COURT FILE NO.: 06-CV-308098PD1
DATE: 20121220
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
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
- and -
BERNARD C. SHERMAN
Non-Party (Appellant below)
Maurice J. Neirinck, for Kerry Winter, Paul Barkin and Julia Barkin, personal representative of Dana C. Winter, deceased, Plaintiffs
Gregory M. Sidlofsky, for Jeffrey A. Barkin, Plaintiff
Eric Morgan, for The Royal Trust Company and Royal Trust Corporation of Canada, Defendants
Adrian C. Lang & Alexandra Urbanski, for Bernard C. Sherman (Moving Party)
HEARD: October 18, 2012
LEDERER J.:
Introduction
[1] This is a motion for leave to appeal an order requiring the production of the financial statements of a company that is alleged to be carrying on the business of a predecessor such that those on whose behalf the predecessor was sold continue to have an interest in the existing company and should have received royalties from the sale of certain of its products. The production is sought in connection with a motion for summary judgment. The question is whether errors were made in the decision ordering production such that leave to appeal should be granted.
Background
[2] Louis Winter was the father of three of the four plaintiffs. The fourth, Julia Winter, is the widow of a brother of the other three plaintiffs. Louis Winter was the founder of Empire Laboratories Limited (“Empire”), a generic drug manufacturer. Louis Winter and his wife, the mother of the three plaintiffs and the mother-in-law of the fourth, died within three weeks of each other. The defendants, Royal Trust Corporation of Canada and Royal Trust Company (“Royal Trust”), acted as executor to the estates of Louis Winter and his wife. In that capacity, Royal Trust agreed, in response to an offer from Bernard (“Barry”) Sherman, Joel Ulster and Benjamin Ulster, to sell Empire. Prior to closing, the agreement was assigned to Sherman & Ulster Limited. In connection with the closing, Sherman & Ulster Limited and Royal Trust entered into two subsidiary agreements. The first provided for the payment of royalties to the estates, for fifteen years, upon the sale of certain identified chemicals (the “Royalty Agreement”). The second agreement acknowledged that, upon reaching the age of twenty-one or upon completing their formal education, each of the children of Louis Winter would be offered full-time employment with the company that had been sold and, thereafter, subject to certain conditions, given an option to purchase at least 5% (a total of 20%) of the issued capital of the company or companies owning the purchased business (the “Options Agreement”). The conditions included the requirement that, at the time the option agreement was effective, Barry Sherman continued to have control of the companies and that they remained private.
[3] In this action, the plaintiffs allege that Royal Trust failed to advise them of their rights pursuant to the agreement of purchase and sale, the Royalty Agreement or the Options Agreement. It is said that the royalties were never paid and employment, as well as the option to purchase shares, never offered.
[4] Royal Trust has brought a motion seeking summary judgment. In short, Royal Trust asserts that the chemicals for which the royalties were to be paid were never manufactured by the purchased business and, in respect of the options, Barry Sherman has not, since 1969, had control of the companies involved. It does not take much to see that any evidence Barry Sherman provided would be important to a determination of the motion. Royal Trust served an affidavit sworn by Barry Sherman. In the affidavit, he deposed that Sherman & Ulster Limited sold a portion of its 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 Barry Sherman continues to have an interest in ICN and, further, retained control of a least part of the business of Empire, including the goodwill, which forms the foundation of Apotex Inc., a private company controlled by Barry Sherman. The plaintiffs allege that the products developed by Barry Sherman at Apotex Inc. were the same as those sold by Empire. Apotex Inc. is one of Canada’s largest pharmaceutical companies (see: Winter et al. v. Sherman, Apotex et al. 2010 ONSC 3640, at para. 6).
The Decisions Made
[5] Barry Sherman was cross-examined on his affidavit. There were questions he refused to answer and undertakings he refused to provide. A motion was brought with respect to these refusals. It was heard and decided by Master Hawkins. Among the issues raised before the Master was the refusal of Barry Sherman to produce the financial statements of Apotex Inc. from 1974 to the date of the order (thirty-six years). Master Hawkins found that these documents should be produced. He wrote:
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.
