SUPERIOR COURT OF JUSTICE – ONTARIO

COURT FILE NO.: 4521/11-CP
DATE: 2014/07/22

RE: Brian Bradley (Applicant)

• and -

Eastern Platinum Ltd., Ian Rozier, John Andrews and John Hawkrigg (Respondents)

BEFORE: Justice H. A. Rady

COUNSEL:
Daniel E. H. Bach, Michael G. Robb, Alex Dimson for the Applicant

Patrick J. O’Kelly and Daniel S. Murdoch, for the Respondents

HEARD: June 10, 2014

ENDORSEMENT

Introduction

[1] There are two motions before me. The first is the respondents’ motion to strike the affidavit of the applicant’s expert. The second is the applicant’s motion to strike three affidavits tendered by the defence or portions thereof.

Background

[2] The applicant seeks leave to commence an action under Part XXIII.1 of the Ontario Securities Act. The claim concerns platinum mining operations at the Crocodile River Mine (CRM) in South Africa. CRM is owned by the respondent Eastern Platinum Ltd. (Eastern).

[3] Eastern is a public company with its head office in Vancouver, British Columbia. It trades on the Toronto Stock Exchange, the Alternative Investment Market of the London Stock Exchange and the Johannesburg Stock Exchange.

[4] After the close of trading on Friday, April 15, 2011, Eastern issued a press release announcing production results for the quarter ended March 31, 2011 (Q1/2011) at CRM. The April 15 press release disclosed that production had declined in Q1/2011 as compared to the prior quarter and the first quarter of 2010.

[5] On June 28, 2011, the applicant issued a notice of application for leave to commence an action pursuant to Part XXIII.1 of the Act. The applicant alleged that Eastern failed to disclose a complete or partial shutdown of operations at CRM in Q1/2011, which resulted in a reduction in production.

[6] By letter dated September 30, 2011, respondents’ counsel advised applicant’s counsel that no complete or partial shutdown of operations had occurred at CRM in Q1/2011 as alleged, and provided information to rebut the allegations made in the proposed statement of claim.

[7] On June 18, 2012, the applicant served an amended notice of application with a revised proposed statement of claim. In the second proposed claim, the applicant alleged that the reduction in production in Q1/2011 was the result of a change in mine roof support methods and in particular, the introduction of “cement grout pack supports”. The applicant alleges that the introduction of cement grout pack supports at CRM in Q1/2011 was a “material change” as defined in the Act and comparable provincial securities legislation, which ought to have been disclosed by Eastern prior to the April 15 press release.

[8] In the amended notice of application, the applicant withdrew his request for certification of the proposed class action. The application is an individual proceeding to obtain leave to commence an action under Part XXIII.1 of the Act.

[9] As will become clear, the timing of the introduction of cement grout pack supports is a significant contentious issue between the parties. The respondents assert that cement grout packs were not used at CRM in Q1/2011. The applicant takes a different view.

The Macfarlane Affidavit

[10] The applicant retained Alastair A. Macfarlane to give an expert opinion about whether the introduction of cement grout pack supports at CRM had a material impact on the mine’s output.

[11] Mr. Macfarlane has approximately 40 years’ experience in the South African mining industry. He has been a manager at several different mines, has lectured in mining methodology and has been a consultant on a number of mining projects.

[12] In his affidavit sworn May 4, 2012, Mr. Macfarlane summarized his conclusions as follows:

102. [Eastern’s] April 15, 2011 Press Release indicates that a safety review was initiated for reasons that are unclear.

103. What is clear is that the ground conditions, as described in the various reports were poorer than the average for the Western limb, and that these deteriorated and were the cause of falls of ground. This necessitated earlier changes to the support system and mining layout. However, the safety review indicated further changes were necessary.

104. According to [Eastern’s] April 15, 2011 Press Release, it had been recognised that this changeover would occur on a phased basis, but the result of the safety review seems to have precipitated a major changeover within the quarter.

105. The result was a material change to the mining cycle, accompanied by training interventions and infrastructure changes (pumps etc.). These changes were significant enough to cause a foreseeable change in the output level, and to necessitate a re-planning exercise.

