Mask v. Silvercorp Metals Inc. et al.

[Indexed as: Mask v. Silvercorp Metals Inc.]

Ontario Reports

Ontario Superior Court of Justice,

Belobaba J.

July 18, 2014

121 O.R. (3d) 705 | 2014 ONSC 4161

Case Summary

Civil procedure — Inspection — Plaintiff moving for leave to commence secondary market liability action under Part XXIII.1 of Securities Act and [page706] for certification of action as class proceeding — Defendants filing affidavits opposing leave and certification motions — Plaintiff not entitled to use request to inspect documents under Rule 30.04(2) of Rules of Civil Procedure to obtain from defendants hundreds of confidential corporate documents mentioned in those affidavits before cross-examination and before leave motion was decided — Plaintiff engaging in fishing expedition in attempt to find evidence for use on leave motion — Securities Act, R.S.O. 1990, c. S.5 — Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 30.04(2).

The plaintiff, a former shareholder of the corporate defendant, brought motions for leave to commence a secondary market liability action under Part XXIII.1 of the Securities Act and for certification of the action as a class proceeding. The defendants filed affidavits opposing the leave and certification motions. The plaintiff served requests to inspect documents under rule 30.04(2) of the Rules of Civil Procedure asking that hundreds of confidential documents mentioned in those affidavits be produced for inspection prior to cross-examinations. The defendants declined to do so, and the plaintiff moved for an order for production of documents for inspection.

Held, the motion should be dismissed.

It was not at all clear that a request to inspect can be used by a shareholder to augment a pending Securities Act leave motion. Moreover, unless and until leave was granted, the defendants were not yet "parties" to the proposed Part XXIII.1 action, and a non-party cannot be forced to produce documents in those circumstances. Assuming that those two points could be overcome, general references to non-specific documents do not give rise to a right to inspect under rule 30.04(2). Courts have exercised a broad discretion to limit the scope of a request to inspect based on relevance, proportionality, privilege, prejudice and timeliness. The plaintiff was engaged in a fishing expedition in an attempt to find evidence for use on the leave motion. The requests to admit should be dismissed on one or more of the following bases: specificity, relevance, proportionality, privilege and prejudice. A putative plaintiff who is seeking leave under Part XXIII.1 of the Securities Act may not use rule 30.04(2) to obtain a large volume of confidential corporate documents from the defendant before cross-examinations and before the leave motion has been decided.

