Royal Trust Corporation of Canada et al. v. Fisherman et al.

Royal Trust Corporation of Canada et al. v. Fisherman et al. Mondor et al. v. Fisherman et al. [Indexed as: Royal Trust Corporation v. Fisherman]

55 O.R. (3d) 794

[2001] O.J. No. 3727

Docket Nos. M27284, C35941, C35955, C35962, C35907, M27313

Court of Appeal for Ontario

Osborne A.C.J.O., Finlayson and Weiler JJ.A.

September 21, 2001

Judgments and orders -- Final or interlocutory -- Order declaring that plaintiffs in two class actions had common interest -- Order declaring that production of report commissioned by non-party would not waive any privilege -- Order being interlocutory and not final -- Order or declaration that is otherwise interlocutory not final simply because it is directed at entity that is not party to proceedings.

Appeal -- Final or interlocutory -- Order declaring that plaintiffs in two class actions had common interest -- Order declaring that production of report commissioned by non-party would not waive any privilege -- Order being interlocutory and not final -- Order or declaration that is otherwise interlocutory not final simply because it is directed at entity that is not party to proceedings.

In a class action known as the Royal Trust action, the plaintiffs sued for their losses as purchasers of shares of YBM Magnex, International Inc. ("YBM") arising from alleged misrepresentations in a prospectus. In a second class action known as the Mondor action, the plaintiffs were shareholders who dealt in shares of YBM in the secondary market and suffered losses. The defendants were the auditors of YBM and underwriters of the prospectus financing. The plaintiffs in both actions requested that the Receiver of YBM produce for them a copy of a report that analyzed the causes of action YBM may have against all or some of YBM's advisors, including the defendants. The Receiver was prepared to produce the report but only if a court determined that there was a common interest and that there would be no waiver of privilege by producing the report. On motions in the class proceedings, Cumming J. ordered that the plaintiffs were in common interest and that the Receiver could produce the report to them without waiver of any privilege. The defendants appealed to the Court of Appeal. The plaintiffs in both actions moved to quash the appeals on the basis that the order under appeal was interlocutory and therefore the appeals were to the Divisional Court with leave.

Held, the motions to quash should be granted.

The order in appeal did not resolve any substantive issue in the proceedings. It was procedural and interlocutory. The fact that it was in the form of a declaratory order did not change its substance. There was no authority to support the suggestion that an order or declaration that is otherwise interlocutory becomes final simply because it is directed at an entity that is not a party to the proceedings. If the stranger seeks to quash or set aside the order, the order is final. However, if the stranger responds or is passive to the order, the order remains interlocutory. The principle in Smerchanski v. Lewis (1980), 1980 CanLII 1699 (ON CA), 30 O.R. (2d) 370, 117 D.L.R. (3d) 716 (C.A.), which dealt with a subpoena issued to a stranger during a trial and where an order affecting the stranger was considered to be final for the purposes of appeal, did not fit comfortably with the general test for determining whether an order is interlocutory or final. The principle from Smerchanski v. Lewis was not intended to mean that all orders directed to a non-party must be final, and the principle of the case should not be extended. Accordingly, the appeals should be quashed.

MOTIONS to quash appeals.

Cases referred to Ball v. Donais (1993), 1993 CanLII 8613 (ON CA), 13 O.R. (3d) 322, 45 M.V.R. (2d) 319 (C.A.); Bank of American Canada v. Willan Investments Ltd., [1993] O.J. No. 770 (C.A.); Gitanyow First Nation v. Canada (1999), 1999 BCCA 343, 127 B.C.A.C. 261 (C.A.); Hendrickson v. Kallio, 1932 CanLII 123 (ON CA), [1932] O.R. 675, [1932] 4 D.L.R. 580 (C.A.); Smerchanski v. Lewis (1980), 1980 CanLII 1699 (ON CA), 30 O.R. (2d) 370, 117 D.L.R. (3d) 716, 18 C.P.C. 29 (C.A.); Sun Life Assurance Co. v. York Ridge Developments Ltd. (1998), 28 C.P.C. (4th) 16 (Ont. C.A.)

