Henderson v. Risi et al. [Indexed as: Henderson v. Risi]

111 O.R. (3d) 554
2012 ONSC 3459

Ontario Superior Court of Justice

Lederman J.
June 18, 2012

Evidence -- Expert evidence -- Question of expert witness's lack of institutional independence going to weight of his evidence and not to its admissibility -- Introduction of rule 4.1 of Rules of Civil Procedure and amendments to rule 53.03 not imposing higher duty on experts than exists at common law -- Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 4.1, 53.03.

The defendants proffered M to give expert opinion evidence on any irregularities in the books, records and financial statements of T Inc., to provide an opinion as to the fair market value of certain shares of the plaintiff in T Inc. at a particular time and to provide a critique of the proposed expert evidence of the plaintiff's accountant. M was a partner in the same accounting firm as T Inc.'s trustee in bankruptcy. The plaintiff objected to the admissibility of M's evidence, alleging that he was not independent or impartial and that there is a higher duty on an expert in Ontario than exists at common law by reason of the introduction of rule 4.1 and the amendments to rule 53.03 of the Rules of Civil Procedure.

Held, M should be accepted as an expert witness.

At common law, bias or partiality in expert evidence which is based on the expert having a connection with a party or issue or a possible predisposition or approach in the case goes to the weight of the expert's evidence and not its admissibility. The new rule amendments and certification requirement impose no higher duties on an expert than already exist at common law to provide opinion evidence that is fair, objective and non- partisan. The question of M's lack of institutional independence was best left to be considered as a matter of weight. M had the requisite expertise to be qualified as an expert witness.

RULING on the admissibility of the expert's evidence.

Cases referred to
Gallant v. Brake-Patten, [2012] N.J. No. 132, 2012 NLCA 23, 321 Nfld. & P.E.I.R. 77, affg [2010] N.J. No. 2, 2010 NLTD 1, 292 Nfld. & P.E.I.R. 279, apld

Other cases referred to
Beasley v. Barrand (2010), 101 O.R. (3d) 452, [2010] O.J. No. 1466, 2010 ONSC 2095, 94 C.P.C. (6th) 331 (S.C.J.);
Fellowes, McNeil v. Kansa General International Insurance Co. (1998), 1998CanLII14856 (ON SC), 40 O.R. (3d) 456, [1998] O.J. No. 4050, 79 O.T.C. 241, 9 C.C.L.I. (3d) 17, 37 C.P.C. (4th) 20, 83 A.C.W.S. (3d) 127;
The Ikarian Reefer, [1995] 1 Lloyd's L.R. 455 (C.A.), affg [1993] 2 Lloyd's L.R. 68 (Q.B.D.)

Rules and regulations referred to
Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 4.1, 53.03

Sara J. Erskine and Nastaran Roushan, for plaintiff, defendant by counterclaim.
Brian Sherman, for defendants, plaintiffs by counterclaim. [page555]

LEDERMAN J.: --

[ 1 ] Brian Mozessohn ("Mozessohn") is being proffered as an expert for the defendants, plaintiffs by counterclaim, to give expert opinion evidence as to any irregularities in the books, records and financial statements of Timeless Realty Inc. ("Timeless") from April 19, 2005 to August 31, 2008; to provide an opinion as to the fair market value of the 100 class "A" shares of the plaintiff in Timeless as at August 2008; and to provide a critique opinion of the proposed expert evidence of the accountant, Eric Solomon, to be called by the plaintiff if such evidence is ruled admissible.

[ 2 ] The plaintiff objects to the admissibility of Mozessohn's evidence on two grounds: (a) Mozessohn is not independent or impartial and exhibits both institutional bias and actual bias as a result of his professional and business relationship with Mr. Alan Page ("Page"); (b) Mozessohn does not have the requisite expertise to give expert evidence on whether Timeless's financial statements were in accordance with industry standards to rely on his valuation of the shares of Timeless. Relationship between Mozessohn and Page

[ 3 ] Mozessohn is the president of Schwartz Levitsky Feldman Valuations Inc. ("Valuations"), a corporation which undertakes business valuations, litigation accounting, acquisitions and divestitures and corporate finance matters. Mozessohn is also a senior partner at Schwartz Levitsky Feldman LLP ("SLF LLP"), a chartered accountancy firm.

