Court File and Parties

Court File No.: 06-CV-308098PD1
Date: 2012-06-14
Superior Court of Justice - Ontario

RE: Kerry J.D. Winter, Jeffrey A. Barkin, Paul T. Barkin and Julia Winter, personal representative of Dana C. Winter, deceased, Plaintiffs

AND:
The Royal Trust Company and Royal Trust Corporation of Canada, Defendants

BEFORE: Justice Carole J. Brown J.

COUNSEL:
Neirinck M.J., for the Plaintiffs K. Winter, P. Barkin and J. Winter
Sidlofsky G.M for plaintiff Jeffrey Barkin
Walli M. for the Defendants

HEARD: February 15, 2012

ENDORSEMENT

[ 1 ] This is an appeal brought by Bernard C. Sherman ("Sherman") from the Order of Master Hawkins dated September 6, 2011, which ordered Sherman to answer three specific questions refused on his cross-examination on the affidavit of August 30, 2010. Sherman is the affiant of the defendants, who affirmed an affidavit in support of a motion for summary judgment brought by the defendants. The Order required Sherman to produce documents "indicating what drugs" the nonparty, Apotex Inc. ("Apotex") "was manufacturing in 1974 and following, and to produce all of Apotex financial statements from 1974 to date". The appellant states that these documents are not relevant to the issues in this action and, given the scope of the production ordered, are not proportional in the circumstances. The respondent opposes these arguments and submits that the questions ordered to be answered and documents ordered to be produced are both relevant and proportionate to the issues in this action.

Background

[ 2 ] The plaintiffs, Kerry Winter, Jeffrey Barkin, Paul Barkin, and Julia Winter are the children of the late Lewis and Beverley Anne Winter ("the Winters"). Dana Winter, now deceased, was also a child of the Winters. Following the death of the plaintiffs' parents, which occurred within a matter of weeks of one another, while the children were still young, Royal Trust Company was appointed by Letters Probate as Trustee of the Winter Estate and assumed control of Lewis Winter's pharmaceutical businesses ("the Empire companies"), which consisted mainly of manufacturing and selling pharmaceutical and over-the-counter products, laboratory testing and related activities.

[ 3 ] Sherman, the nephew of Lewis Winter, sought to purchase the Empire Companies, shortly after the death of the Winters. Sale of the business to Sherman, and Joel and Benjamin Ulster, and their company, Sherman and Ulster Limited (“Sherman and Ulster”) closed October 20, 1967, with agreement for payment of royalties to the Estate for a period of 15 years from the date of closing, and an option agreement permitting the Winter children, once they became 21 years of age or completed their formal education, to become employees of the company and purchase shares of the company on fulfillment of certain conditions, including that Sherman continued to have control of the companies and that the companies remained private.

[ 4 ] According to the affidavit sworn by Sherman, Sherman and Ulster subsequently sold a portion of their shares to Vanguard Pharmacy Limited in December 1969, and, thereafter, sold 100% of its shares to International Chemical and Nuclear Corporation ("ICN"), a publicly traded company. It is alleged that Sherman continues to have an interest in ICN and, further, retained control of at least part of the business of the Empire Companies , including the goodwill, which business forms the foundation of Apotex Inc., a private company controlled directly or indirectly by Sherman. The plaintiffs allege that the products developed by Sherman at Apotex were the same as those sold by the Empire Laboratories.

[ 5 ] In the main action, the plaintiffs allege inter alia that Royal Trust failed to advise the Winter children of their rights pursuant to the agreement of purchase and sale and the option and royalty provisions, that royalty payments were never made by Sherman and Ulster Limited or their subsidiaries, that the Winter children never afforded the opportunity to become employees and/or shareholders of the company or its successors, and that Royal Trust breached its fiduciary duties, for which the plaintiffs claim damages arising from these alleged breaches.

[ 6 ] While in university, Jeffrey Barkin began to investigate his father’s companies and make inquiries of Royal Trust, which were not answered, and requested documents from Royal Trust, which were not provided. Following a successful productions motion in 2002, documents were disclosed, which resulted in the plaintiffs bringing this action, as well as another action against Sherman.

Standard for Review on Appeal from Master's Order

[ 7 ] The parties agree regarding the applicable standard of review. On questions of fact and mixed fact and law, deference applies and the decision will be interfered with only if the Master exercised his or her discretion on the wrong principles, misapprehended the evidence such that there is a palpable and overriding error, or reached an unreasonable decision. Where the Master erred in law, the correctness standard applies, whether the decision be final or interlocutory and whether or not it is vital to the disposition of the action. Where the issue on appeal is one of discretion, the decision will only be reversed on appeal where the Master made an error in principle.