Statutes referred to Class Proceedings Act, 1992, S.O. 1992, c. 6

Authorities referred to Sopinka, J., and M.A. Gelowitz, The Conduct of An Appeal, 2nd ed. (Toronto: Butterworths, 2000) Watson, G.D., and C. Perkins, Ontario Civil Procedure (Toronto: Carswell, 1984- )

Earl A. Cherniak, Q.C., and Melanie D. Schweizer, for plaintiffs/respondents/moving parties Royal Trust Corporation of Canada et al. Steven Sofer, for appellant Parente, Randolph, Orlando, Carey & Associates. Randy Bennett, for appellant/defendant Deloitte & Touche LLP. Bonnie A. Tough and Julia A. Evans, for appellant/defendant National Bank Financial Inc. (formerly First Marathon Securities Ltd.) Elizabeth Moore, for appellant/defendant Griffiths McBurney & Partners. Craig J. Allen, for plaintiffs/respondents/moving parties Mondor and Karia.

The judgment of the court was delivered by

[1] FINLAYSON J.A.: -- These two motions were heard together. They are motions to quash the appeals in two class proceedings under the Class Proceedings Act, 1992, S.O. 1992, c. 6 ("CPA") from an order of Mr. Justice Cumming relating to both proceedings. In what is sometimes referred to as the Royal Trust action, the prospectus class action plaintiffs are shareholders of YBM Magnex, International Inc. ("YBM") who purchased or acquired common shares in YBM distributed by a prospectus dated November 17, 1997 that they allege contained material misrepresentations and suffered a loss as a result thereof. In what is sometimes referred to as the Mondor action, the general class action plaintiffs are shareholders who dealt in shares of YBM in the secondary market between March 10, 1996 and May 10, 1998 and suffered a net loss as a result.

[2] The defendants who are the appellants in these proceedings were the auditors of YBM and underwriters of the prospectus financing. YBM has been in receivership since December 1998, when Ernst & Young YBM Inc. was appointed receiver ("Receiver"). On June 7, 1999, YBM pleaded guilty in the United States to a multi-object conspiracy to commit fraud relating to the purchase or sale of YBM securities and the filing of reports containing material misrepresentations and omissions.

[3] The Receiver's counsel prepared a report, called a s. 3(o) Report, analyzing the causes of action YBM may have against all or some of YBM's advisors, including the appellants. A copy of the s. 3(o) Report was provided to certain shareholders of a group called the "innocent shareholders", who are not connected with YBM's fraud, for the purpose of instructing the Receiver's counsel concerning causes of action which YBM may have. Both the prospectus class action plaintiffs and the general class action plaintiffs regard themselves as innocent shareholders and have requested that a copy of this report be made available to their solicitors. The Receiver is not averse to making the report available but only in the event that a court has determined that there is a common interest privilege in the report and that there would be no waiver of that privilege by such release.

[4] In response to motions by both the Royal Trust class action plaintiffs and the Mondor class action plaintiffs, Cumming J. ordered and declared that the prospectus class action plaintiffs and the general class action plaintiffs are in common interest with the Receiver of YBM on common issues as against the appellants and, therefore, that the Receiver may provide a copy of the s. 3(o) Report to their respective solicitors and to other members of the potential class, without waiver of any privilege which may attach to it.

[5] The defendants in those two class actions have appealed this order to the Court of Appeal. The prospectus class action plaintiffs and the general class action plaintiffs move to quash those appeals on the basis that the order under appeal is interlocutory and, therefore, an appeal lies only to the Divisional Court, with leave.

Analysis

[6] The reasons of the motions judge set out some helpful findings that can be related to the issue as to whether his order is final or interlocutory. First of all, he declares that there is a shared mutual interest between the Receiver and the class action plaintiffs that should facilitate judicial economy through shared expenses and research in assisting the Receiver to determine what derivative actions to bring on behalf of YBM. As he put it [at para. 38]

The Receiver and the plaintiffs in the class actions share a common interest and accordingly, the Receiver ought to be able to share the 3(o) Report with the class action plaintiffs without waiving privilege. The 3(o) Report may provide the class action plaintiffs with facts and legal analysis to assist them in their pleadings and conduct of the class actions. At the same time, allowing the class action plaintiffs to make use of the 3(o) Report will enable the "innocent shareholders" to assist the Receiver in determining what derivative action to bring on behalf of YBM. The shared, mutual interests of the Receiver and the class action plaintiffs should facilitate judicial economy through shared expenses and research.