[ 4 ] Page is vice-president of Schwartz Levitsky Feldman Inc. ("SLF Inc.") and the trustee in bankruptcy for Timeless. SLF Inc. is engaged in the services of insolvency restructuring, liability assessments and turnaround management matters.

[ 5 ] Page is also a partner at SLF LLP, thereby making him a partner of Mozessohn.

[ 6 ] Page and SLF Inc. have not been discharged as trustees in Timeless's bankruptcy.

[ 7 ] SLF LLP, Valuations and SLF Inc. are all related companies under the "SLF Group".

[ 8 ] The plaintiff submits that, as Mozessohn is a senior partner of the firm SLF LLP, chartered accountants, as is Page, who is the trustee in bankruptcy of Timeless, their corporate [page556] association gives rise to the possibility of bias in Mozessohn's evidence to this court.

[ 9 ] Mozessohn has testified that there were no communications passing between him and Page at any material time about the issues in this case. Mozessohn received from Page only publically available information relating to the Timeless bankruptcy as partial background for his review. Mozessohn was not retained on this case until about two years after Page was retained as Trustee. Timeless's Bankruptcy

[ 10 ] The plaintiff submits that the propriety of Timeless's bankruptcy and the conduct of Page as trustee are at issue in this action. The bankruptcy of Timeless and the conduct of the trustee are pleaded at paras. 48-50 of the amended statement of defence and counterclaim. The plaintiff submits that, if not for the bankruptcy, the defendants would not have a basis to claim all or part of its alleged business losses of $460,537.44 and the cost of the trustee in the amount of $7,875.

[ 11 ] For their part, the defendants submit that they do not found their counterclaim for business losses on Timeless's bankruptcy; nor is there any suggestion that the plaintiff's claim is based on the bankruptcy. The defendants therefore submit that apart from the small claim of the costs of the trustee that they have incurred, the bankruptcy of Timeless and the manner in which Page conducted the bankruptcy are totally irrelevant to the issues in this case. Accordingly, the defendants submit that any association, however remote, between Mozessohn and Page cannot disqualify Mozessohn from giving evidence on the issues for which he was retained.

[ 12 ] The plaintiff submits that the fact of the bankruptcy and Page's conduct as trustee are relevant to the plaintiff's claim that the defendants be required to take an assignment of the equipment leases. Although the equipment leases were the obligation of Timeless, the plaintiff submits that she is a personal guarantor on those leases and a demand for payment upon her was triggered by the bankruptcy of Timeless. The plaintiff, however, has to date made no payments on the leases and no litigation has been commenced by the lessors as against her.

[ 13 ] The importance of Timeless's bankruptcy to the plaintiff's case has yet to be determined, but it would appear not to be as great as suggested by the plaintiff at the outset of the trial. The full extent of the relationship and importance of the bankruptcy and Page's duties as trustee to the issues in this case cannot be determined until the completion of the trial. [page557] Lack of Institutional Independence

[ 14 ] Case law has at times made a distinction with respect to admissibility of expert evidence where the allegation is that the expert lacks institutional independence as opposed to one of personal advocacy. Recently, the Newfoundland Court of Appeal in Gallant v. Brake-Patten, [2012] N.J. No. 132, 2012 NLCA 23 stated, at paras. 86-87 and 89-93, as follows:

When expert evidence is challenged on the basis that it is biased or partial, it is important to identify the nature of the alleged bias or partiality. Legal advocacy, containing legal analyses and argument, legal interpretations and conclusions, which masquerades as expert evidence is distinctly different from expert evidence which is alleged to be biased or partial on the basis of the expert witness having a connection to a party or an issue in the case.