106. Thus, the question being asked in this opinion is:

Were the events disclosed in the press release issued on April 15, 2011 relating to the ‘introduction of reviewed support methods’ a change in the business, operations or capital of Eastern Platinum Ltd. that would reasonably be expected to have a significant effect on the market price or value of any of the securities of the issuer?

Would the events disclosed in the press release issued on April 15, 2011 relating to the ‘introduction of reviewed support methods’ reasonably be known to cause a production shortfall of the magnitude that occurred in Q1/2011?

107. In answer to both of these questions, the answer is “yes”, in that (a) the changeover should reasonably have indicated that a production shortfall would occur, related to the change in mining cycle and the retraining, and that (b) this would be material enough to affect the output and profitability of the mine.

The Parties’ Positions

[13] The respondents submit that the Macfarlane affidavit should be struck for four reasons:

1. He opines on Canadian securities law, an area outside his area of expertise;

2. His evidence is unnecessary because his opinion goes to the ultimate issue – namely, what constitutes a material change;

3. His opinion is based on a fundamental factual assumption “that has been shown … to be false”; and

4. Mr. Macfarlane is on the board of directors of a competitor of Eastern, he has a conflict and therefore lacks the requisite independence expected of an expert.

[14] The applicant submits that Mr. Macfarlane opines on mining issues and, in particular, the likelihood and foreseeability that a change to the support type would affect production at the CRM. Mr. Macfarlane is not conflicted because he accepted a directorship several months after rendering his opinion. He has no equity interest in the company which is not, in any event, an Eastern competitor. Finally, the applicant asserts that the opinion is not based on an erroneous assumption but is based on the respondents’ press release and other public documents.

The Principles

[15] The leading case on the admissibility of expert evidence is R. v. Mohan, 1994 80 (SCC), [1994] 2 S.C.R. 9. Four criteria must be met:

(1) The evidence must be relevant to an issue in the case;

(2) The opinion must be necessary in assisting the trier of fact because the trier of fact would not otherwise be able to appreciate the facts and form a correct judgment on them;

(3) The evidence is not excluded under another rule of evidence; and

(4) The evidence is given by a properly qualified expert.

[16] In R. v. A.K., 1999 3793 (ON CA), [1999] O.J. No. 3280, the court set out several questions that assist in determining whether an expert opinion is necessary:

1. Will the proposed expert opinion evidence enable the trier of fact to appreciate the technicalities of a matter in issue?

2. Will it provide information which is likely to be outside the experience of the trier of fact?

3. Is the trier of fact unlikely to form a correct judgment about a matter in issue if unassisted by the expert opinion evidence?

[17] Other applicable legal principles taken from the authorities and the literature can be conveniently summarized in the following way:

1. In most cases, the issue of whether an expert lacks independence or impartiality is addressed as a matter of weight rather than admissibility. The court retains a residual discretion to exclude the proposed evidence if it is so tainted by bias or partiality as to render it of minimal or no assistance. See Carmen Alfano Family Trust v. Piersanti, 2012 ONCA 297; R. v. Abbey, 2009 ONCA 624.

2. An opinion may be refused admission if it purports to provide a legal opinion on the very issue before the court: Meady v. Greyhound Canada Transportation Corp. (2010), 14 C.P.C. (7th) 361 (Ont. S.C.J.); R. v. J.-L.J., 2000 SCC 51; Mohan, supra; Sopinka, Lederman & Bryant, The Law of Evidence, (3d ed.) (Toronto: Butterworths 2009) para. 12.143.

3. While there is no absolute bar on opining on the ‘ultimate issue’, the court must be careful that an expert’s opinion will not usurp the function of the trier of fact: Mohan, supra; R. v. Abbey, 1982 25 (SCC), [1982] 2 S.C.R. 24; R. v. Ranger, 2003 32900 (ON CA), [2003] O.J. No. 3479 (C.A.).

Analysis

[18] I will deal with the respondents’ submissions in reverse order.

[19] First, I am not persuaded that Mr. Macfarlane’s affidavit should be struck based on an impermissible conflict on interest. Mr. Macfarlane prepared his opinion seven months before he accepted the directorship and he has no equity interest in the company. Furthermore, it is not clear to me on this record that the company with which he is now associated is in fact a competitor to Eastern.

