CITATION: Central Sun Mining Inc. v. Vector Engineering Inc., 2016 ONSC 7927
COURT FILE NO.: CV-09-374510
DATE: 20161216
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Central Sun Mining Inc., Plaintiff
-and-
Vector Engineering Inc., Vector Colorado LLC, Vector Costa Rica, S.A., Vector Ingeniera Costa Rica, S.A., Steffen Robertson, Kirsten/SRK Consulting, SRK Field Service, LLC, Golder Associates Inc., Golder Associates Ltd., Richard Frechette, A.V. Chance, Brent Johnson, Don West, Dave S. Hallman, Charles J. Khoury, Rob Dorey, Steffen Robertson Kirsten (U.S.) Inc., Allan Breitenbach, Michael Henderson, Mark Smith, Mark Leduc, Matt Fuller, Sean Currie and XVEI Inc., Defendants
BEFORE: F.L. Myers J.
COUNSEL: W.D. Black, C. Hubbard and M.S. Bridges, for the plaintiff
M. O’Brien for the New Vector defendants H.B. Borlack, for the Old Vector defendants
HEARD: December 15, 2016
ENDORSEMENT
[1] I have been appointed as the case management judge for this matter by McEwen J. as delegate for the Regional Senior Justice.
[2] New Vector bought the assets of Old Vector. Among the contingent liabilities ostensibly left behind with Old Vector are tort claims made by the plaintiff. The plaintiff alleges that although New Vector bought only the assets and not the liabilities of Old Vector, if the plaintiff succeeds against Old Vector, it is entitled to judgment as well against New Vector based on a theory of successor liability among other things. This theory of liability is certainly a novel one. New Vector has twice tried to have the issue of its liability determined summarily. Two judges of the court have ruled that resolution of the novel issue requires a trial to ensure that there is a full fact base available for analysis. The fact base is not drawn from the issues among the plaintiff and its alleged tortfeasors. Rather, the facts that matter vis-à-vis New Vector involve what it knew and did when it bought the assets of the alleged tortfeasor Old Vector. For example, it is suggested by the plaintiff that New Vector knew about the plaintiff’s claim against Old Vector and altered the format of its purchase from a share purchase to an asset purchase deliberately to try to avoid assuming Old Vector’s liability to the plaintiff (if any). Whether this fact has legal significance will be determined at trial. For now, this action is on track to go to trial next fall and the court has determined that a full fact base on the issues concerning the purchase transaction is required.
[3] The plaintiff conducted oral discovery of a representative of New Vector in October, 2015. New Vector was then represented by different counsel. Before being questioned for discovery, New Vector had produced about 150 documents on which the plaintiff was able to base its examination. The plaintiff then learned that New Vector had not searched its own computer databases for its deal documentation. The plaintiff also learned that New Vector had not asked its counsel on the transaction for access to its relevant documentation. In addition, the plaintiff has also since learned that the laptop of Old Vector’s key employee on its sale to New Vector appears to have been destroyed but that the Old Vector’s database is resident on New Vector’s database. New Vector had not searched for or produced documents from this source either.
[4] This past summer, New Vector delivered copies of its database and its lawyer’s database to the plaintiff. In the aggregate, New Vector produced an additional 150,000 documents roughly speaking. New Vector had been allowed to deliver these documents by the court without New Vector searching for or listing relevant documents in a sworn affidavit of documents. There was apparently a basis to fear that few of the multitudinous documents were in fact relevant so that the cost of a full document review effort would not be worthwhile. Nevertheless, the plaintiff reviewed the documents and found about 130 that it believed to be relevant.
[5] By order dated July 15, 2016 on consent of the parties, McEwen J. provided for the delivery of the new documents and for further discoveries. Among other things, he ordered New Vector’s representative to re-attend for further discovery by video conference. He also ordered counsel for New Vector to provide a suggested document protocol for the examination and he agreed to make himself available if the parties could not agree on the terms of the protocol.
[6] After some back and forth, the parties did not agree on a protocol. But they did not go back to Justice McEwen either. Initially, the plaintiff denied owing a duty to tell New Vector which of New Vector’s glorious plethora of documents would be used at the examination for discovery of New Vector. However the plaintiff ultimately agreed to do so. There was a minor issue at the hearing of the motion as to the precise timing of when the plaintiff’s counsel delivered to New Vector’s counsel copies of the New Vector documents that the plaintiff intended to use at the discovery of New Vector. I do not need to resolve that factual issue because it is common ground that regardless of when the documents were delivered, the witness produced for discovery by New Vector was able to review the documents in advance of the examination.
[7] The representative that New Vector chose to produce for the examination was not the same person as the representative whom the plaintiff had previously examined on behalf of New Vector. The prior representative was no longer available. The new witness, Mr. O’Connor, was a member of the board of directors of New Vector. That is pretty much the sum total of his personal knowledge of New Vector and the facts of the case. Mr. O’Connor did not know when he became a member of the board of directors. He did not know or was not willing to say who the other members of the board or senior officers of the corporation might be. He did not know if New Vector still carried on business as an engineering firm. Apart from reviewing the documents forwarded by the plaintiff’s counsel and speaking to New Vector’s counsel, Mr. O’Connor did not prepare himself for being examined for discovery as a representative of New Vector.