The law reviewed in paragraphs 58 to 85 above indicates that when there is an allegation that a witness is biased or partial because the witness has a connection with a party or a matter in issue, the courts have treated the issue as one which goes to weight rather than admissibility[.] @7 . . . . .

When a challenge to expert evidence is based on the expert witness having a connection to a party or an issue in the case or a possible predetermined position on the case, the essence of the challenge is that the evidence is not reliable because the expert has tailored his evidence to suit the position of the particular party or the expert's personal views. This kind of reliability is not an admissibility issue; it is not a threshold consideration of the kind identified in Abbey, or a gatekeeper issue as described in J.-L.J. Nor is it an issue which requires a cost-benefit analysis or a probity versus prejudice assessment of the kind Sopinka J. describes in Mohan. Rather, it is an ultimate reliability issue, the determination of which calls for an overall assessment of the evidence, carried out in the usual way a court assesses evidence, and involving a review of consistencies and inconsistencies, determinations of credibility and judging whether the evidence helps to establish points in issue and whether it makes sense.

The assessment of ultimate reliability cannot take place at the admissibility stage. To attempt to decide the ultimate reliability of expert evidence at the admissibility stage would be akin to making a final decision before knowing all of the facts.

Although expert evidence is initially tendered in the form of a written report, an expert's viva voce testimony given in chief explains the support for the opinion contained in the report by describing how the tenets of the expert's discipline, applied to the facts of the case, enable him or her to reach his or her conclusion. Much more information respecting these and other issues is usually revealed in cross-examination. A court needs to hear the whole of this evidence from the expert in order to fairly evaluate its reliability.

Moreover, the ultimate reliability of the expert evidence cannot be fully and fairly determined if it is considered in isolation from the other trial evidence. It is only when the court considers and measures the impugned [page558] evidence in relation to the other trial evidence that its pertinence to the points in issue can be decided and its overall worth to the court can be ascertained and appreciated. This contextual approach to determining the ultimate reliability of the evidence is the fairest way to evaluate it and the best way to get the truth of the issues before the court.

In summary, in civil cases, if expert evidence meets the Mohan criteria for admissibility, it is admissible. Bias or partiality in expert evidence which is based on the expert having a connection with a party or issue or a possible pre- disposition or approach in the case is a reliability issue which is best determined when the whole of the expert evidence is considered in the context of all of the trial evidence. As such, the issue is one of weight and not admissibility.

[ 15 ] Plaintiff's counsel acknowledges that the analysis set out by the Newfoundland Court of Appeal is an articulation of common law principles applicable when an expert allegedly exhibits partiality on the basis of being institutionally connected with a party or a matter in issue.

[ 16 ] However, she submits that there is a higher level of duty on an expert in Ontario, than exists at common law, by reason of the introduction of rule 4.1 and the amendments to rule 53.03 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. In Beasley v. Barrand (2010), 101 O.R. (3d) 452, [2010] O.J. No. 1466, 2010 ONSC 2095 (S.C.J.), Justice Moore specifically addressed this development and adopted excerpts of the report of the Honourable Coulter A. Osborne, Q.C., who recommended reforms to the justice system to limit the extent of expert bias. Rule 4.1, the changes to rule 53.03 and the required acknowledgement of expert's duty (Form 53) are the product of such reform.

[ 17 ] Plaintiff's counsel submits that by reason of the change in the Rules in Ontario, judges must now act as gate keepers on the question of institutional independence and must determine the issue at the admissibility stage rather than leaving it to be considered as a matter of weight.

[ 18 ] The Osborne Report made it clear that the issue of "hired guns" and "opinions for sale" was repeatedly identified as a problem and recommended that there be a specific rule of procedure to expressly impose on experts an overriding duty to the court rather than to the parties who pay or instruct them. Its purpose was, at a minimum, to "cause experts to pause and consider the content of their reports and the extent to which their opinions may have been subjected to subtle or overt pressures".