( Winter et al. v. Royal Trust Company et al . 2012 ONSC 3126 , at para. 25 )
[6] The order of Master Hawkins was appealed. The appeal was heard by Madam Justice Brown. She upheld the decision of the Master. In respect of the production of the financial statements, she found:
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.
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
( Winter et al. v. Royal Trust Company et al ., supra , at paras. 17 and 18)
[7] It is the decision of Madam Justice Brown from which leave is now sought.
The Applicable Rule
[8] Motions for leave to appeal are governed by Rule 62.02(4) of the Rules of Civil Procedure. It says:
(4) Leave to appeal shall not be granted unless,
(a) there is a conflicting decision by another judge or court in Ontario or elsewhere on the matter involved in the proposed appeal and it is, in the opinion of the judge hearing the motion, desirable that leave to appeal be granted; or
(b) there appears to the judge hearing the motion good reason to doubt the correctness of the order in question and the proposed appeal involves matters of such importance that, in his or her opinion, leave to appeal should be granted.
Analysis
[9] Barry Sherman is the moving party. Royal Trust was separately represented. Its counsel played no role in the submissions that were made. Counsel for Barry Sherman submitted that there are both “conflicting decision[s]” and “good reason to doubt the correctness of the order”.
“Conflicting Decision”
[10] This is not the only action that has been commenced in respect of the Winter estates, the sale of Empire and claims the progeny of Louis Winter may have arising from the Royalty and Option Agreements. A separate, independent action is under away, brought by the same plaintiffs, naming Barry Sherman and Apotex Inc. as two of the four defendants. Generally, the action is for oppression, pursuant to s. 248 of the Business Corporations Act , RSO 1990, c B.16. Under that clause, if the plaintiffs are successful, they will be entitled to a remedy that will “rectify” the wrong. At its core, the remedy being sought requests an accounting. The right of each of the four plaintiffs to purchase 5% of the equity in Apotex Inc., once established, would require an accounting to determine the appropriate purchase price for the shares as provided for in the Option Agreement. In that action, the plaintiffs also seek damages, but ask that the value of those damages be determined through an accounting.
[11] In preparation for examinations-for-discovery, production of the same financial statements was requested and, as here, refused. A motion to override the refusal was to be heard by Master Haberman. Prior to the motion, the defendants indicated a desire to move for “bifurcation”. While it is not entirely clear, as I understand it, they wished to separate the issue of liability from the valuation of any damages. Be that as it may, the Master refused to adjourn the motion for production pending a hearing by a judge of the motion to bifurcate. The Master pointed out that the latter was within her jurisdiction and indicated she would hear both motions, the motion for bifurcation before the motion for production. In a subsequent conference call, counsel for the defendants had what the Master referred to as “a change of heart”. They now wished to bring their bifurcation motion as alternative relief in the context of a summary judgment motion that would be returnable before a judge. They expected the production motion to await the results of the "newly announced summary judgment motion". The Master was not prepared to agree. She did urge counsel for the defendants to proceed with their bifurcation motion before the production motion (see: Winter et al. v. Sherman, Apotex et al. 2010 ONSC 3640 , at paras. 14-17 ). It appears that this was not done. The Master made clear her view of the motion that proceeded before her:
It is therefore not open to the defendants to now raise issues about the timing of having to produce these materials. While it is certainly possible that, at the end of the day, the plaintiffs will be unable to establish that Apotex is a successor to the business, such that the issue of damages may never arise, the defendants have chosen to proceed in this manner, fully cognizant of the ramifications regarding their production obligations.
( Winter et al. v. Sherman, Apotex et al. , supra , at para. 18 )
[12] The point of this is to confirm and make clear a submission made on behalf of the plaintiffs (the responding parties to this motion). The motion heard by Master Haberman was conducted in the context of production in advance of an examination-for-discovery; that is, in respect of the action as a whole, and was not limited to narrower issues that might have been the subject of a motion for summary judgment.
[13] Master Haberman heard the production motion and limited the production of financial statements to one year (“the last set of financial statements”) (see: Winter et al. v. Sherman, Apotex et al. , supra, at para. 25 ).