[20] Second, the issue of whether cement grout packs were used in Q1/2011 is a significant contentious factual issue between the parties. The applicant has offered his interpretation of various public disclosures and statements, which he says supports his contention that they were in use at the material time. In contrast, the respondents say that they have proved the contention to be untrue.

[21] In my view, it would be wrong to rule Mr. Macfarlane’s opinion inadmissible on the basis urged by the respondents. To my mind, such a ruling would be tantamount to summary judgment in favour of the respondents because the court would essentially be finding that cement grout packs were not used in Q1/2011. A better way to characterize the Macfarlane opinion is that he assumes the facts to be as alleged by the applicant. His opinion is only to be accorded weight if the applicant proves those facts and in particular, the use of cement grout packs in Q1/2011 on a balance of probabilities.

[22] The remaining two arguments can be conveniently grouped together. To the extent that Mr. Macfarlane has given an opinion on whether Eastern should have issued a material change report pursuant to the Act, that opinion is not admissible. This is precisely the issue to be decided at trial, if leave is granted and Mr. Macfarlane is not qualified to comment on Canadian law with which he is not familiar. The case involves the interpretation of s. 138.3(4) of the Act and a determination of law.

[23] Having said that, I am not certain that I read Mr. Macfarlane’s opinion in the same way as the respondents urge. His conclusions are captured at paras. 106 and 107 of his opinion. As I see it, he is simply saying that the introduction of the cement grout packs in Q1/2011 (if that in fact is the case) would reasonably be expected to have an effect on the value of Eastern’s securities because it could have caused the production shortfall reported.

[24] I do not consider it necessary to strike the Macfarlane affidavit as a result.

The Waldeck, Kirsten & Bosman affidavits

[25] The respondents have served affidavits from four fact witnesses and three experts in response to the leave application:

1. The affidavit of Mr. Robinson, the managing director responsible for mine operations at CRM from 2006 to December 2011, who stated that cement grout packs were not used at CRM during Q1/2011. Mr. Robinson’s evidence, on which he was cross-examined, was that in February 2011 CRM expanded the use of a completely different type of mine support called “C-Packs” following the issuance of a safety notice by the South African Department of Mineral Resources.

2. The affidavit of Mr. Skinner, the chief surveyor at CRM in Q1/2011, who provided production statistics from CRM to the Respondents’ experts, Dr. Kirsten and Mr. Waldeck, and who swore the production statistics were generated from CRM’s business records that were maintained contemporaneously.

3. The affidavit of Mr. Berrange, the Safety, Health, Environment, Risk and Quality Manager at CRM in Q1/2011 who provided data to Dr. Kirsten and Mr. Waldeck, which he personally retrieved from CRM’s business records.

4. The affidavit of Mr. Bosman, the principal rock engineer at CRM in Q1/2011, who provided evidence on the types of support used at CRM in the last quarter of 2010 and Q1/2011. Mr. Bosman also stated that cement grout pack supports were not used at CRM in Q1/2011.

5. The affidavit of Dr. Kirsten, a mining expert, who responded to the Macfarlane affidavit and provided an opinion on what impact, if any, the use of different types of supports had on productivity at CRM in Q1/2011 and other causes, if any, of lower production at CRM in Q1/2011. Dr. Kirsten relies in part on evidence provided by the respondents’ fact witnesses.

6. The affidavit of Mr. Waldeck, a mining engineering expert, who responded to the Macfarlane Affidavit and provided an opinion on the impact of different support methods to the mining cycle and the potential causes of lower production at CRM in Q1/2011. Mr. Waldeck relies in part on evidence provided by the respondents’ fact witnesses.

7. The affidavit of Richard Deaves, an economic expert.

The Parties’ Positions

[26] The applicant asserts that the affidavits are inadmissible under Rule 39.01(5); that the respondents are attempting to shield themselves from cross-examination; and, the expert affidavits are not necessary or reliable and they are prejudicial and based on hearsay.