[ 19 ] The new rule amendments and certification requirement impose no higher duties than already existed at common law on an expert to provide opinion evidence that is fair, objective and non-partisan (see, for example, The Ikarian Reefer, [1993] 2 Lloyd's L.R. 68 (Q.B.D.), at pp. 81-82, affd on this point [1995] 1 Lloyd's L.R. 455 (C.A.) at pp. 496; [page559] Fellowes, McNeil v. Kansa General International Insurance Co. (1998), 1998CanLII14856 (ON SC), 40 O.R. (3d) 456, [1998] O.J. No. 4050 (Gen. Div.)). The purpose of the reform was to remind experts of their already existing obligations.

[ 20 ] Accordingly, adopting the principles enunciated in the Gallant case, I find that the question of lack of institutional independence on the part of Mozessohn is best left to be a matter of weight and not admissibility. This is re-enforced by the fact that the nature of the relevance between the bankruptcy of Timeless (and Page's conduct as trustee) to the matters in issue are not crystal clear at this stage and, therefore, the importance of the connection between Mozessohn and Page requires further contextual assessment. Legal Advocacy

[ 21 ] Plaintiff's counsel refers to certain instances in Mozessohn's reports indicating that he has engaged in legal advocacy as follows: (a) He commented that "clearly the trustee would have attempted to recover goodwill for the benefit of the creditors if such goodwill had existed". Plaintiff's counsel points out that Mozessohn did not review the books and records of Timeless after August 31, 2008 or even consider the possibility that the trustee was incorrect in his assessment of lack of goodwill. This, however, is not of much consequence if Timeless's bankruptcy and the manner in which Page dealt with goodwill are not relevant to any material issue in the case; (b) Mozessohn acted as an advocate in his report where he questions, without any foundation, whether Bennett Gold "had a duty of care with respect to the 2008 financial statements over and above that in prior years" because they were aware of the sale of Timeless when the 2008 financial statements were compiled. Mozessohn explained that he was making the comment from the vantage point of an accountant. He testified that if an accountant is aware that financial statements will be relied on, not only by management but also by a third party, his understanding is that the accountant should inform the client that a notice to reader engagement may not be an appropriate way of preparing financial statements for the sale of the business. In expressing this opinion, I do not see this as a form of legal advocacy such as to render his testimony inadmissible; [page560] (c) Mozessohn cherry-picked the facts and failed to explore all possibilities in his valuation report of Timeless. For example, he doesn't even consider the purchase price paid by Risi for Timeless because he states that the reasonableness of the share purchase agreement is at issue in the litigation. Plaintiff's counsel submits that the reasonableness of the purchase price of $490,000 is not in issue as it is a fixed price. On the other hand, defendants' counsel submits that it is in issue because of the alleged misrepresentations and breaches of warranties. Mozessohn's view of the facts does not in and of itself constitute legal advocacy so as to disqualify his opinion in its entirety. Lack of Expertise on Real Estate Industry Standards

[ 22 ] Plaintiff's counsel submits that Mozessohn lacks the requisite expertise in real estate industry standards given the nature of his prior experience and the fact that he relied on information that was not independent of the parties. I find that he does have sufficient experience to provide opinion evidence on whether the financial statements of Timeless for 2008 were in accordance with industry standards in order to rely on his valuation of the shares of Timeless. He has had extensive experience in business valuation and litigation accounting, and he has sufficient familiarity with real estate brokerage businesses and has relied on the Lone Wolf software programs used by real estate brokerages. In my view, he passes the threshold level of qualification. Conclusion

[ 23 ] For all of these reasons, Mozessohn is accepted as a qualified expert to provide opinion evidence with respect to irregularities in the books, records and financial statements of Timeless and to provide an opinion as to the value of the Timeless class "A" shares on closing. The matters raised by plaintiff's counsel on this motion may be considered as going to weight at the end of the trial.

Order accordingly.