[14] The appeal of the decision of Master Haberman was heard by Madam Justice Low. She refused the appeal finding that the order made by the Master fell within proper exercise of discretion of the Master. It was submitted by counsel, on behalf of Barry Sherman, that this represents a conflicting decision supporting the request for leave to appeal. I do not agree.
[15] The action, in which Barry Sherman was named as a defendant, is at a different stage. Examinations-for-discovery reflect a different and broader responsibility to produce material that has "a semblance of relevance". Production would cover the full ambit of the action. This was recognized by Master Haberman when she observed that the discovery covered the full breadth of the action but, based on the facts of the case at the time she was dealing with the matter, was nonetheless limited:
In terms of assessing relevance for the purpose of this motion, I must take the pleadings as they stand. As one set of parties asserts that Apotex is the successor and the other denies that is the case, this is clearly a matter in issue, and therefore, subject to full disclosure both with respect to liability and damages.
In this action, the plaintiffs each seek a declaration of entitlement to an interest in Apotex or payment in lieu. If they make out their case, one of the things that will assist a trial judge in making the necessary calculations to establish the monetary value of their entitlement will be Apotex’s tax returns and the financial statements as at the time damages are calculated. Both, at least at that point in time, are therefore, relevant.
( Winter et al. v. Sherman, Apotex et al. , supra , at paras. 22 and 23 )
[16] The remedy being sought in that action is for an accounting. Information which reflects on the financial circumstances of the company was not relevant to the proceeding then underway. Madam Justice Low associated the limit to production, as ordered by the Master, with the fact that the remedy being sought was an accounting:
With respect to the Master' s disposition of the motion in relation to the financial statements and tax returns, the limits she imposed on the temporal ambit of production at this stage is within the proper exercise of discretion and the principle of proportionality, particularly as the prayer for relief at para. 1.1 (i)-(iv) specifically contemplates an accounting .
[Emphasis added]
( Winter et al. v. Sherman, Apotex et al ., Endorsement of Madam Justice Low, dated November 17, 2010))
[17] The financial status of the company will become pertinent once the trial is complete, if an accounting is ordered.
[18] This approach is supported by the understanding that where the decision under consideration is a discretionary one, the existence of a case exercising the discretion in a different manner under different circumstances, does not meet the test of a conflicting decision. There must be a difference in the principle upon which the court acted. To conflict, cases must reflect a difference in principle and not merely a difference in outcome (see: Fand Investments Inc. (Re), 2005 ONSC 63794, at para. 9; and, Holt v. Anderson 2005 O.A.C. 91 (Div. Ct.), at para. 10). In this case, Master Haberman and, subsequently, Madam Justice Low confronted a situation that arose from the same factual background, but the motion for production was brought in different circumstances at a different stage in the process. There is no suggestion that the discretion was not properly applied. The fact that it arrived at a different result is not surprising and does not result in a conflict. A conflicting decision does not arise when the same legal principles are applied to a different set of facts.
[19] In the circumstances of this case, it seems that what would normally be an argument that the decision is res judicata or susceptible to issue estoppel has been replaced with an argument that the earlier decision conflicts with the one for which leave is being sought. It may well be that neither res judicata nor issue estoppel would apply in the circumstances; after all, the parties and the actions are not the same. However, this does not mean that these decisions should then be judged as conflicting.
[20] There is no decision which conflicts with the decision the moving party seeks to appeal.
“Good reason to doubt the correctness of the order”
[21] Counsel for the moving party says that there is reason to doubt the correctness of the decision. In considering this proposition, it is important to remember the question that is to be answered. It is not for the judge considering the motion for leave to appeal to determine whether the decision is right or wrong, but whether the “correctness of the order is open to very serious debate” (see: Ainslie v. CV Technologies Inc., 2009 ONSC 7165, [2009] O.J. No. 730 (S.C.J.), at para. 12). The argument is that the financial statements ordered to be produced are not relevant to the issues raised on the motion for summary judgment.