[ 8 ] In this appeal, the correctness standard applies to the relevance of the questions ordered to be answered, while the deference standard applies to proportionality.

The Master's Order

Questions 829 and 830

[ 9 ] Master Hawkins ordered Sherman to answer questions 829 and 830, namely to produce the documentation in his possession, control or power indicating what drugs Apotex Inc. has been manufacturing from the date Apotex Inc. started doing business in 1974 to the date of the Master' s Order, being September 6, 2011.

[ 10 ] Master Hawkins held as follows:

"Questions 829 and 830 were argued next. In paragraph 29 of the amended statement the plaintiffs have alleged that the defendants were negligent in their oversight of the sale of the business of the Empire companies. One of the issues in this action (and thus on the motion for summary judgment) is whether Apotex Inc. is carrying on the business formerly carried on by the Empire companies. Dr. Sherman should produce the requested documents to the extent that they still exist and that they are in his possession, control or power."

[ 11 ] It is the position of the plaintiffs that whether Sherman and Apotex carried on the same business as the purchased business acquired from the Empire companies is critical to the action and therefore relevant. This is also a seminal issue in the action brought by the Winter children against Sherman and Apotex. In that case, the documentation sought was ordered to be produced for a more restricted time period.

[ 12 ] The appellant disagrees and argues that these documents are not relevant to the issues in play in the summary judgment motion. Further, the appellant argues that the plaintiffs have, through Sherman, obtained documentary discovery of a nonparty, Apotex. I do not find these positions convincing in the circumstances of this case.

[ 13 ] I find that having regard to the pleadings, which determine the ambit of production, the documentation related to the four chemicals listed in the Royalty Agreement are relevant to the issues raised in this action and in the summary judgment, but that the scope of the production regarding the documentation related to the chemicals or drugs to be produced is not proportionate to the claims, as the agreement required that royalties be paid for 15 years only.

[ 14 ] Based on the foregoing, and taking into consideration the standard of review on this appeal, the materials filed, the submissions argued, and the Master's Order, I find the documentation related to the four drugs listed in the Royalty Agreement is relevant to the issues related to the Royalty Agreement in the action and summary judgment motion, and should be produced from 1974 to 1982, when entitlement to the royalties ended. Questions 829 and 830 should be answered for the time which I have specified, and I so order.

Question 842

[ 15 ] Master Hawkins also ordered Sherman to answer Question 842, which required him to produce all of the financial statements of Apotex Inc. from 1974 to the date of the order. In ordering Sherman to produce those financial statements, Master Hawkins held:

Question 842 was argued next. The issues in this action (and thus on the summary judgment motion) include the lost opportunities suffered by the plaintiffs as alleged in paragraphs 26 and 27 of the amended statement of claim and the extent of the plaintiffs' losses as raised in paragraphs 53 and 54 of the amended statement of defence. Dr. Sherman should produce the requested documents to the extent that they still exist and they are under his possession, control and power.

[ 16 ] The appellant argues that the Master erred in ordering the financial statements be produced as they were relevant to the plaintiffs alleged "lost opportunity" damages, that the pleadings are not in issue on the defendants’ summary judgment motion and argue that the plaintiffs cannot establish liability on the part of the defendants with respect to any claims under the option agreement as the obligations thereunder became null and void by 1972 at latest, prior to the vesting of any option for any of the plaintiffs.

[ 17 ] It is the position of the plaintiffs that the Master correctly found that the financial statements were relevant to the plaintiffs’ Statement of Claim and the defendants’ Statement of Defence and are also relevant to the summary judgment motion. I find that the Master was correct in his finding that the financial statements were relevant to the issues in this action. I further find that he was within the proper exercise of his discretion regarding the temporal scope of production.

[ 18 ] With respect to the Question 842 which requested production of the financial statements of Apotex, I find that the Master was correct in his analysis that these financial statements are relevant to the issue of damages as related to the Option Agreement and as set forth in the Statement of Claim. I find that the Master’s Order in this regard is proportionate. I uphold the Order of the Master with respect to Question 842 and order production of the financial statements for the period specified by the Master.

Costs

[ 19 ] I would urge the parties to agree upon costs, failing which I would invite the parties to provide any costs submissions in writing, to be limited to three pages, including the costs outline. The submissions may be forwarded to my attention, through Judges’ Administration at 361 University Avenue, within thirty days of the release of this Endorsement.

Carole J. Brown J.

Date: June 14, 2012