[27] The respondents submit that Rule 39.01(5) has no application to expert evidence; the Bosman affidavit is properly before the court because he swears to information within his knowledge, which do not relate to contentious facts and is not tendered for proof of their contents. They submit that it is not the case that they are attempting to shield themselves from cross-examination and the fact affiants are the best witnesses in the circumstances given their familiarity with CRM operations.

[28] Finally, they reject any suggestion that the expert opinions are not admissible on the bases urged by the applicant.

The Law

[29] The analysis is guided by the principles already enunciated respecting expert evidence in connection with the Macfarlane affidavit.

[30] In addition, Rule 39.01(5) provides as follows:

(5) An affidavit for use on an application may contain statements of the deponent’s information and belief with respect to facts that are not contentious, if the source of the information and the fact of the belief are specified in the affidavit.

[31] There is authority for the proposition that Rule 39.01(5) does not apply to expert evidence. In Inco Ltd. v. Ontario (2002), 2002 62443 (ON SC), 61 O.R. (3d) 561 (S.C.J.) the court declined to strike an affidavit of an expert witness on the basis it contravened the Rule. The court’s rationale was expressed in this way:

In my opinion, there is nothing objectionable about this. Mr. Murphy [the expert witness] is not attempting to prove contentious facts; rather, he is expressing a professional opinion based on the facts set out in the affidavits of others. Such opinions are almost always based on facts provided by others and the rule is that the opinion is only as good as the proof of the underlying facts. To the extent that Mr. Murphy relies on his years of experience in putting forward evidence as to facts in the industry generally, that is personal knowledge, not hearsay.

[32] Similarly, in Ottawa (City) v. TKS Holdings Inc., 2011 ONSC 7633, the court held that “the admissibility of an expert opinion in an application is not to be determined through an analysis of Rule 39.01(5).” Rather, the admissibility of any expert report is governed by the application of the common law rules on expert evidence to which I will return below.

[33] Finally, the law is quite clear that expert evidence is not inadmissible hearsay because it relies on others’ information in formulating an opinion. In R. v. Abbey, 1982 25 (SCC), [1982] 2 S.C.R. 24, the court noted:

An expert witness, like any other witness, may testify as to veracity of the facts of which he has first-hand experience, but this is not the main purpose of his or her testimony. An expert is there to give an opinion. And the opinion more often than not will be based on second-hand evidence.

[34] The respondents rely on Newmarket (Town) v. Halton Recycling Ltd., 2006 18731 (ON SC), [2006] O.J. No. 2233 (S.C.J.) and Ontario Securities Commission v. 1367682 Ontario Ltd., [2008] O.J. No. 2020 (S.C.J.) in support of their submission that a distinction must be drawn between contentious facts and contentious issues. An affidavit touching on contentious issues does not attract the operation of Rule 39.01(5).

[35] In Armstrong v. McCall, 2006 17248 (ON CA), [2006] O.J. No. 2055 (C.A.), the court noted that the purpose of Rule 39.01(5) is to prevent parties from shielding themselves from cross-examination. It observed:

The problem with an affidavit on information and belief is that the person who provided the information to the deponent is shielded from cross-examination. No doubt that is why rules 39.01(5) and 20.02 effectively preclude affidavits on information and belief in respect to contested facts.

[36] In Metzler Investment GMBH v. Gildan Activewear Inc., 2009 CarswellOnt 4786 (S.C.J.), Justice Leitch struck an affidavit sworn by a private investigator filed in support of a claim under Part XXIII.1 of the Securities Act. She made the following observation:

It is significant to our adversarial process that deponents of affidavits submit to an oath and can be cross-examined on their affidavit. The purpose of that process is to allow the reliability of the deponent’s evidence to be tested. It is for the same reason that hearsay evidence is not allowed. As previously set out, Ms. Schulman’s affidavit is replete with hearsay and double hearsay relating to contentious issues. The real deponents are the five informants. It is those individuals who must swear an affidavit if their evidence is to be relied on by the plaintiff on the motion for leave under s. 138.8 of the Securities Act of the Securities Act.

[37] Ainslie v. CV Technologies Inc., 2008 63217 (ON SC), [2008] O.J. No. 4891 (S.C.J.) stands for the proposition that a respondent on a Part XXIII.1 application is not required to file an affidavit or be compelled for examination.