[22] Counsel submitted that the order was made on the false understanding that (1) the production was with respect to the action as a whole, rather than restricted to the issues on the motion; and (2) with respect to damages when the motion would only deal with liability. It was suggested that, by allowing the production of financial statements in respect of a motion to which they have no relevance, the court is allowing cross-examination to be used as a means to examine-for-discovery a non-party, in this case Barry Sherman.
[23] It has been held that:
The examining party may not ask questions on issues that go beyond the scope of the cross-examination for an application or motion.
( Ontario v. Rothmans Inc., 2011 ONSC 2504, [2011] O.J. No. 1896, at para. 143 )
[24] In short, the question is whether the information that financial statements contain is or may be relevant to the motion for summary judgment:
…I am performing a screening function and that any question which may lead to evidence that could legitimately influence the judge hearing the motion should be allowed. I have also been mindful of the fact that the motion in issue is a summary judgment motion.
( Lawrence v. Atlas Cold Storage Holdings Inc., [2007] O.J. No. 4243, at para. 16 )
[25] A fundamental issue in this action will be the relationship between Empire and Apotex Inc. Is the latter carrying on the business of the former?
[26] This question was recognized by Master Hawkins:
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.
( Kerry D. Winter et al. v. The Royal Trust Company et al., decision of Master Hawkins, dated June 23, 2011, at para. 12)
[27] It was referred to by him in the context of questions concerning the Royalty Agreement. Although not mentioned by the Master in his consideration of whether the financial statements should be produced, it is no less relevant to that issue.
[28] For her part, Madam Justice Brown observed:
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.
( Winter et al. v. Royal Trust Company et al., supra, at para. 11)
[29] She concluded that “…the financial statements were relevant to the issues in the action (see: Winter et al. v. Royal Trust Company et al., supra, at para. 17 and as quoted in para. [6], above). This would include whether Apotex Inc. carried on the same business as Empire.
[30] The plaintiffs say that, among other things, the financial statements will provide information about the assets of the business being carried out and will, or may, point to a link between Apotex Inc. and Empire. Counsel for the plaintiffs suggest that this would run directly to the issue of liability and against the position of Royal Trust that, by the time the Option Agreement was effective (the children of Louis Winter had reached the age of twenty-one), Barry Sherman had sold his interest in the business. On this basis, the financial statements are or have a semblance of relevance to the issue of liability.
[31] There is no reason to doubt the correctness of the orders of Master Hawkins or Madam Justice Brown.
Proportionality
[32] Counsel for the moving party submitted that there is more to the submissions that there are cases that conflict with the decision of Madam Justice Brown and that there is reason to doubt the correctness of her order. Counsel says that these further submissions reflect a failure to properly consider the principle of proportionality.
[33] In suggesting there are conflicting cases, counsel for the moving party referred to Ontario v. Rothmans Inc., supra, and to Abrams v. Abrams 2010 ONSC 2703 (S.C.J.). They note:
…that the proportionality principle was introduced because the system of justice was under severe strain because cases were taking too long and costing too much for litigants
( Ontario v. Rothmans Inc., supra, at para. 160, referring to Javitz v. BMO Nesbitt Burns Inc. 2011 ONSC 1332, at para. 28 )
and
Proportionality signals that the old ways of litigating must give way to new ways which better achieve the general principle of securing the ‘just, most expeditious and least expensive determination of every proceeding on its merits’.
( Abrams v. Abrams, supra, at para. 70, as quoted in Ontario v. Rothmans Inc., supra, at para. 160 )
[34] These cases serve to suggest the importance of the recognition of “proportionality” as a consideration in processing proceedings through our courts. They do not outline how the principle is to be applied such that a conflict can be identified between these and other cases.
[35] Counsel for the moving party submitted that there was good reason to believe that the principle of proportionality had not been correctly applied. In Javitz v. BMO Nesbitt Burns Inc., supra, the judge quoted from the report that recommended the introduction of the concept of proportionality into the Rules of Civil Procedure:
Proportionality, in the context of civil litigation, simply reflects that the time and expense devoted to a proceeding ought to be proportionate to what is at stake. It should be expressly referenced in the Rules of Civil Procedure as an overarching, guiding principle when the court makes any order.
