, 2002 as amended
Before: F.L. Myers J.
Counsel: Clifton P. Prophet, counsel for A. Farber & Partners Inc., Interim Receiver Maurice J. Neirinck, counsel for Nyaz Jethwani Paul Martin, of Fasken Martineau LLP in person
Heard: March 13, 2017
Endorsement
[1] Counsel for the Interim Receiver requested a Case Conference by telephone to clarify matters concerning upcoming cross-examinations of the Interim Receiver and its counsel on their fee affidavits.
[2] This receivership commenced almost 15 years ago. The goal was to try to recover funds on behalf of investors who were defrauded by the insolvent debtor. It has been clear throughout that recovering funds was an uncertain endeavour that would require significant litigation efforts in California and Switzerland at least. Moreover, it was also recognized openly, early on, that there was a significant likelihood that there would be little or no recovery beyond the fees and disbursements incurred by the Interim Receiver in support of the various pieces of litigation.
[3] The Interim Receiver ultimately reported that it recovered insufficient funds to pay in full its own fees and those if its counsel. They say they will have to share a fee shortfall of more than $600,000 among the professionals. There are no funds remaining for the investors for whose benefit the entire process was initially conducted.
[4] As the quantum of fees and disbursements overtook the likely recovery, the relationship between the Interim Receiver and the initial investors soured. They are now adverse in interest as the investors, represented by the Plaintiff Mr. Jethwani, are challenging the approval of the Interim Receiver’s fees and disbursements and those of its counsel. If the Plaintiff succeeds in cutting the Interim Receiver’s fees and disbursements, he hopes to obtain some recovery for the investors. He therefore argues that the Interim Receiver and its counsel are not entitled to the full fees that they claim. He also argues that Fasken, Martineau LLP was negligent and should not be entitled to any fees.
[5] A full day has been scheduled for the hearing in June.
[6] On February 24, 2017, the Court heard a 9:30 appointment to deal with scheduling matters in relation to the hearing. The Interim Receiver prepared a very substantial report detailing minutely its activities for the past 15 years to support the reasonableness of the fees and disbursements that it claims. But it did not deliver affidavits supporting its fees or those of its counsel. It also did not produce unredacted copies of its invoices. Mr. Jethwani’s counsel asked a very substantial number of questions in writing and was dissatisfied with the written responses provided on behalf of the Interim Receiver. He asserted a right to cross-examine the Interim Receiver and its counsel. The Interim Receiver and its counsel resisted.
[7] During the 9:30 appointment, both sides characterized the positions of the other as “outrageous.”
[8] Receivers, trustees in bankruptcy, interim receivers, and the like are Officers of the Court. They are not litigants in the ordinary sense. They hold representative capacities either under a statute or pursuant to a court order. They function as fiduciaries to multiple parties with disparate interests. They are typically appointed to be a neutral custodian of business assets that need independent stewardship under the auspices of the Court while the protagonists engage in a dispute. The Officers of the Court are the Court’s eyes, ears, and advisors on matters of business judgment. They maintain a neutral position towards the disputants and seek only to protect the value of assets from being impaired by any activities of the parties to the underlying dispute.
[9] Officers of the Court stand outside the fray. They report to the Court and receive their marching orders from the Court. They have no stake in the parties’ litigation. It has therefore been recognized in Ontario, although not throughout the country I note, that receivers and other Officers of the Court do not participate in the proceedings before the Court under the same conditions as the parties who have economic interests in the outcome. Officers of the Court are not required to deliver sworn evidence. They report to the Court concerning their activities and with their recommendations. They are not subject to cross-examination in the ordinary course. Receivers and Officers of the Court respond to questions posed by parties, not to test their evidence as a matter of civil procedure, but to provide transparency as is necessary to maintain the integrity and neutrality of their position as fiduciaries to all.
[10] None of this applies however, when an Officer of the Court finds itself as a party with an economic interest in a matter before the Court. In Confectionately Yours Inc. (Re), 2002 ONCA 45059, the Court of Appeal wrote at para. 30 and 31,
… However, it is one thing for the court to approve the manner in which a receiver administered the assets it was appointed by the court to manage, but it is a different exercise for the court to assess whether the remuneration the receiver seeks is fair and reasonable (applying the generally accepted standard of review).
[31] Moreover, the rule that precludes cross-examination of a receiver was made in the context of a receiver seeking approval of its report, not in the context of the passing of its accounts. When a receiver asks the court to approve its compensation, there is an onus on the receiver to prove that the compensation for which it seeks court approval is fair and reasonable.