[7] Secondly, there is an express finding that there is no prejudice to the defendants in the action at large. He said [at para. 34]:

In my view, the defendants are not prejudiced by the granting of this motion. The motions at hand do not relate to production from the defendants. The 3(o) Report was produced for the Receiver. No right of the defendants is affected. As stated above, the 3(o) Report will be listed, at the least, in the affidavit of documents of the [prospectus class action plaintiffs]. The defendants can, if so advised, then challenge the Receiver's claim for privilege and, if successful, gain production of the 3(o) Report.

[8] Third, he described [at para. 40] the order sought as being appropriate to the conduct of a class proceeding.

Section 12 of the CPA enables the court to make any order it considers appropriate respecting the conduct of a class proceeding to "ensure its fair and expeditious determination". In my view, the plaintiffs' motion is properly brought at this time. Moreover, the relief requested is appropriate and necessary at this time to ensure a fair and expeditious determination of the class actions.

[9] And finally, the motions judge makes it clear [at para. 43] that he is not making any finding as to whether the s. 3(o) Report is privileged but restricts his finding to stating that compliance with his declaration does not constitute a waiver of privilege.

The Receiver has indicated that it is prepared to share the 3(o) Report with the counsel for the class action plaintiffs, as authorized by the Alberta court, but only in the event that a court has determined that there is a common interest privilege and that there is no waiver of the Receiver's claimed privilege. The class action plaintiffs were placed in the position of being unable to gain access to the 3(o) Report unless they brought the motion now before the court for the requisite determination of common interest privilege and that there would be no waiver of the Receiver's claimed privilege.

[10] The effect of the declaration of common intent simply permits the Receiver, if it wishes to do so, to release the s. 3(o) Report to the class action plaintiffs. The issue of whether the s. 3(o) Report is privileged is not addressed. In our view, the order in appeal does not resolve any substantive issue in the proceedings. It is clearly procedural and interlocutory. The fact that it is in the form of a declaratory order does not change its substance. While admittedly an interlocutory declaration on purely procedural matters is unusual, it has been done and recognized as interlocutory: see Prowse J.A. in Gitanyow First Nation v. Canada (1999), 1999 BCCA 343, 127 B.C.A.C. 261.

[11] The arguments made against the declaration in this court were largely directed to the motions judge making it at all. The suggestions that it amounted to a waiver of privilege and other dark consequences are directed to the merits of the appeal, not the form of the order. On this motion to quash the appeals, we are restricted to determining whether this court or the Divisional Court should hear the appeal.

[12] The responding parties also argue that the order is final because it involves a stranger to the proceedings, namely the Receiver. While the Receiver may not be a party to these class actions in the strict legal sense, it is scarcely a stranger to them having regard to the history of the proceedings here and in other jurisdictions: see Bank of American Canada v. Willan Investments Ltd., a judgment of the Ontario Court of Appeal, delivered April 7, 1993, [1993] O.J. No. 770. More significantly, it has taken no part in challenging the declaration in appeal. There is no authority to support the suggestion that an order or declaration that is otherwise interlocutory becomes final simply because it is directed to an entity that is not a party to the proceedings. If the stranger to the proceedings seeks to quash or set aside the order, the case law recognizes that in that circumstance the order assumes a different status: it is final. However, if the person to whom the order is directed responds to it or is even passive with respect to it, I can think of no reason why the order does not remain interlocutory vis-à-vis parties to the proceeding. The declaration before the court is not a case where the only avenue of leave for those who feel aggrieved by the order to appeal is on the basis of the finding that it was a final order. All of these respondents who find difficulty with the order can challenge the propriety of it by proceeding with leave to the Divisional Court.

[13] The responding parties rely on Smerchanski v. Lewis (1980), 1980 CanLII 1699 (ON CA), 30 O.R. (2d) 370, 117 D.L.R. (3d) 716 (C.A.) for the proposition that where an order affects a non-party or "stranger to the action", the order will be considered to be final for the purposes of appeal. Arnup J.A. stated at pp. 377-78 O.R.:

Furthermore, it is my view that the appealability of an order is determined by the nature of the order made and not by the identity of the successful party. If a stranger to the action who has been unsuccessful in an application made to the trial Judge has an immediate right of appeal, it seems to me clear that where the stranger succeeds before the trial Judge, the party to the action who failed in the issue with the stranger should have an immediate right of appeal. In short, an order made in an issue between a party and a stranger is either appealable or it is not, and if it is appealable, the party who lost in the issue has a right of appeal.