Cases referred to

1483860 Ontario Inc. v. Beaudoin, [2010] O.J. No. 5315, 2010 ONSC 6294 (Master); 1483881 Ontario Inc. v. KPMG, LLP, [2003] O.J. No. 2993, 2003 CarswellOnt 2866, 124 A.C.W.S. (3d) 445 (S.C.J.); 1623242 Ontario Inc. v. Great Lakes Copper Inc., [2013] O.J. No. 2490, 2013 ONSC 2548 (S.C.J.); Abdula v. Canadian Solar Inc., [2013] O.J. No. 3517, 2013 ONSC 5035 (S.C.J.) [Leave to appeal refused [2013] O.J. No. 4312, 2013 ONSC 5993 (S.C.J.)]; Ainslie v. CV Technologies Inc. (2008), 2008 63217 (ON SC), 93 O.R. (3d) 200, [2008] O.J. No. 4891, 304 D.L.R. (4th) 713, 171 A.C.W.S. (3d) 964 (S.C.J.); Catalyst Fund Limited Partnership II v. IMAX Corp., [2008] O.J. No. 873, 2008 8778 (S.C.J.); Fontaine v. Canada (Attorney General), [2014] O.J. No. 195, 2014 ONSC 283, [2014] 2 C.N.L.R. 86 (S.C.J.); Green v. Canadian Imperial Bank of Commerce (2014), 118 O.R. (3d) 641, [2014] O.J. No. 419, 2014 ONCA 90, 314 O.A.C. 315, 370 D.L.R. (4th) 402, 50 C.P.C. (7th) 113, 237 A.C.W.S. (3d) 313; Labourers' Pension Fund of Central and Eastern Canada (Trustees of) v. Sino-Forest Corp. (2012), 110 O.R. (3d) 173, [2012] O.J. No. 1331, 2012 ONSC 1924 (S.C.J.); Livent Inc. v. Drabinsky, 1999 CarswellOnt 5858 (S.C.J.); Matthews v. Servier Canada Inc., 1999 5900 (BC SC), [1999] B.C.J. No. 435, 65 B.C.L.R. (3d) 348, 86 A.C.W.S. (3d) 486 (S.C.); [page707] Meuwissen (Litigation guardian of) v. Strathroy Middlesex General Hospital, [2006] O.J. No. 5082, 40 C.P.C. (6th) 6, 154 A.C.W.S. (3d) 324 (C.A.); Millwright Regional Council of Ontario Pension Trust Fund (Trustees of) v. Celestica Inc. (2014), 118 O.R. (3d) 641, [2014] O.J. No. 419, 2014 ONCA 90, 314 O.A.C. 315, 370 D.L.R. (4th) 402, 50 C.P.C. (7th) 113, 237 A.C.W.S. (3d) 313; Moyle v. Palmerston Police Services Board (1995), 1995 10659 (ON SC), 25 O.R. (3d) 127, [1995] O.J. No. 627, 53 A.C.W.S. (3d) 1159 (Div. Ct.); Musicians' Pension Fund of Canada (Trustees of) v. Kinross Gold Corp., [2013] O.J. No. 5071, 2013 ONSC 6864, 45 C.P.C. (7th) 371 (S.C.J.); Ontario v. Rothmans Inc., [2011] O.J. No. 1896, 2011 ONSC 2504, 5 C.P.C. (7th) 112 (S. C.J.) [Leave to appeal to Div. Ct. refused [2011] O.J. No. 2811, 2011 ONSC 3685 (Div. Ct.)]; Payne v. Ontario Human Rights Commission, 2000 5731 (ON CA), [2000] O.J. No. 2987, 192 D.L.R. (4th) 315, 136 O.A.C. 357, 25 Admin. L.R. (3d) 255, 2 C.C.E.L. (3d) 171, [2000] CLLC Â230-039, 38 C.H.R.R. D/ 367, 100 A.C.W.S. (3d) 634 (C.A.); Raponi v. John Doe #1, [2010] O.J. No. 2802, 2010 ONSC 3632, 99 C.P.C. (6th) 316 (Master); Ravenda Homes Ltd. v. 1372708 Ontario Inc., [2011] O.J. No. 735, 2011 ONSC 1133 (S.C.J.); Sharma v. Timminco Ltd., 2010 ONSC 790, [2010] O.J. No. 469, 2010 CarswellOnt 608 (S.C.J.); Telus Communications Co. v. Kennedy, [2010] O.J. No. 3004, 2010 ONSC 2135 (S.C.J.); Timminco Ltd. v. Asensio (2009), 2009 9431 (ON SC), 95 O.R. (3d) 547, [2009] O.J. No. 906, 78 C.P.C. (6th) 58, 180 A.C.W.S. (3d) 50 (S.C.J.); Valeo Sylvania L.L.C. v. Ventra Group Inc., [2001] O.J. No. 1998 (Master)

Statutes referred to

Class Proceedings Act, 1992, S.O. 1992, c. 6, ss. 5(1) (a), 35

Securities Act, R.S.O. 1990, c. S.5 [as am.], Part XXIII.1 [as am.], s. 138.8 [as am.], (1), (b), (3)

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 25.07, 30.04(2), (8), 39.03

Authorities referred to

CSA Notice 53-302 — Proposal for a Statutory Civil Remedy for Investors in the Secondary Market and Response to the Proposed Change to the Definitions of "Material Fact" and "Material Change", CSA Notice (2000), 23 OSCB 7383

Peterson, Dennis H., and Matthew J. Cumming, Shareholder Remedies in Canada, 2nd ed. (Markham, Ont.: LexisNexis Canada, 2009)

MOTION for an order compelling the production of documents for inspection.

K. Richard and M. Stroh, for moving party.

D.M. Peebles and Miranda Lam, for responding parties.

[1] BELOBABA J.: — The plaintiff, a former shareholder of the defendant mining company, wants to bring a class action against the publicly traded company and two senior executives for misrepresentations that were allegedly made about the mineral resources in the defendants' mines in China and the accounting treatment of certain third-party dealings. [page708]

[2] The motions for leave to commence a secondary market liability action under Part XXIII.1 of the Ontario Securities Act[^1] and for certification of the action as a class proceeding under the Class Proceedings Act, 1992[^2] are scheduled to be heard in September.

[3] The defendants have filed affidavits opposing the plaintiff's leave and certification motions. The plaintiff, in turn, has served requests to inspect documents under rule 30.04(2) of the Rules of Civil Procedure,[^3] asking that hundreds of documents mentioned in these affidavits be produced for inspection prior to the cross-examinations. The defendants have declined to do so and have advised the plaintiff that to the extent that any of the requests for production are reasonable, they will answer those requests at the cross-examinations on the affidavits.

[4] The issue before me can be stated somewhat inelegantly as follows: can a putative plaintiff who is seeking leave under Part XXIII.1 of the OSA use rule 30.04(2) to obtain a large volume of confidential corporate documents from the defendant before cross-examinations and before the leave motion has been decided?

