ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 00-CV-201162CP
DATE: 20140610

BETWEEN:

CANADIAN IMPERIAL BANK OF COMMERCE, HIGH RIVER LIMITED PARTNERSHIP and PHILIP SERVICES CORP. by its receiver and manager, ROBERT CUMMING

Plaintiffs

– and –

DELOITTE & TOUCHE, DELOITTE & TOUCHE LLP, DELOITTE TOUCHE TOHMATSU, DELOITTE TOUCHE TOHMATSU LLP and DELOITTE TOUCHE TOHMATSU f/k/a DELOITTE TOUCHE TOHMATSU INTERNATIONAL

Defendants

Thomas J. Dunne, Q.C., John E. Callaghan and Benjamin Na, for the Plaintiffs

Robb C. Heintzman and Michael D. Schafler, for the Defendants

Paul F. Farley and Brian P. Bellmore, for the Institute of Chartered Accountants of Ontario

Proceeding under the Class Proceedings Act, 1992

HEARD: June 3, 2014

PERELL, J.

REASONS FOR DECISION

A. INTRODUCTION

[1] Pursuant to rule 30.10, the Plaintiffs, the Canadian Imperial Bank of Commerce (“CIBC”), High River Limited Partnership (“High River”), and Philip Services Corp. (“Philip”), bring a motion for an order that a non-party, the Institute of Chartered Accountants of Ontario (the “Institute”), produce at this stage of this action its documents with respect to an investigation of Noel Woodsford and Ronald McNeill, who were audit partners with the Defendants, Deloitte & Touche, Deloitte & Touche LLP, Deloitte Touche Tohmatsu LLP, and Deloitte Touche Tohmatsu f/k/a Deloitte Touche Tohmatsu International (severally or collectively, “Deloitte”).

[2] To be more precise, pursuant to rule 30.10 and before a pending partial summary judgment motion brought by Deloitte and before the trial of the balance of the Plaintiffs’ claims, the Plaintiffs seek the disclosure and production of the Institute’s documents, including witness statements, notes of interviews, and a report by the Institute’s investigators, Michael Cashion, Joel Cohen, and Jim King, with respect to the discipline proceeding against Mr. Woodsford.

[3] The Plaintiffs’ motion is resisted by the Institute and by Deloitte (and indirectly by Mr. Woodsford and Mr. McNeill.) The Institute submits that its documents are subject to a case-by-case privilege and that the requirements for production from a non-party at this stage of the action have not been satisfied.

[4] Deloitte supports the submissions of the Institute, and it adds that in the context of a refusals motion, I have already ruled that some of the Institute’s documents need not be produced.

[5] For the reasons that follow, I dismiss the Plaintiffs’ motion.

[6] In my opinion, the Institute’s documents are privileged, but, even if there are no privileged documents, I would not exercise the court’s discretion under rule 30.10 to order production from the Institute, a non-party, in the circumstances of the case at bar.

[7] I also agree with Deloitte that in the context of a refusal’s motion I have already ruled that some of the Institute’s documents are not producible on grounds of irrelevance, privilege or proportionality.

[8] My ruling about case-by-case privilege means that the all of the Institute’s documents, including the investigator’s report, are privileged, and need not be disclosed at any time.

[9] If I am found by a higher court to be wrong about the privileged nature of the documents, then my ruling on this rule 30.10 motion means that in accordance with the principles established for rule 30.10, the Institute’s documents need not be produced at this time.

B. METHODOLOGY

[10] This is a rule 30.10 motion. Rule 30.10 states:

Order for Inspection

30.10 (1) The court may, on motion by a party, order production for inspection of a document that is in the possession, control or power of a person not a party and is not privileged where the court is satisfied that,

(a) the document is relevant to a material issue in the action; and

(b) it would be unfair to require the moving party to proceed to trial without having discovery of the document.

Notice of Motion

(2) A motion for an order under subrule (1) shall be made on notice,

(a) to every other party; and

(b) to the person not a party, served personally or by an alternative to personal service under rule 16.03.

Court may Inspect Document

(3) Where privilege is claimed for a document referred to in subrule (1), or where the court is uncertain of the relevance of or necessity for discovery of the document, the court may inspect the document to determine the issue.

Preparation of Certified Copy

(4) The court may give directions respecting the preparation of a certified copy of a document referred to in subrule (1) and the certified copy may be used for all purposes in place of the original.

Cost of Producing Document

(5) The moving party is responsible for the reasonable cost incurred or to be incurred by the person not a party to produce a document referred to in subrule (1), unless the court orders otherwise.