[11] That is, in seeking approval of its fees and disbursements, an Officer of the Court becomes a personal litigant with an economic interest in the outcome. The palpable hostility among counsel during the 9:30 appointment on February 24, 2017 was testament to the difference that this makes. In seeking fee approval, the Officer of the Court becomes essentially a litigant like any other. It is bearing a burden of proof in its own personal interest like any other litigant. As such, the Court of Appeal has required that at least where fee approval applications are contested, Officers of the Court are must prove their fees by affidavit like any other litigant. In Confectionately Yours, the Court of Appeal wrote,
[38] …Nathanson J. in Halifax Developments Limited v. Fabulous Lobster Trap Cabaret Limited (1983), 46 C.B.R. (N.S.) 117 (N.S.S.C.), adopted the following statement from Kerr on Receivers, 15th ed. (London: Sweet & Maxwell, 1978) at 246: “It is the receiver’s duty to make out his account and to verify it by affidavit.”[2] [2] In Holmested and Gale on the Judicature Act of Ontario and rules of practice, vol. 3, looseleaf ed. (Toronto: Carswell 1983) at 2093, the authors state: “[t]he accounts of a receiver and of a liquidator are to be verified by affidavit.” In In-Med Laboratories Ltd. v. Director of Laboratories Services (Ont.), [1991] O.J. No. 210 (Div. Ct.) Callaghan C.J.O.C. held that the bill of costs submitted by a solicitor “should be supported by an affidavit . . . substantiating the hours spent and the disbursements”…
[39] The requirement that a receiver verify by affidavit the remuneration which it claims fulfils two purposes. First, it ensures the veracity of the time spent by the receiver in carrying out its duties, as provided by the receivership order, as well as the disbursements incurred by the receiver. Second, it provides an opportunity to cross-examine the affiant if the debtor or any other interested party objects to the amount claimed by the receiver for fees and disbursements, as provided by rule 39.02(1). In the appropriate case, an objecting party may wish to provide affidavit evidence contesting the remuneration claimed by the receiver, in which case, as rule 39.02(1) provides, the affidavit evidence must be served before the party may cross-examine the receiver.
[40] Where the receiver’s disbursements include the fees that it paid its solicitors, similar considerations apply. The solicitors must verify their fees and disbursements by affidavit.
[12] Accordingly, after hearing counsel at the 9:30 appointment, the Court delivered an Endorsement that provided, in part,
Under [Confectionately Yours] the fees of counsel and the Receiver ought to have been proven by affidavit as the Plaintiff’s opposition was known. Although [the Plaintiff] has had a full reporting and lengthy questions and answer communication with the Receiver’s counsel, he asks to cross-examine. In my view, Court Officers’ fee issues should be transparent. Moreover, a full factual record is in the interests of all. Both sides point to “outrageous” positions of the other. Cross-examination gives each party an opportunity to test its facts and gives the witnesses – Court Officers all – the opportunity to respond and state their respective cases.
[13] The Court went on to direct a timetable for the delivery of standard fee affidavits. With consent of counsel for the Plaintiff, the Court noted that cross-examinations of Faskens would be directed to the issue of its alleged negligence rather than toward the quantum of its fees and disbursements. For Gowlings, the scope of cross-examinations was limited to its hourly rates, services rendered, and the objections raised in the Plaintiff’s factum. The Court also directed that Rule 34.12 applied to the cross-examinations so that all questions to which objection may be taken were to be answered by the witnesses subject to a ruling being obtained before the answers can be used in evidence (with the exception of objections based on lawyer client privilege which need not be answered before a ruling is obtained). The Court also allowed for the possibility of further Case Conferences to resolve summarily matters which may arise before the June 1, 2017 hearing on the merits.
[14] Counsel of the Interim Receiver asked for this subsequent Case Conference by telephone. The Interim Receiver sought a number of directions as to the scope of the cross-examinations in advance. In addition, it declined to produce copies of invoices from Swiss counsel whose fees and disbursements were not challenged in the Plaintiff’s factum. The Plaintiff sought copies of some of those invoices.
[15] In a letter accompanying the delivery of the Interim Receiver’s affidavits to the Plaintiff’s counsel, the Interim Receiver also sought the Plaintiff’s position on the following assertions:
Based on the Endorsement and the Responding Factum and subject to the limitations set out in paragraphs (a) and (b) above, cross-examination will be limited to matters relevant to the objections contained in the following paragraphs of the Responding Factum:
(i) Paragraph 2; (ii) Part III, paragraphs 17 to 29 as they pertain to alleged negligence by Faskens in relation to the SHB Retainer; (iii) Part IV, paragraphs 31-36, 39 and 41-44 (iv) Part V, paragraphs 45-51; (v) Part VI, paragraph 66; (vi) Part VII, paragraphs 68-76, paragraph 77, but only with respect to fees for periods after September 30, 2007, and paragraphs 78-87; and, (vii) Part VIII, paragraph 88.