[5] In this case, for the reasons set out below, the answer is no.

[6] At the conclusion of the hearing of this motion, I advised the parties that the motion would be dismissed for written reasons that would follow shortly. These are the reasons. They are somewhat abbreviated because the plaintiff has advised that he will shortly be seeking leave to appeal this decision and that the leave to appeal motion may be heard within the next several weeks in order to preserve the scheduled September dates for the OSA leave and certification motions. In order to accommodate this expedited time frame, I have released this endorsement as quickly as possible.

Background

[7] Silvercorp Metals, Inc. ("SVM") is a Canadian publicly traded company that owns mining properties in China. Dr. Feng was the CEO and is now the chairman and Ms. Tang is the CFO. Mr. Mask was a shareholder of SVM.

[8] During the proposed class period, March 1, 2010 to September 12, 2011, SVM released periodic public reports about its mining operations, including a technical report in each of 2010 [page709] and 2011, which set out the company's estimates of the mineral resources in its properties. Because mineral estimates must be approved for publication by a "qualified person", SVM hired BK Exploration Associates ("BKEA") to review and certify certain aspects of the 2010 and 2011 technical reports.

[9] In the late summer of 2011, SVM shares were targeted by short-sellers -- one or more persons that were betting that the SVM share price was about to suddenly decline. Anonymous postings appeared on the Internet questioning the company's financial accounting, its mineral estimates and its mineral production. The SVM share price dropped dramatically. The company denied the accusations and stood by its past disclosures. After investigating the matter, the B.C. Securities Commission laid fraud charges against an individual named Jon Carnes, believing that he was behind the anonymous Internet postings and highly profitable short-selling.

[10] After the Internet attacks, SVM took steps to protect itself. It hired a large mining engineering firm, AMC Mining Consultants (Canada) Ltd. ("AMC"), to prepare SVM's next technical report, with updated mineral resource and reserve estimates for the China mines. In June 2012, SVM released the technical report prepared by AMC.

[11] In May 2013, Mr. Mask issued his claim, alleging that SVM and two of its executives, as well as BKEA, were responsible for negligent misrepresentations in three areas: SVM's shareholding in one of its customers; its mineral estimates; and its mineral production. (Note: there were no allegations in the claim about any financial misrepresentations.) Mr. Mask has since released BKEA, the author of the resource estimates in the 2010 and 2011 technical reports, from the action.

[12] In February 2014, Mr. Mask served his motion record for the OSA leave motion. In April, the defendants delivered their responding record which included the affidavits of Meng Tang, CFO; Lorne Waldman, senior VP (and in-house counsel during the class period); Patrick Stephenson, principal geologist at AMC; and Eugene Puritch, an expert retained by the defendants.

[13] Shortly after receiving the defendants' responding record, the plaintiff served requests to inspect documents with regard to documents referred to in the affidavits. A week later, the defendants advised that they would not produce these documents for inspection prior to the cross-examinations. Cross-examinations have not yet taken place. [page710]

The Positions of the Parties

[14] The plaintiff's position is simple and to the point. Section 35 of the CPA provides that "[t]he rules of court apply to class proceedings." Rule 30.04(2) provides that "a request to inspect documents may . . . be used to obtain the inspection of any document . . . that is referred to in . . . an affidavit served by the other party". The case law (says the plaintiff) is clear: compliance with a rule 30.04(2) request is "mandatory and immediate".[^4] Ergo, the requested documents must be produced for immediate inspection.

[15] The defendants take issue with the plaintiff on every level. But their core submission is more encompassing. The defendants say that Mr. Mask is scrambling to find evidence in the responding affidavits that he does not yet have for his OSA leave motion. Rather than proceeding with cross-examinations in accordance with the agreed-upon schedule, leading to the September leave and certification motions, the plaintiff is misusing rule 30.04(2) to try to obtain production of literally hundreds of confidential corporate documents before cross-examinations, and before his OSA leave motion is decided. This is a fishing expedition that is not only proscribed by the rule 30.04(2) case law but is also precluded by the statutory language and policy behind the OSA leave motion provisions.

[16] For the reasons that follow, I agree with the defendants. The plaintiff's rule 30.04(2) motion must be dismissed. I say this for two reasons: one, on the basis of the case law as it applies to rule 30.04(2) requests; and two, on the basis of a broader policy concern about leave motions under s. 138.8 of the OSA.

Analysis

(1) The actual requests

[17] The requests to inspect refer to documents that are mentioned in the Puritch, Stephenson, Waldman and Tang affidavits. I will come to them shortly.