In my view, the civil justice system somehow has to recognize the principle of proportionality as having a broad application to all civil proceedings, so that courts and parties deal with cases in a manner that reflects what is involved in the litigation, its jurisprudential importance and the inherent complexity of the proceeding.
( Javitz v. BMO Nesbitt Burns Inc., supra, at para. 28 )
[36] Consistent with this concept, Madam Justice Brown concluded that “…the deference standard applies to proportionality” (see: Winter et al. v. Royal Trust Company et al., supra, at para. 8). This being so, to set aside her order, it would be necessary to find that the decision she made was outside the range of reasonable alternatives available in the circumstances. There is no basis for such a finding. Madam Justice Brown concluded that “… the Master’s order in this regard is proportionate”. Counsel for the moving party suggested that the words “in this regard” refers only to the issue of “damages” as referred to in the immediately preceding sentence (see: Winter et al. v. Royal Trust Company et al., supra, at para. 18, and as quoted in para. [6], above). This should not be separated from the reference to “issues in this action”, as referred to in the preceding paragraph (see: Winter et al. v. Royal Trust Company et al., supra, at para. 1, and as quoted in paras. [6] and [29], above).
[37] In considering the application of the concept of proportionality, it is important to remember that this case concerns one of the largest pharmaceutical companies in Canada, claims that go back as far as 1967 and many millions of dollars. The motion for summary judgment will determine whether the action can proceed. The claims by their nature are complex, both in terms of the jurisprudence and the factual determinations that will have to be made. It is difficult to see how the production of anything that may assist the court in resolving the motion should not be produced as being contrary to the principle of proportionality. It should not be forgotten that production of the financial statements as bearing a semblance of relevance is one thing; whether all questions that may be asked on cross-examination after they have been produced are similarly relevant is a separate question.
Non-party
[38] The moving party objects to producing this material on the basis that he and, it would seem, Apotex Inc. are non-parties. Barry Sherman is intrinsically involved in these proceedings. Even if this were not so, he has introduced himself into this proceeding by swearing the affidavit.
[39] There is no reason to believe that Apotex Inc. was unaware of the proceeding or the motions heard by Master Hawkins, Madam Justice Brown and now this motion for leave to appeal. It has not appeared and has taken no position with respect to the production of the financial statements. It has not objected to their production.
Conclusion
[40] For the reasons reviewed, the motion is dismissed.
Costs
[41] If the parties are unable to agree as to costs, I will consider written submissions on the following terms:
On behalf of the plaintiffs, Kerry J.D. Winter, Paul T. Barkin and Dana C. Winter, no later than fifteen days after the release of these reasons. Such submissions are to be no longer than four pages, double-spaced, exclusive of any Bill of Costs, Costs Outline or case law that may be included.
On behalf of the plaintiff, Jeffrey A. Barkin, no later than fifteen days after the release of these reasons. Such submissions are to be no longer than two pages, double-spaced, exclusive of any Bill of Costs, Costs Outline or case law that may be included.
On behalf of the moving party, no later than ten days after the delivery of the submissions of the plaintiffs. Such submissions are to be no longer than six pages, double-spaced, exclusive of any Bill of Costs, Costs Outline or case law that may be included.
On behalf of the defendants, no later than ten days after the delivery of the submissions of the plaintiffs. Such submissions are to be no longer than two pages, double-spaced, exclusive of any Bill of Costs, Costs Outline or case law that may be included.
In reply, if necessary, on behalf of the plaintiffs, Kerry J.D. Winter, Paul T. Barkin and Dana C. Winter, no later than five days after the delivery of the submissions of the moving party and the defendants. Such submissions are to be no longer than two pages, double-spaced.
In reply, if necessary, on behalf of the plaintiff, Jeffrey A. Barkin, no later than five days after the delivery of the submissions of the moving party and the defendants. Such submissions are to be no longer than one page, double-spaced.
LEDERER J.
Released: 20121220
COURT FILE NO.: 06-CV-308098PD1
DATE: 20121220
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
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
- and -
BERNARD C. SHERMAN
Non-Party (Appellant below)
JUDGMENT
LEDERER J.
Released: 20121220