[Emphasis in original]

[14] The judgment in Smerchanski v. Lewis, supra, has been the subject of critical commentary. In particular, it has been explained that the comments made in the judgment do not sit well with the prior jurisprudence, according to which the finality of an order may indeed depend on the identity of the successful party: Sopinka and Gelowitz, The Conduct of An Appeal, 2nd ed. (Toronto: Butterworths, 2000), at p. 18. Furthermore, as stated in Watson and Perkins, Ontario Civil Procedure (Toronto: Carswell, 1984- ), at p. 62-30:

In a number of respects the Smerchanski decision is unsatisfactory. At a minimum the decision was simply unnecessary. There are strong policy arguments against any rule which allows for an immediate appeal from rulings or orders made in mid-trial. When the person adversely affected by the order is a non-party, and hence cannot appeal from the final judgment in the action, other considerations come into play, particularly where a claim of privilege is denied and the stranger is ordered to produce. . . . That, however, was not the situation in Smerchanski. . . . The court should have addressed itself to the question it has asked in other contexts: did the decision finally determine the appellant's rights? The answer is that it did not. Applied literally, Smerchanski would make all orders involving non-parties' [sic] final orders.

[15] In Sun Life Assurance Co. v. York Ridge Developments Ltd. (1998), 28 C.P.C. (4th) 16 (Ont. C.A.), this court distinguished Smerchanski v. Lewis, supra. Weiler J.A. stated at p. 19 C.P.C.:

The decision in Smerchanski, supra, dealt with a subpoena which had been issued to a stranger to an action during the course of a trial. Arnup J.A. held that the trial judge's decision to quash the subpoena had the same effect as if a motion had been unsuccessful and that the decision was final and determined the rights of the parties in the issue raised between them. The context of the decision makes it plain that the information sought, namely disclosure of certain statements, would not have been available at all but for the subpoena. The trial judge did not, prior to quashing the subpoena, make an evidentiary ruling respecting the admissibility of the proposed evidence. Thus, on an appeal, the matter could not have been dealt with as an evidentiary question. Nor would it have been possible to raise the issue in an appeal from the final decision if the order was considered to be interlocutory: Schiowitz v. I.O.S. Ltd., 1972 CanLII 405 (ON CA), [1972] 3 O.R. 262 (Ont. C.A.). The only way in which the order in Smerchanski, supra, could be reviewed was if it was found to be a final order.

That is not the situation before us. At this stage of the proceedings, Cullity J. was not satisfied at the time that the application was made before him that the information sought could not be obtained from other employees of Sun Life. . . .

If, after examining the parties, counsel for York Ridge feels it has been frustrated in its pursuit of information it would be able to bring a further motion to obtain the information. . . . The order quashing the subpoena to Mr. Swartz was therefore an interlocutory order because it did not finally dispose of the issue between Swartz and the party seeking to examine him.

Therefore, despite the fact that the order in Sun Life Assurance Co. v. York Ridge Developments Ltd., supra, was directed to a person not party to the action, the court found that the order quashing the subpoena was an interlocutory order.

[16] When given its broadest interpretation, the principle in Smerchanski v. Lewis, supra, does not fit comfortably with the general test for determining whether an order is interlocutory or final, as set out in Hendrickson v. Kallio, 1932 CanLII 123 (ON CA), [1932] O.R. 675, [1932] 4 D.L.R. 580 (C.A.) and clarified in subsequent cases such as Ball v. Donais (1993), 1993 CanLII 8613 (ON CA), 13 O.R. (3d) 322, 45 M.V.R. (2d) 319 (C.A.). Smerchanski was not intended to mean that all orders directed to a non-party must be final, and the principle expressed therein should not be further expanded in that way.

[17] For the above reasons, the motions are allowed and the appeals are quashed with costs to the moving parties.

Order accordingly.