SA Capital Growth Corp. v. Brooks, as Executor of the Estate of Mander, deceased, et al.

[Indexed as: SA Capital Corp. v. Mander Estate]

112 O.R. (3d) 16

2012 ONCA 681

Court of Appeal for Ontario,

Sharpe, Gillese and Watt JJ.A.

October 10, 2012

Securities regulation -- Disclosure -- Production of third party records -- Ontario Securities Commission ("OSC") commencing proceedings against S in relation to alleged Ponzi scheme -- S applying for order requiring production of documents and information obtained by court-appointed receiver in course of investigation of S in unrelated proceeding -- Motion judge erring in ordering production of documents that were likely to be relevant in OSC proceeding -- S not interested person in receivership as he did not seek production for purpose of advancing any legal claim or interest in receivership -- Motion judge erring in making what amounted to interlocutory procedural order in relation to OSC proceeding instead of leaving it to OSC to determine what procedural rights should be accorded to S.

The Ontario Securities Commission commenced proceedings against the appellant in relation to an alleged Ponzi scheme. In an unrelated proceeding, a court-appointed receiver had investigated the appellant in relation to the same Ponzi scheme. The appellant brought a motion in the Superior Court of Justice for an order compelling the receiver to provide him with certain documents and information obtained by the receiver during its investigation, claiming that he was entitled to production of the requested material in order to make full answer and defence in the OSC proceeding. The motion was granted in part. The motion judge found that the protection granted to a court-appointed receiver from having to provide information or documents regarding the receivership to others beyond what is contained in its reports could not operate to interfere with or defeat the appellant's right to make full answer and defence. The motion judge concluded that the appellant had established that some, but not all, of the material sought was likely to be relevant in the OSC proceeding. The appellant appealed and the receiver cross-appealed.

Held, the appeal should be dismissed; the cross-appeal should be allowed. [page17 ]

The appellant did not seek production for the purpose of advancing any legal claim or interest in the receivership, but rather for a purpose collateral to the receivership, namely, his defence before the OSC. Accordingly, he was not an interested person in the receivership. To recognize a right to require the receiver to produce material for purposes collateral to the receivership could lead to serious mischief. Moreover, it was inappropriate for the motion judge to make what amounted to an interlocutory procedural order in relation to a proceeding pending before the OSC. Requests for third-party production give rise to issues of relevance, cost, delay and fairness, and the judge or tribunal charged with final decision-making authority is best placed to resolve such issues. It was for the OSC to determine what procedural rights should be accorded to the appellant.

APPEAL AND CROSS-APPEAL from the order of Pattillo J. (2012), 110 O.R. (3d) 765, [2012] O.J. No. 2279, 2012 ONSC 2800 (S.C.J.) for the production of third party records.

Cases referred to Anvil Range Mining Corp. (Re), 2001 28108 (ON SC), [2001] O.J. No. 1125, 21 C.B.R. (4th) 194, 104 A.C.W.S. (3d) 16 (S.C.J.); Battery Plus Inc. (Re), [2002] O.J. No. 261, [2002] O.T.C. 55, 31 C.B.R. (4th) 196, 111 A.C.W.S. (3d) 213 (S.C.J.); Bell Canada International Inc. (Re), 2003 22640 (ON SC), [2003] O.J. No. 4738, 126 A.C.W.S. (3d) 790 (S.C.J.); GMAC Commercial Credit Corp. -- Canada v. TCT Logistics Inc., 2002 35019 (ON SC), [2002] O.J. No. 4210, [2002] O.T.C. 840, 37 C.B.R. (4th) 267, 117 A.C.W.S. (3d) 681 (S.C.J.); Impact Tool & Mould Inc. (Estate Trustee of) v. Impact Tool & Mould Inc. (Interim Receiver of) (2006), 2006 7498 (ON CA), 79 O.R. (3d) 241, [2006] O.J. No. 958, 266 D.L.R. (4th) 192, 208 O.A.C. 133, 20 C.B.R. (5th) 220, 146 A.C.W.S. (3d) 218 (C.A.); Impact Tool & Mould Inc. (Re), [2008] O.J. No. 962, 2008 ONCA 187, 234 O.A.C. 377, 41 C.B.R. (5th) 1, 165 A.C.W.S. (3d) 597, affg [2007] O.J. No. 5492, 41 C.B.R. (5th) 112 (S.C.J.) [Leave to appeal to S.C.C. refused [2008] S.C.C.A. No. 220]; R. v. O'Connor, 1995 51 (SCC), [1995] 4 S.C.R. 411, [1995] S.C.J. No. 98, 130 D.L.R. (4th) 235, 191 N.R. 1, [1996] 2 W.W.R. 153, J.E. 96-64, 68 B.C.A.C. 1, 103 C.C.C. (3d) 1, 44 C.R. (4th) 1, 33 C.R.R. (2d) 1, 29 W.C.B. (2d) 152

Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 30.10

Authorities referred to Bennett, Frank, Bennett on Receiverships, 3rd ed. (Toronto: Carswell, 2011)

Kevin D. Toyne, for appellant Peter Sbaraglia. Matthew Gottlieb and Shannon Beddoe, for respondent RSM Richter Inc. (now Duff & Phelps Canada Restructuring Inc.). Evan Cobb, for applicant SA Capital Growth Corp. Jennifer Lynch, for respondent Ontario Securities Commission. Frank Lamie, for Tonin & Co. LLP and Peter Tonin.

[1] BY THE COURT: -- The appellant faces allegations before the Ontario Securities Commission ("OSC") related to an alleged Ponzi scheme. In an unrelated proceeding and at the suit of the respondent SA Capital Corp., a court-appointed receiver [page18 ]conducted an investigation of the appellant, his wife and companies they controlled in relation to the alleged Ponzi scheme. The appellant sought and obtained from the Superior Court a third-party production order requiring the respondent RSM Richter Inc. (the "receiver") to produce materials the appellant claims he needs in order to make full answer and defence in the OSC proceedings.

[2] The appellant appeals that order, arguing that the Superior Court judge erred by failing to order further production. The receiver cross-appeals, arguing that no production should have been ordered.

[3] For the following reasons, we conclude that the appeal should be dismissed, the cross-appeal allowed and the order requiring the receiver to produce materials set aside.

Analysis

[4] The appellant submits that the third-party production order was justified on two grounds: (1) the appellant is an "interested person" in the receivership and is thereby entitled to production; and (2) the Superior Court has the authority to order third-party production to protect the appellant's right to make full answer and defence before the OSC.

[5] We are unable to accept either of these propositions.

1. "Interested person"

[6] In our view, the application judge correctly found that a court-appointed receiver cannot be compelled to produce documents obtained in the exercise of its mandate in the receivership to be used in a separate proceeding.

[7] The application judge recognized that in some circumstances, a party involved in a receivership can insist upon the production of documents and materials that have been obtained by the receiver. Reference was made to Bennett on Receiverships, 3rd ed. (Toronto: Carswell, 2011), at p. 232:

As a fiduciary, the receiver owes a duty to make full disclosure of information to all interested persons including prospective purchasers. The receiver is obliged to respond to requests for information consistent with the position of the person making the request. The receiver must produce all documents in its possession which are relevant to the issues in the receivership.

[8] The reach of the phrase "interested person" was discussed and applied by Greer J. in [page19 ]Battery Plus Inc. (Re), [2002] O.J. No. 261, 31 C.B.R. (4th) 196 (S.C.J.), where "interested person" was held to include parties who have a direct interest in the subject matter of the receivership itself but to exclude parties who seek production of documents that do not "relate to a specific purpose" concerning the receivership itself. This approach is in line with the case law that states that receivers are not subject to cross-examination on their reports except in exceptional or unusual circumstances: see Bell Canada International Inc. (Re), 2003 22640 (ON SC), [2003] O.J. No. 4738, 126 A.C.W.S. (3d) 790 (S.C.J.); Impact Tool & Mould Inc. (Re), [2007] O.J. No. 5492, 41 C.B.R. (5th) 112 (S.C.J.), affd 2008 ONCA 187, [2008] O.J. No. 962, 41 C.B.R. (5th) 1 (C.A.), leave to appeal to S.C.C. refused [2008] S.C.C.A. No. 220; and Anvil Range Mining Corp. (Re), 2001 28108 (ON SC), [2001] O.J. No. 1125, 21 C.B.R. (4th) 194 (S.C.J.). It is also consistent with bankruptcy case law that establishes that a court officer (trustee in bankruptcy) will not be compelled to produce documents created and obtained as part of its duties in one proceeding for a collateral purpose: see, for example, Impact Tool & Mould Inc. (Estate Trustee of) v. Impact Tool & Mould Inc. (Interim Receiver of) (2006), 2006 7498 (ON CA), 79 O.R. (3d) 241, [2006] O.J. No. 958 (C.A.); GMAC Commercial Credit Corp. -- Canada v. TCT Logistics Inc., 2002 35019 (ON SC), [2002] O.J. No. 4210, 37 C.B.R. (4th) 267 (S.C.J.).

