ONTARIO SUPERIOR COURT OF JUSTICE
NEWMARKET COURT FILE NO.: 94857/09
DATE: 20120613
BETWEEN
Helen Kilitzoglou and Life Line Manufacturing Inc.
Plaintiffs
— and —
Shannon Cure and Tanya Cure Personally
and as Estate Trustees of the Estate of Al Cure, Deceased,
Anthony DiLena Personally and as Estate Trustee of the Estate of Al Cure, Deceased,
Martin Rotenberg, Segal & Partners Inc., Martin Sole
And Vykunthavasam Sambasivan
Defendants
COUNSEL:
L. Klug, for the Plaintiffs
M. Rintoul, for S. Cure and T. Cure
B. Jaeger, for Segal & Partners and M. Sole
M. Girard, for M. Rotenberg
V. Sambasivan, Self Represented
McKelvey J.
ruling re: opinion evidence of jeffrey brown
Introduction
[ 1 ] This ruling relates to an objection which was raised by counsel for the defendant Marvin Rotenberg during the examination-in-chief of Mr. Jeffrey Brown who is an expert witness called by the plaintiff. The thrust of the objection by counsel for the defendant was that Mr. Rotenberg was being asked to go beyond the opinions he had expressed in expert reports delivered by the plaintiff’s solicitor. I gave my decision and brief oral reasons on the objection and advised that I would issue written reasons at a later time.
Background
[ 2 ] The plaintiffs’ action is a complex commercial case. The plaintiffs are alleging that the defendants attempted to destroy and shut down the business of Lifeline Manufacturing Inc. which is a bedroom furniture manufacturer. The plaintiff, Helen Klitzoglou was previously employed in a company known as Alca Designs Ltd. This company went into bankruptcy in June of 2007. One of the issues that has arisen in the action is whether a dividend in the sum of $800,000 which was declared by the Board of Directors of Alca Designs on November 29, 2002 contravened section 38(3) of the Ontario Business Corporations Act . In the Statement of Claim the plaintiffs seek a declaration that the dividend contravened that provision of the Ontario Business Corporations Act. Damages in the sum of $800,000 relating to the dividend are also claimed against Mr. Rotenberg as well as other defendants, “for fraud and conspiracy arising out of the improper appointment of the receiver/manager in June of 2007 and consequential improper realization of assets arising out of that appointment”.
[ 3 ] Counsel for the defendant Martin Rotenberg (who was Alca’s accountant at the time) objected to questioning of Mr. Brown on the following basis:
The plaintiffs’ solicitor was seeking to elicit an opinion from Mr. Brown that declaration of the dividend failed to comply with section 38(3) of the Ontario Business Corporations Act. This objection was based on the assertion that such an opinion was not contained in the reports delivered previously by Mr. Brown.
The plaintiffs’ solicitor was attempting to elicit an opinion as to what due diligence should have been taken by the accountant handling the dividend transaction at the time the dividend was declared. The basis for this objection was that the opinions to be elicited from Mr. Brown are not contained in any of his reports.
[ 4 ] In response Mr. Klug submits that Mr. Brown is qualified to comment on the issue of whether the dividend violated the statutory requirements, that his reports contained a detailed recitation of what is required to meet section 38(3) of the statute and that the opinions to be elicited are relevant to the question of whether the dividend in question met the requirements of the statute.
[ 5 ] With respect to the second issue Mr. Klug’s position is that the issue of due diligence by the accountant is relevant to the issue of whether the dividend complied with the statutory requirement.
Analysis
[ 6 ] The objections in issue fall to be determined by a consideration of rule 53.03 and 53.08. Rule 53.03 states:
An expert witness may not testify with respect to an issue, except with leave of the trial judge, unless the substance of his or her testimony with respect to that issue is set out in,
(a) A report served under this rule; or
(b) A supplementary report served on any other party to the action not less than 30 days before the commencement of the trial.
Section 53.08 (1) states,
If evidence is admissible only with leave of the trial judge under a provision listed in subrule (2), leave shall be granted on such terms as are just and with an adjournment if necessary, unless to do so will cause prejudice to the opposite party or will cause undue delay in the conduct of the trial.
Under subrule (2) the provision in subrule (1) applies to subrule 53.03(3).
[ 7 ] The delivery of expert reports is an important part of trial preparation. Rule 53.03 clearly requires parties to exchange expert reports well in advance of trial so that there will be a clear understanding of the anticipated evidence of the expert. Failure to adhere to the requirements under the rule mean that counsel do not have an opportunity to prepare for the expert’s evidence and may result in needless problems or delay being encountered at trial. It is apparent, however, from rule 53.08 that a court should exercise caution in excluding relevant expert opinion. This is reflected in the decision of Justice Quinn in Auto Workers Village (St. Catherines) Ltd v. Blaney McMurtry Stapells Friedman (1997), 14 C.P.C (4 th ) 152 . In that decision the court states:
In my view, it should be remembered that any time a court excludes relevant evidence the court’s ability to reach a just verdict is compromised. Relevant evidence should not be excluded on technical grounds, such as lack of timely delivery of a report, unless the court is satisfied that the prejudice to justice involved in receiving the evidence exceeds the prejudice to justice involved in excluding it.