[18] There are two preliminary points that merit discussion. The first is that Mr. Mask is moving as an individual investor for the right to commence a Part XXIII.1 proceeding. He does not yet have leave to do so and he is certainly not yet a representative plaintiff in a certified class proceeding. Therefore, his [page711] reliance on s. 35 of the CPA is, at best, premature. Even if s. 35 applies, the case law is clear that a court may, after considering the particular proceeding at issue"limit, vary or alter the operation of" the rules as the court sees fit.[^5]

[19] The second point arises out of the fact that rule 30.04(2) applies only to "parties":

30.04(2) A request to inspect documents may also be used to obtain the inspection of any document in another party's possession, control or power that is referred to in the originating process, pleadings or an affidavit served by the other party.[^6]

[20] It is not at all clear that a request to inspect can be used by a shareholder (who is at most a putative plaintiff) to augment a pending OSA leave motion. Also, unless and until leave is granted, the respondents are not (yet) "parties"[^7] to the proposed Part XXIII.1 action and a non-party cannot be forced to produce documents in these circumstances.[^8]

[21] Moving on, and assuming that these first two points can be overcome, the plaintiff confronts more sizeable hurdles:

(i) A rule 30.04(2) request will be denied where the affidavit in question does not refer to a specific document. General references to non-specific documents do not give rise to a right to inspect under rule 30.04(2).[^9]

(ii) Compliance with a rule 30.04(2) request is not in fact "mandatory and immediate". Courts have delayed compliance when it was sensible to do so. Indeed, in 1483881 Ontario Inc. v. KPMG, LLP,[^10] the very case relied on in [page712] Timminco v. Asensio,[^11] the court specifically confirmed its discretion to delay inspection of the requested documents until a later stage of the litigation.[^12]

(iii) Courts have also exercised a broad discretion to limit the scope of a request to inspect based on relevance, proportionality, privilege, prejudice and timeliness.[^13]

(iv) When a request is served, rule 30.04(8) is engaged, which specifically allows the court to block the requested production until a later date, where the document may not become relevant until after the determination of an issue in the action and the early disclosure of the document would "seriously prejudice" the respondent.[^14]

[22] Turning then to the requests that have been made herein, I find that all of them run afoul of one or more of the principles just stated, namely, specificity, relevance, proportionality, privilege, prejudice and timeliness. Let me explain this in more detail. [page713]

[23] The document requests are listed in Schedule A of the defendants' factum. In my view, under the points of law just noted, none of these requests should be granted at this stage of the proceeding.

The Puritch affidavit: the requests for the "retainer" and the "resource models" are denied -- specificity.

The Stephenson affidavit: the requests for the "retainers""AMC's mandate" and "the resource and reserve estimates" are denied -- specificity; the request for the draft AMC technical report is denied -- relevance (the final version is not alleged to be misleading; neither the draft nor final versions are relied on by SVM in its defence of the OSA leave motion; and the AMC report was released in 2012, almost a year after the end of the class period); the request for the "updated exploration and production information" is denied -- specificity and relevance; the request for the "adjustment to the 2010 and 2011 production totals" is denied -- specificity.

The Waldman affidavit: the request for the "retainer" relating to both BKEA and AMC is denied -- specificity; the request for "the mining and production records" is denied -- specificity and proportionality; the request for the KPMG "retainer" is denied -- specificity; the request for the KPMG report is denied -- relevance (this report deals with the anonymous statements about SVM's alleged "financial fraud", which is not alleged in the plaintiff's claim) and privilege (the KPMG report was commissioned by legal counsel to the special committee to the board, has never been publically released and privilege has not been waived). I note that the plaintiff has withdrawn his requests for the "anonymous letter" and the "September posting".

The Tang Affidavit: the requests for the "quarterly financial information", the "draft quarterly interim financial statements and MD&A""the final forms of the draft interim financial statements and MD&A", the "initial draft annual consolidated financial statements", the "draft consolidated financial statements", the "opinions expressed by E&Y at the Audit Committee meetings", the "mineral production reports", the "local exploration, production and financial records held at Silvercorp's offices in China", and "all documents referencing the change in Henan Found's equity interest in Yongning" are denied -- specificity and proportionality. The request for the "first drafts of the AIFs prepared by Silvercorp's legal department" is denied -- [page714] specificity and privilege. The request for a copy of the April 2007 agreement and the September 2007 amended agreement between Silvercorp, China Molybdenum Inc. and Zijin Yinhui Gold Smelting Co. is sufficiently specific but is denied -- relevance (the agreements were signed three years before the class period; the plaintiff provides no evidence to support his 22.5 per cent claim or to contradict the sworn assertion of the CFO that the investment was 15 per cent).