[9] The OSC proceedings are clearly separate and distinct from the receivership. The appellant does not seek production for the purpose of advancing any legal claim or interest in the receivership, but rather for a purpose collateral to the receivership, namely, his defence before the OSC. Accordingly, in our view, the appellant is not an interested person as his request was made for a purpose collateral to the receivership proceeding.

[10] We agree with the receiver's submission that to recognize a right to require the receiver to produce material for purposes collateral to the receivership could lead to serious mischief. A court-appointed receiver is an officer of the court, not a regular litigant. Officers of the court should be left to perform their functions and duties without the distraction, added cost and potential chilling effect on their investigations that could result from permitting open-ended access to the fruits of their investigation.

2. Full answer and defence

[11] The application judge made the third-party production order on the basis that the appellant was entitled to the material he ordered produced to make full answer and defence to the allegations he faces before the OSC. The application judge applied, by way of analogy, the procedure contemplated by [page20 ]R. v. O'Connor, 1995 51 (SCC), [1995] 4 S.C.R. 411, [1995] S.C.J. No. 98 in criminal proceedings.

[12] In our view, the application judge erred. However, in fairness, we observe that the basis upon which we reach that conclusion does not appear to have been clearly articulated before the application judge.

[13] It was inappropriate for the Superior Court to make what amounted to an interlocutory procedural order in relation to a proceeding pending before the OSC.

[14] Matters such as disclosure, third-party production and other pre-hearing orders required to ensure fair process are quintessentially matters to be dealt with by the tribunal that will decide the case. Requests for third-party production give rise to issues of relevance, cost, delay and fairness, and it has long been recognized that the judge or tribunal charged with final decision-making authority is best placed to resolve such issues. In this case, it is for the OSC to determine what procedural rights should be accorded to the appellant and it is for the OSC to ensure that the appellant is accorded a level of procedural fairness commensurate with the allegations he faces. If, at the end of the day, the appellant is not accorded appropriate fairness in the OSC proceeding, the law provides him with appropriate remedies.

[15] Further, resort to the courts on an interlocutory basis disrupts orderly decision-making by the tribunal. There is a long-established principle that, ordinarily, neither appeals nor judicial review should be entertained until after the tribunal proceedings have come to a final conclusion. Although this application did not take the form of an appeal or application for judicial review, it was inconsistent with that basic principle.

[16] In view of the conclusion we have reached, we make no comment on the merits of the appellant's assertion that he has a procedural right in the OSC proceeding to a third-party production order or on whether the documents he seeks are relevant.

[17] We are aware of the fact that before the appellant brought his application before the Superior Court, a time when he was acting in person, he brought a motion before the OSC requesting third-party production from the receiver. The receiver was not served with that motion. The motion was heard by a single commissioner, who ruled that the OSC "does not have the authority to order productions from the Receiver, who is an independent officer of the Court" and observed that, as staff counsel had submitted, the respondent was not left without a remedy. The commissioner did not specify what remedy he had [page21 ]in mind, but we were informed during oral argument that the OSC staff had pointed out that the appellant could seek a summons, including an order for production of the material he seeks in the OSC proceeding or he could go to the Superior Court and ask for an order for third-party production pursuant to rule 30.10 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[18] The appellant did not challenge that ruling but instead commenced this Superior Court application for third-party production.

[19] We agree with the receiver that rule 30.10 could have no application to the appellant's request. That rule provides orders for third-party production "on motion by a party" for a document that is "relevant to a material issue in the action". The rule plainly does not confer jurisdiction on the Superior Court to make freestanding production orders for production of documents sought in relation to proceedings before agencies or tribunals such as the OSC.

[20] We make no comment on whether the commissioner was right or wrong in his ruling. We observe, however, that the dismissal of the appellant's motion for third-party production does not preclude the appellant from seeking an alternative remedy before the OSC. In any event, the refusal to order production within the OSC proceedings cannot confer authority on the Superior Court to make such an order if, as we find, there is no basis in law for the Superior Court to exercise that authority.

Conclusion

[21] For these reasons, the appeal is dismissed, the cross-appeal is allowed and the order of the Superior Court is set aside. We have received the receiver's bill of costs for the application before the Superior Court and for this appeal. We will entertain brief written submissions in support of that request, to be submitted within seven days from the release of these reasons, and responding submissions from the appellant within seven days thereafter.

Appeal dismissed; cross-appeal allowed.