[ 8 ] The issue of what rule 53.03(3) requires in terms of the substance of a proposed expert’s testimony was carefully considered in the Court of Appeal decision in Marchand v. Public General Hospital Society of Chatham (2000), 2000 16946 (ON CA) , 51 O.R. (3d) 97 (C.A.). In their decision the court stated,
In our view, these cases indicate that the “substance” requirement of rule 53.03(1) must be determined in light of the purpose of the rule, which is to facilitate orderly file preparation by providing opposing parties with adequate notice of opinion evidence to be adduced at trial. Accordingly, an expert report cannot merely state a conclusion. The report must set out the expert’s opinion, and the basis for that opinion. Further, while testifying, an expect may explain and amplify what is in his or her report but only on matters that are “latent in” or “touched on” by the report. An expert may not testify about matters that open up a new field not mentioned in the report. The trial judge must be afforded a certain amount of discretion in applying rule 53.03 with a view to ensuring that a party is not unfairly taken by surprise by expert evidence on a point that would not have been anticipated from a reading of an expert’s report.
[ 9 ] With respect to the first objection raised by defence counsel Mr. Brown’s third report dated April 11, 2011 contains the following opinion,
Based upon the above it would appear that the effect of section 38 of the Business Corporations Act should have been considered at least in the realizable value of the fixed assets.
[ 10 ] Mr. Brown does not expressly state in any of this reports whether the dividend in this case satisfied the requirements of section 38. I am advised, however, that in his evidence at trial he is going to go further and express a specific opinion on whether the statutory requirements were met.
[ 11 ] In considering this issue it is significant to note that in the context of Mr. Brown’s reports he carefully analyzes the evaluation of the corporation’s assets which would be an important factor in determining whether section 38(3) was complied with. In report of September 27, 2010 he states,
At the end of the 2003 fiscal year during which the dividend was declared the book value of the corporate assets exceeded the book value of its liabilities by $207,323. As long as the book value of the assets approximates the realizable value the dividend would not be in contravention of the subsection.
Mr. Brown goes on to state in this report that the asset values as shown on the balance sheet may be questionable.
[ 12 ] In a subsequent report dated April 11, 2011 he comments on the realizable value of the fixed assets of the corporation and comments that the book value of the assets may not be an accurate measure of their fair market value. He goes on to state that in most cases the realizable value of fixed assets is less than its book value.
[ 13 ] Taking all of Mr. Brown’s comments in his various reports into account it would appear that he is sceptical of whether the requirements of section 38 were met. The issue of whether the dividend met the requirements of section 38(3) are clearly raised in the plaintiff’s statement of claim. The issue was also specifically identified in Mr. Brown’s various reports and he was qualified as an expert to comment on those areas in his evidence at trial. In my view, it is not appropriate to read the conclusion in his report of April 11, 2011 in isolation. In my view, it is apparent that the proposed opinion on whether the dividend failed to comply with section 38(3) would be “latent” in his reports. It should not take the defence by surprise. In my view if there is any prejudice to the defendant it can properly be addressed by allowing the defendant to deliver a reply report. This is not a situation where Mr. Brown is about to open up a new field not mentioned in the report. Rather it is a situation where he may deviate from an opinion already expressed in a report. However, the relevant background is contained in the report.
[ 14 ] Counsel for the defence has referred me to the decision in Smith v. Inco , [2009] O.J. No.6271 . In that case the plaintiff served a one page update report from an expert approximately four weeks after the trial began. The court accepted that the update was an attempt to introduce an issue that had never previously been addressed. The court concluded in that case that it would be unfair to permit the plaintiff to introduce expert evidence that would radically change the opinions expressed in the previous written reports. It is significant to note, however, that in the Smith case the plaintiff had already called four expert witnesses who had been cross-examined and their testimony had been completed. Cross-examination of those witnesses had been conducted by counsel for the defendant on the assumption that the expert would testify as to the opinions contained in his reports. Clearly that scenario is different from the present case where Mr. Brown is the first expert witness to be called on whether the dividend complied with the statutory requirement and where any potential prejudice can be addressed by permitting a reply report to be filed.
[ 15 ] Different considerations apply, however, to the question of whether Mr. Brown should be entitled to give an opinion on what due diligence should have been taken by the accountant handling the dividend transaction at the time the dividend was declared. This issue was not addressed in any of Mr. Brown’s reports. It would clearly fall into the category of opening up a new field not mentioned in his reports.
[ 16 ] It is significant to note that there is no allegation in the plaintiff’s Statement of Claim which specifically raises an issue of negligence or due diligence in the claim against Mr. Rotenberg. The plaintiff’s allegations against Mr. Rotenberg are for fraud and conspiracy. The plaintiff’s solicitor believes that the pleadings as they stand are adequate. However, there is still nothing in the Statement of Claim as currently drafted which would have alerted defence that the issue of due diligence was going to be an issue in connection with the declaration of the dividend.
[ 17 ] I accept the defendants’ position that there is the potential for prejudice if this evidence is permitted. We are now over two weeks into the trial and defence counsel has prepared their defence based on an allegation of fraud and conspiracy against their client. To allow an allegation based on negligence or due diligence to emerge without notice during the course of an expert’s testimony would be unfair in my view. It might also raise issues relating to the evidence of witnesses who have already testified given that this issue not been on the table earlier.
[ 18 ] While I accept that leave will usually be granted to allow an expert to provide relevant evidence, I decline to do so in the present case because in my view there is a significant potential for prejudice to the defendant.
[ 19 ] For the above reasons I order that Mr. Brown may testify with respect to the first issue in dispute subject to the right of the defendant Rotenberg to file a reply report. Mr. Brown will not be permitted to give evidence with respect to the second issue which was the subject of the defence objection
The Honourable Mr. Justice M. McKelvey
DATE RELEASED: 20120613