[24] The defendants would also be prejudiced if these requests to inspect were granted at this stage of the litigation. The OSA leave motion is an unusual procedure. The putative (shareholder) plaintiff must clear a preliminary merits hurdle before he can commence a case and conduct discoveries. I therefore agree with the defendants that allowing the putative plaintiff to conduct a broad examination before the leave motion in order to rummage through a large volume of (confidential corporate) documents to find evidence that could support the proposed OSA leave motion would seriously prejudice the defendants.

[25] In sum, applying the well-established legal principles listed above, I find that the requests to inspect should be dismissed on one or more of the following bases: specificity, relevance, proportionality, privilege and prejudice.

[26] If I am wrong in any respect, I would still dismiss this motion on the basis of timeliness, which in turn relates to broader policy concerns about the nature of the OSA leave motion.

(2) Policy concerns

[27] The defendants frame their overall argument somewhat dramatically, but not incorrectly, as follows: this is the first time that a Canadian court is being asked to decide whether an investor with only a draft OSA claim can use the request to inspect documents rule to force a public issuer that chooses to defend itself on the leave motion to divulge confidential corporate documents (which no shareholder could ordinarily demand[^15]) so the moving party can look for evidence to support his pending motion.

[28] The defendants argue that if rule 30.04(2) is available in these circumstances it should be limited in its application to accord with the goals and objectives and overall policy of the OSA leave motion provisions. [page715]

[29] I agree with the defendants' submissions.

[30] It is important to remember, by way of backdrop, that the proper scope of a cross-examination on an affidavit is always defined by the context of the proceeding itself -- that is, by "the nature of the process, the nature of the remedy sought and the role of the motion judge based on the nature of the process and the remedy sought".[^16]

[31] For example, in Payne v. Ontario (Human Rights Commission),[^17] the Court of Appeal concluded that the moving party could not conduct a wide-ranging rule 39.03 examination. Much of what was said applies to the facts herein:

[A] Rule 39.03 examination may not be used where the purpose is simply to conduct a general discovery. That would amount to an "ulterior or improper purpose" . . . and should not be allowed.

[In this case] . . . [t]he list of documents to be produced as appended to the notice of examination . . . is so sweeping and unfocused that it is apparent that the appellant is, in effect, insisting upon a general discovery of the Commission through its registrar, hoping to uncover something that will help her case. The proposed scope of the examination is simply too broad. . . . the appellant has no general right to rummage through the Commission's files in the hope of uncovering something helpful to her case.

[32] Likewise, in an oppression case, Justice Pepall relied on "the underlying policy rationale" behind the oppression remedy to limit the documents available to the cross-examining applicant:

. . . [a legal proceeding] can be drafted with a broad brush and our Rules of Procedure and the law governing production can easily be manipulated to achieve objectives unrelated to the underlying policy rationale that supports the oppression remedy . . . A judge should not prejudge the merits of an application for oppression. That said, a distinction should be made between that which is truly relevant and that which is speculative -- a fishing expedition that is designed to hook the gills and pull at the innards of some respondent with a view to uncovering new grounds of complaint.[^18]

[33] In short, the context of the proceeding is important. And the context here is the OSA leave motion.

[34] Section 138.8(3) of the OSA provides that an affiant may be examined on his or her affidavit "in accordance with the [page716] rules of the court". However, the case law is clear that the court has the power to interpret the Rules of Civil Procedure to accord with the language and policy of the OSA's statutory leave provisions. As Justice Lax noted in Ainslie v. CV Technologies:[^19]

The Securities Act provides its own procedure in respect of the statutory remedy and it should not be presumed that all of the rights and procedures under the Rules apply.[^20]

[35] In Sino-Forest, Justice Perell "revised" rule 25.07 to "accommodate" the s. 138.8 leave procedure.[^21] Clearly, judges are concerned that the policy behind the OSA leave provisions not be thwarted or undermined by an overly literal application of the Rules of Civil Procedure.

[36] The policy underlying the OSA leave provisions is not in dispute. When the Canadian Securities Administrators[^22] (the "CSA") released draft legislation which became Part XXIII.1,[^23] it recognized that creating a statutory cause of action to benefit litigious (often former) shareholders could adversely impact the current shareholders of the target corporation.[^24] The CSA therefore recommended a leave test to provide some measure of protection against the potentially coercive application of the proposed statutory cause of action.[^25] The screening provision was expressly intended to prevent investors from pursuing unsupported actions to the detriment of the shareholders of the target company:

One of the risks of creating statutory liability for misrepresentations or failures to make timely disclosure is the potential for investors to bring actions [page717] lacking any real basis in the hope that the issuer will pay a settlement just to avoid the cost of litigation.[^26]

[The leave test is] . . . a new provision designed to screen out, as early as possible in the litigation process, unmeritorious actions . . . This screening mechanism is designed not only to minimize the prospects of an adverse court award in the absence of a meritorious claim, but more importantly, to try to ensure that unmeritorious litigation, and the time and expense it imposes on defendants, is avoided or brought to an end early in the litigation process.[^27]

[37] The provincial legislature tempered the statutory cause of action with a leave test requiring putative plaintiffs to prove good faith and a meritorious claim before being allowed to commence a lawsuit. Here is how Justice Lax explained the "underlying policy rationale":

In recommending that the Act include a screening mechanism, the CSA concluded that, irrespective of whether it was believed that the proposed legislation would result in strike suits, a screening mechanism was necessary in order to prevent corporate defendants from being exposed to proceedings "that cause real harm to long-term shareholders and resulting damage to our capital markets"[.]