[11] To oversimplify what ultimately is a very complex matter, under rule 30.10 (1), the court may order production of a document that is in the possession, control or power of a non-party and is not privileged. In the case at bar, the Institute is a non-party and its documents are not in the possession, control or power of Deloitte. Deloitte has consented to the Institute disclosing and producing the documents and Deloitte has already produced all the documents that were given to the Institute that were in the Defendants’ power, possession, and control. The Institute, however, submits that its own documents are subject to what is known as a case-by-case privilege. As the discussion below will reveal, the case law establishes that the existence of a case-by-case privilege is essentially a factual matter, and the onus of proof is on the Institute. The Plaintiffs submit that the Institute has failed to prove that its documents are privileged.

[12] One of the issues that I must decide, therefore, is whether the Institute’s documents are privileged. If the documents are privileged, then the Plaintiffs’ rule 30.10 motion must fail. I foreshadow here to say that I conclude that the Institute’s documents are privileged based on a case-by-case privilege.

[13] Assuming, however, that the Institute’s documents are not privileged, then rule 30.10 might be available to the Plaintiffs. Therefore, another issue that I must decide is whether the court is satisfied that: (i) the document is relevant to a material issue; and (ii) it would be unfair to require the moving party to proceed to trial without having discovery on the document.

[14] As the discussion below will reveal, on a refusal’s motion, I have already decided that some of the Institute’s documents are relevant and thus with respect to those relevant documents, the outstanding question is whether it would be unfair to require the Plaintiffs to proceed to a partial summary judgment motion and then a trial without having discovery on the relevant non-privileged documents of the Institute. This time, the onus of proving unfairness, which is another case-specific factual matter, is on the Plaintiffs.

[15] I foreshadow to say that I conclude that the Plaintiffs have not established unfairness, and, therefore, their rule 30.10 motion must fail, even if my conclusion that the Institute’s documents are privileged is wrong.

[16] In order to arrive at my conclusions and to explain them it is necessary to carefully scrutinize the factual and procedural background to this motion because the determination of a case-by-case privilege is intensively fact sensitive and because the determination of unfairness under rule 30.10 is also intensively fact sensitive.

[17] There is the complication of competing onuses of proof and there is the further complication that the factual and procedural background includes a not likely to be replicated problem associated with circumstance that the statutory law about the Institute’s confidentiality obligations has changed over the prolonged course of this litigation.

[18] My discussion of the complicated factual and procedural background follows next. During the discussion, it will be convenient to pause from time to time to address several matters that might have normally waited until the discussion and analysis part of these reasons.

C. FACTUAL AND PROCEDURAL BACKGROUND

1. The Parties and Participants in this Rule 30.10 Motion

[19] This is a billion dollar action under the Class Proceedings Act, 1992.[^1] It is essentially a battle about the application of the law of negligence and negligent misrepresentation as it may apply to auditors that issue audit reports that are used by lenders deciding to lend money to a public corporation.

[20] The Defendant auditors in this action are Deloitte. The Representative Plaintiffs in this class action are: (1) CIBC, which was the lead lender of a syndicate of sixty banks that loaned Philip US$1.5 billion in the summer of 1997; and (2) High River, which is an assignee of the security for the loan granted by Philip.

[21] A co-plaintiff is Philip by its Receiver and Manager, Robert Cumming. He alleges that Philip would not have undertaken an acquisition program that proved fatal to Philip's business but for Deloitte's negligence or recklessness in preparing the audit reports.

[22] Notable features of Deloitte’s defence are that: (1) it denies a duty of care to the lenders; (2) it denies professional negligence; (3) it denies any role for issue estoppel and (4) with respect to the Receiver's claim, Deloitte relies on the defence of ex turpi causa in that Philip, through its senior management, was at all times fully aware of an accounting fraud committed by a senior officer of Philip.

[23] The action, which was commenced in 2000, has moved with glacial speed. After fourteen years, the examinations for discovery are only almost complete. There is a pending motion for a partial summary judgment about whether Deloitte had a duty of care to CIBC and the other Philip’s lenders.

[24] The Institute is a self-regulating professional organization empowered to promote and protect the public interest by governing and regulating the practice of chartered accountants.[^2] The partners of Deloitte included members of the Institute. The Institute investigated the Deloitte partners that were involved in preparing Philip’s financial statements.

[25] The Professional Conduct Committee of the Institute has the responsibility of investigating allegations that a member (or now firm) has breached the Institute’s Rules of Conduct. The Committee may appoint an investigator, and where warranted, the Professional Conduct Committee will prosecute charges of professional misconduct before the Discipline Committee of the Institute. In the case at bar, the Institute investigated Mr. Woodsford and Mr. McNeill, charged Mr. Woodsford, and found him liable for professional misconduct.

(Decision continues verbatim with full paragraphs and sections exactly as in the source…)

Released: June 10, 2014
Perell, J.