[38] With respect to the common law requirements for the admissibility of expert evidence, R. v. Lavallee, 1990 95 (SCC), [1990] 1 S.C.R. 852 is the leading authority. It was a case involving psychiatric evidence about battered women syndrome. Justice Wilson articulated the following rules respecting experts relying on hearsay evidence:

1. An expert opinion is admissible if relevant, even if based on second-hand evidence.

2. This second-hand evidence (hearsay) is admissible to show the information of which the expert opinion is based, not as evidence going to the existence of the facts on which the opinion is based.

3. Where psychiatric evidence is comprised of hearsay evidence, the problem is the weight to be attributed to the opinion.

4. Before any weight can be given to an expert’s opinion, the facts upon which the opinion is based must be found to exist.

[39] Justice Sopinka in a separate concerning judgment commented on the foregoing rules:

The combined effect of numbers 1, 3 and 4 is that an expert opinion relevant in the abstract to a material issue in a trial but based entirely on unproven hearsay (e.g., from the mouth of the accused, as in Abbey) is admissible but entitled to no weight whatsoever.

The resolution of contradiction inherent in Abbey, and the answer to the criticism Abbey has drawn, is to be found in the practical distinction between evidence that an expert obtains and acts upon within the scope of his or her expertise (as in City of St. John), and evidence that an expert obtains from a party to litigation touching a matter directly in issue (as in Abbey).

In the former instance, an expert arrives at an opinion on the basis of forms of enquiry and practice that are accepted means of decision within that expertise.

Where, however, the information upon which an expert forms his or her opinion comes from the mouth of a party to the litigation, or from any other source that is inherently suspect, a court ought to require independent proof of that information. The lack of such proof will, consistent with Abbey, have a direct effect on the weight to be given to the opinion, perhaps to the vanishing point. But it must be recognized that it will only be very rarely that an expert’s opinion is entirely based upon such information, with no independent proof of any of it. Where an expert’s opinion is based in part upon suspect information and in part upon either admitted facts or facts sought to be proved, the matter is purely one of weight.

Analysis

[40] As a preliminary matter, it must be said that the applicant’s position respecting his own expert seems inconsistent with the position he takes with respect to the respondents’ experts. The two positions are difficult to reconcile.

[41] I cannot agree with the respondents that this case engages a distinction between contested facts and contested issues. Whether cement grout packs were used in Q1/2011 is a significant contentious factual issue. Indeed, their use (or not) may be central to the outcome of the application and trial, if the matter is permitted to proceed.

[42] I recognize that a respondent need not file any evidence on a Part XXIII.1 application but once it decides to do so, clearly it must conform to the Rules and the rules of evidence.

[43] Nevertheless, this motion must fail. Rule 39.01(5) has no application to expert opinion.

[44] I see nothing objectionable in the experts’ affidavits. Some of their evidence is grounded in the fact evidence offered by the other affiants. To the extent that the experts rely on hearsay and/or contested facts, obviously their opinions will founder if the underlying factual underpinning is not accepted.

[45] This is consistent with the approach I have taken with respect to the Macfadden affidavit.

[46] The respondents have persuaded me that the expert affidavits also meet the common law requirements for admissibility. They are clearly relevant to the issues raised in the application. At the risk of repetition, hearsay evidence is admissible to show the information on which the opinion is based, not as evidence respecting the truth of those facts. The issue is one of weight. Before any weight can be given to an expert opinion, the facts on which the opinion rests must be proved on a balance of probabilities.

[47] Their evidence is necessary because it touches on issues outside the experience of the court and will assist it in forming a correct judgment.

[48] There is nothing improper in the contents of the Bosman affidavit. The impugned paragraphs are within his personal knowledge or based on his experience in rock engineering. Many of the paragraphs are not related to contentious facts. The various reports to which he refers were ones that he reviewed in the course of his employment and are properly before the court as providing the basis for his information and belief.

[49] For these reasons, both motions are dismissed. In the circumstances, because both motions are dismissed, there will be no order respecting costs.

“Justice H. A. Rady”

Justice H. A. Rady

Date: July 22, 2014