[The plaintiffs'] submission ignores the legislative purpose of section 138.8. The section was not enacted to benefit plaintiffs or to level the playing field for them in prosecuting an action under Part XXIII.1 of the Act. Rather, it was enacted to protect defendants from coercive litigation and to reduce their exposure to costly proceedings. No onus is placed upon proposed defendants by section 138.8. Nor are they required to assist plaintiffs in securing evidence upon which to base an action under Part XXIII.1. The essence of the leave motion is that putative plaintiffs are required to demonstrate the propriety of their proposed secondary market liability claim before a defendant is required to respond. Subsection 138.8(2) must be interpreted to reflect this underlying policy rationale and the legislature's intention in imposing a gatekeeper mechanism.[^28]

[38] Ontario courts have accordingly restricted the examination rights of moving parties in a series of Part XXIII.1 cases. In Ainslie, for example, the court barred the moving party shareholder from forcing the respondents to file affidavit evidence or to answer a summons because [page718]

a proposed defendant should not be "expose[d] to a time-consuming and costly discovery process" through cross-examination;

s. 138.8 does not "sanction fishing expeditions" which would "impose a significant cost burden" on the respondent corporation prior to leave being granted; and

a proposed defendant cannot be forced to be examined "for the improper purpose of obtaining information to commence an action against the witness".[^29]

[39] Likewise, in Canadian Solar, the court decided that a responding party in a proposed securities class action who delivers an affidavit to defend a certification motion cannot be cross-examined by the moving party to supplement his OSA motion for leave to proceed.[^30]

[40] In Sharma v. Timminco,[^31] Justice Perell expressed similar concerns about discovery-like requests prior to the leave to proceed motion: "the purpose of precluding discovery before the leave motion is to preclude the putative plaintiff from 'fishing for facts' that would support . . . a speculative lawsuit of the strike suit type".[^32]

[41] When the CSA drafted a cross-examination section for the leave test, it clearly expressed its expectation as to the limits of that process:

Established rules of civil procedure are designed to prevent the use of the discovery process by plaintiffs to conduct "fishing expeditions" against directors and officers, to establish whether they might have the basis of a claim.[^33]

[42] These judicial and non-judicial comments mesh easily with the views of the Court of Appeal in Celestica:[^34] [page719]

For the leave motion, each side may file affidavit evidence upon which there can be cross-examination. But . . . the motion is brought before discovery and production of documents . . . with the result that the evidence may or may not be the same at the trial[.]

The motions judge stated that . . . the leave requirement is "a relatively low threshold". . . . I agree[.][^35]

[43] It is clear that the Court of Appeal did not consider the s. 138.8 motion to be the time for oral or documentary discovery. In my view, it is reasonable to conclude that the moving party's restricted access to the respondent's evidence on an OSA leave motion was an important consideration in setting the bar "relatively low". And given the Court of Appeal's recent pronouncement in Green v. CIBC[^36] that the preliminary merits hurdle in s. 138.8(1) (b) is akin to the "cause of action" hurdle in s. 5(1)(a) of the CPA,[^37] the bar that was already "relatively low" has been lowered even more. In my view, this provides even more reason for scrutinizing the putative plaintiff's early efforts to obtain evidence from defendants on a pending OSA leave motion via rule 30.04(2) -- the court must ensure that the former is not engaging in a discovery-like "rummage" through the latter's corporate files "in the hope of uncovering something helpful to her case".[^38]

[44] It is also important to note, given the CSA's expressed restriction on the moving party's "discovery" rights, that the legislature actually went further in signalling that restriction by amending the wording of what is now s. 138.8(3). The CSA draft legislation[^39] proposed that "[t]he maker of such an affidavit may be examined thereon in accordance with the rules of court as to discovery." But s. 138.8(3) as enacted did not go that far: "The maker of such an affidavit may be examined on it in accordance with the rules of court."[^40]

[45] In my view, the legislature intended that s. 138.8(3) be read restrictively to prevent the moving party from compelling oral and documentary evidence from respondent affiants in an effort to make his or her case from their evidence. And, wisely, the courts have done so. [page720]