For clarity, the generalized allegations apparently asserted in the Responding Factum, including without limitation those contained in paragraphs 56-61 and 67 of the Factum, will not form a basis for at “large” cross-examination of the Interim Receiver and counsel.
[16] The Plaintiff’s counsel took the position that he was not obliged to advise the Interim Receiver in advance of all of his questions for cross-examination so as to allow the Interim Receiver to pre-determine its view of relevancy. The Interim Receiver submitted during the Case Conference that it is entitled to ensure that it was only asked relevant questions and that this issue ought to be determined in advance. I disagree.
[17] In the Endorsement from the February 24, 2017 Case Conference, the Court made reference to the Court of Appeal’s decision in Chitel v Rothbart (1983), 39 O.R. (2d) 513 (C.A.). This is the seminal case in which Associate Chief Justice MacKinnon dealt with the role of the witness’s counsel during a cross-examination out of Court. He wrote,
…he continued, throughout the cross-examination, to advise his client not to answer relevant questions. In many instances, he answered questions himself, making statements of fact on the record which were not sworn to by the plaintiff, or immediately re-examined her in the course of her cross-examination in order to elicit the answer he obviously felt would recapture some ground lost in the cross- examination.
Counsel seemed to have confused, in part at least, the right to limit "fishing expeditions" on examination for discovery with a severe limitation on the extent of proper cross- examination. Counsel at trial would not, on any and every pretext, seek to frustrate proper examination. If he did, he would be quickly corrected by the trial judge. Because a judge is not present does not mean that a counsel, who is an officer of the court, should take a different position. He should not answer some obviously significant question himself before the witness answers, unless it is done by agreement with counsel for the other side, nor lead his witness immediately after the witness has given a damaging answer to explain the answer. Nor should he interrupt and prevent, time after time, questions from being answered although a legitimate ground has been given for their being asked. It seems to me that this is so in all cases, but particularly where ex parte injunctions have been granted. In such cases the matter is one of urgency which should be determined as quickly as possible by the court without the party restrained being forced to bring interlocutory motions and appeals in order to get the answers of the deponent to relevant questions. I have digressed to a certain extent but I think it important that a practice not develop which would debase the value of the right to cross- examine and effectively frustrate its legitimate purpose.
[18] By invoking Rule 34.12, the Court has obviated the risk of adjournments for refusals motions discussed by the Associate Chief Justice. Of greater significance is the reminder that counsel for a witness under cross-examination has a very limited role. Counsel conducting a cross-examination is entitled to a broad assessment of relevancy. Different counsel get to their point in different ways. As long as the examiner asks questions that, on their own, or as part of a chain, build to a question that elicits relevant evidence, broadly assessed, examining counsel is to be given free rein to get through the examination as efficiently as reasonably possible without interruption by counsel opposite. By corollary, counsel for the witness is not entitled to dictate, to measure finely, or to a ruling in advance on, the precise scope of questioning. Counsel may make proper objections and state the grounds for doing so on the record succinctly as if a judge was in the room and that is all.
[19] In the February 24, 2017 Endorsement, I set the broad parameters for the cross-examination. The Interim Receiver is not entitled to any further assurances with any greater specificity. If anything, during cross-examination an Officer of the Court should be even more forthcoming and accessible than a party in the interests of transparency. That is part of the burdens of the office whose benefits include the receipt of a substantial degree of deference from the Court.
[20] The Court therefore declines to give any further directions as to the scope of relevancy of questions at the upcoming cross-examinations.
[21] The Court directs the Interim Receiver to produce Swiss counsel’s invoices from the date sought by the Plaintiff. Even if Swiss counsel’s fees and disbursements are not contested, the invoices contain relevant evidence as to the fees and disbursements of the Interim Receiver and its local counsel associated with the Swiss litigation. The Plaintiff also agreed that in the event that the issue of Fasken’s alleged negligence is not fully resolved on June 1, 2017, the Interim Receiver will still be entitled to its discharge with provision being made for necessary funds to be held pending the final disposition of that issue. I do not know why that issue would not be dealt with fully at the hearing in any event. Finally, counsel for the Plaintiff agreed that disclosure of invoices by the Interim Receiver is not to be taken as a waiver of privilege. Therefore, the Plaintiff can use the invoices to ask about time spent by the Interim Receiver and its counsel in relation to categories of services disclosed in the invoices. But the Plaintiff’s counsel agrees that he will not ask questions about privileged communications that may have been involved in providing those services.