Conclusion

[46] The request to inspect documents under rule 30.04(2) is an important remedy when used fairly and appropriately. But it was never designed nor has it been judicially interpreted to allow counsel for Mr. Mask to request (with a straight face) all of the local exploration, production and financial records from every one of Silvercorp's offices in China over the 18 months of the class period just because Ms. Tang, the company CFO, mentioned in her affidavit that "E&Y attended at Silvercorp's offices in China where we retain local exploration, production and financial records". Rule 30.04(2) was never designed nor has it been judicially interpreted to allow counsel for Mr. Mask to request all of Silvercorp's quarterly and annual financial records without any further specification and without regard to any notions of relevance or proportionality just because they were generally mentioned in an affidavit narrative.

[47] And if it was so designed, then class action judges have wisely restricted the Rule's scope and content to a manageable dimension that accords not only with the first principles of documentary production but also with the statutory language and underlying policy of the OSA leave provisions. Rule 30.04(2) cannot be used as a fishing rod whether in regular litigation or especially before cross-examinations have been conducted in an OSA leave motion.

[48] The defendants suggest that I dismiss the motion, and under rule 30.04(8)[^41] postpone all of the documentary disclosure requests to a later stage in the litigation -- namely, when cross-examinations are conducted on the affidavits.

[49] I agree and so order.

Disposition

[50] The motion for early production of documents under rule 30.04(2) is dismissed.

[51] The parties have agreed to a costs award of $15,000. Costs are therefore fixed at $15,000, all-inclusive, payable by the plaintiff to the defendants within 30 days.

Motion dismissed.

Notes

[^1]: Securities Act, R.S.O. 1990, c. S.5 ("OSA").

[^2]: Class Proceedings Act, 1992, S.O. 1992, c. 6 ("CPA").

[^3]: R.R.O. 1990, Reg. 194, as amended.

[^4]: Timminco Ltd. v. Asensio (2009), 2009 9431 (ON SC), 95 O.R. (3d) 547, [2009] O.J. No. 906 (S.C.J.), at para. 19; Valeo Sylvania L.L.C. v. Ventra Group Inc., [2001] O.J. No. 1998 (Master).

[^5]: Fontaine v. Canada (Attorney General), [2014] O.J. No. 195, 2014 ONSC 283 (S.C.J.), at paras. 201, 204.

[^6]: Emphasis added.

[^7]: Meuwissen (Litigation Guardian of) v. Strathroy Middlesex General Hospital, [2006] O.J. No. 5082, 40 C.P.C. (6th) 6 (C.A.), at p. 8 C.P.C.

[^8]: Raponi v. John Doe #1, 2010 ONSC 3632, [2010] O.J. No. 2802, 99 C.P.C. (6th) 316 (Master), at p. 323 C.P.C.

[^9]: Telus Communications Co. v. Kennedy, [2010] O.J. No. 3004, 2010 ONSC 2135 (Master), at para. 63; Livent Inc. v. Drabinsky, 1999 CarswellOnt 5858 (S.C.J.), at paras. 12-15 ("If there is only reference to documents in a general way, rather than specifically, then Rule 30.04(2) does not apply"); and Ravenda Homes Ltd v. 1372708 Ontario Inc., [2011] O.J. No. 735, 2011 ONSC 1133 (S.C.J.), at paras. 10-11, 20, where the court noted that one must refer to specific documents or specific financial statements for given years and not just to financial statements in a general sense.

[^10]: [2003] O.J. No. 2993, 2003 CarswellOnt 2866 (S.C.J.).

[^11]: Supra, note 4.

[^12]: Ibid., at para. 10.

[^13]: See, for example, 1483881 Ontario Inc. v. KPMG LLP, supra, at paras. 10, 12: "If there are voluminous documents and little likelihood that the contents of individual documents will impact on the pleading, it may be more cost effective to delay inspection until the affidavit of documents is served after the close of pleadings . . . [In this instance] [t]he documents are both relevant and producible and there is no evidence that there would be prejudice in early inspection." 1483860 Ontario Inc. v. Beaudoin, [2010] O.J. No. 5315, 2010 ONSC 6294 (Master), at paras. 73-75, 101, 106-107, 111: "a proportional approach to production [should be used] under Rule 30.04(2)"; 1623242 Ontario Inc. v. Great Lakes Copper Inc., [2013] O.J. No. 2490, 2013 ONSC 2548 (S.C.J.), at paras. 103-104: "[The moving party] will have the opportunity to question [the responding party's] representatives to discover about the documents it has produced. Such discovery is not the purpose of a Request to Inspect." Matthews v. Servier Canada Inc., 1999 5900 (BC SC), [1999] B.C.J. No. 435, 65 B.C.L.R. (3d) 348 (S.C.), at paras. 5-6: "unless a plausible basis for requiring exclusive pre-certification document discovery is demonstrated, there is a risk that a requirement to make full disclosure before certification will be so onerous it will amount to an unfair imposition on defendants and potential settlement tool in the hands of a plaintiff who may not have a certifiable class action".

[^14]: Rule 30.04(8) provides: "Where a document may become relevant only after the determination of an issue in the action and disclosure or production for inspection of the document before the issue is determined would seriously prejudice a party, the court on the party's motion may grant leave to withhold disclosure or production until after the issue has been determined."

[^15]: Peterson, Dennis H., and Matthew J. Cumming, Shareholder Remedies in Canada, 2nd ed. (Markham, Ont.: LexisNexis Canada, 2009), at 11-11, 11-12.

[^16]: Moyle v. Palmerston Police Services Board (1995), 1995 10659 (ON SC), 25 O.R. (3d) 127, [1995] O.J. No. 627 (Div. Ct.), at pp. 131, 136 O.R.; Ontario v. Rothmans Inc., 2011 ONSC 2504, [2011] O.J. No. 1896, 5 C.P.C. (7th) 112 (S.C.J.), at pp. 157-59 C.P.C., leave to appeal Div. Ct. refused [2011] O.J. No. 2811, 2011 ONSC 3685 (Div. Ct.).

[^17]: Payne v. Ontario Human Rights Commission, 2000 5731 (ON CA), [2000] O.J. No. 2987, 192 D.L.R. (4th) 315 (C.A.), at pp. 365-66 D.L.R.

[^18]: Catalyst Fund Limited Partnership II v. IMAX Corp., [2008] O.J. No. 873, 2008 8778 (S.C.J.), at para. 8.

[^19]: Ainslie v. CV Technologies Inc. (2008), 2008 63217 (ON SC), 93 O.R. (3d) 200, [2008] O.J. No. 4891 (S.C.J.), at p. 210 O.R.

[^20]: Ibid., at p. 210 O.R.

[^21]: Labourers' Pension Fund of Central and Eastern Canada (Trustees of) v. Sino-Forest Corp. (2012), 2012 ONSC 1924, 110 O.R. (3d) 173, [2012] O.J. No 1331 (S.C.J.), at para. 38.

[^22]: The Canadian Securities Administrators are the 13 provincial and territorial securities regulators.

[^23]: CSA Notice 53-302 ? Proposal for a Statutory Civil Remedy for Investors in the Secondary Market and Response to the Proposed Change to the Definitions of "Material Fact" and "Material Change", CSA Notice (2000), 23 OSCB 7383.

[^24]: Ibid., at 7383-7391.

[^25]: Ibid., at 7383, s. 2(f). The leave test in s. 7 of the draft legislation [at 7439] was identical to s. 138.8(1) of the OSA as eventually enacted.

[^26]: Ibid., at 7383, s. 2(f).

[^27]: Ibid., at 7390. And see Ainslie, supra, note 19, at p. 205 O.R.; and Musicians' Pension Fund of Canada (Trustees of) v. Kinross Gold Corp., [2013] O.J. No. 5071, 2013 ONSC 6864 (S.C.J.), at para. 55.

[^28]: Ainslie, supra, note 19, at pp. 205-206, 209 O.R.

[^29]: Ibid., at p. 209 O.R.

[^30]: Abdula v. Canada Solar Inc., [2013] O.J. No. 3517, 2013 ONSC 5035 (S.C.J.), at para. 9, leave to appeal to refused [2013] O.J. No. 4312, 2013 ONSC 5993 (S.C.J.).

[^31]: Sharma v. Timminco Ltd., 2010 ONSC 790, [2010] O.J. No. 469, 2010 CarswellOnt 608 (S.C.J.).

[^32]: Ibid., at para. 34.

[^33]: CSA Notice 53-302, supra, note 23, at 7411.

[^34]: Millwright Regional Council of Ontario Pension Trust Fund (Trustee of) v. Celestica Inc. (2014), 2014 ONCA 90, 118 O.R. (3d) 641, [2014] O.J. No. 419 (C.A.).

[^35]: Ibid., at p. 666 O.R.

[^36]: Green v. Canadian Imperial Bank of Commerce (2014), 118 O.R. (3d) 641, [2014] O.J. No. 419, 2014 ONCA 90.

[^37]: Ibid., at paras. 85-87.

[^38]: Payne, supra, note 17.

[^39]: CSA Notice 53-302, supra, note 23, at 7439.

[^40]: OSA, supra, note 1, s. 138.8.

[^41]: Supra, note 14.

End of Document