[8] Mr. O’Connor is a resident of Australia. He was examined by videoconference. Arrangements were made through US counsel to find a law firm with video facilities in Australia. Test runs were performed. Three sets of counsel attended in Toronto at 6:00 pm to accommodate Mr. O’Connor’s time difference. The resulting examination was a farce. On the vast bulk of questions Mr. O’Connor either had no knowledge of evidence sought, or New Vector’s counsel intervened to object. Counsel took under advisement (more than 60 days ago) a request for Mr. O’Connor’s CV. In fact, counsel for the plaintiff wrote to counsel for New Vector four times prior to the examination to inquire as to the proposed witness’s suitability and knowledge. The letters were ignored.
[9] New Vector now argues that when confronted with a witness with no personal knowledge, examining counsel is obliged to seek undertakings i.e. commitments by the witness to go and inform himself of the answer on behalf of the party whom he represents. But New Vector’s counsel objected to questions on the basis that Mr. O’Connor had no personal knowledge of the evidence sought. That was not a basis for objection. The objections were the antithesis of an undertaking. That is, the questions were refused on behalf of New Vector rather than being accepted for subsequent inquiry by the representative and communication of an answer on behalf of the party whom he represented.[^1] In addition, New Vector’s counsel objected to questions concerning the efforts made by the witness to inform himself for the examination. During the examination, New Vector’s counsel claimed that this information was subject to solicitor-client privilege. Counsel rightly made no effort to sustain that position at the hearing of the motion. In all, the examination was attended by a witness who was ill-informed and it was repeatedly obstructed with improper objections. The examination was aborted by the plaintiff after it became clear that New Vector would not provide useful testimony.
[10] A witness being examined for discovery is not being examined solely for his or her personal knowledge like a witness under subpoena for trial or under a summons to witness pursuant to Rule 39.03 for a motion or application. On discovery, the witness’s personal information is only part of the examination. As a representative of a party, a witness produced on discovery is required to provide his “information and belief.” In Ontario, we do not allow depositions of multiple witnesses prior to trial. Rather, one witness is produced as a representative of each party. The witness is obliged to inform himself or herself in advance and convey under oath the party’s knowledge and position by way of hearsay information and belief evidence. If a witness who has been properly prepared still cannot answer a proper question then he or she is required to undertake to make efforts to search for and provide the answer later on behalf of the party. This saves the parties from the need to conduct examinations of multiple witnesses to obtain a party’s overall evidence and position. By binding a party in this way, issues can be narrowed, formal admissions obtained, and issues can be joined for trial quite efficiently and affordably.
[11] In response to the motion for a further examination, New Vector asserts that the plaintiff has brought the wrong motion. It argues that the plaintiff should have asked for undertakings to have Mr. O’Connor inform himself from others and then brought a refusals motion if it was not satisfied with the witness’s answers. There is no doubt that this is the usual course when a witness is presented with no personal knowledge. There is nothing inherently wrong with a corporate or governmental party being represented on discovery by someone with no personal knowledge. It is perhaps not an optimal situation; but it is not unusual. It is common for lawsuits to be brought years after an event has occurred at a time when no one with institutional memory remains employed by a party. The process of having the witness inform himself or herself and then respond to undertakings is the norm for dealing with that eventuality. Cutting an examination short and moving for directions under Rule 34.14 or for a second examination under Rule 31.03 represent extraordinary processes that are not readily available. All of the principal goals of the civil justice system identified by the Supreme Court of Canada in Hyrniak v Mauldin, 2014 SCC 7, efficiency, affordability, and proportionality, all weigh heavily against allowing multiple examinations.
[12] In Fischer v. IG Investment Management Ltd., 2016 ONSC 4405, Perell J. described the process as follows:
24 Unlike the rules of procedure in other jurisdictions, most notably the United States, where there can be depositions from both the parties and also from their potential trial witnesses, rule 31.06 (1) of Ontario's Rules of Civil Procedure is designed so that unless the court grants leave only one person for each party will be examined to "answer, to the best of his or her knowledge, information and belief, any proper question relevant to any matter in issue."
25 In Ontario, information about the testimony of witnesses or participants in the events is provided by hearsay evidence and by undertakings to provide information.
26 The person examined for discovery may be questioned to provide personal knowledge and to provide hearsay evidence. This second source of discovery evidence is available because on an examination for discovery, the person being examined is required to disclose not only his or her personal knowledge but also his or her information and belief about the matters in issue: [case citations omitted]
[13] In a passage that is heavily relied upon by New Vector, Justice Perell explained:
28 For present purposes, the point to elucidate to the Plaintiffs is that under Ontario’s model for examinations for discovery, it does not follow from the circumstance that the person being examined for a party does not have comprehensive personal knowledge of the party’s actions and omissions and it does not even follow from the circumstance that the person being examined has no personal knowledge of the party’s acts or omissions, that there will be more than one examination for discovery. Thus, in the immediate case, that Mr. Shin did not have comprehensive personal knowledge or that Ms. DeWeerd had no personal knowledge about their respective party’s involvement with market timers, does not mean that others with personal knowledge should be examined for discovery.
[14] However, New Vector ignores the very next sentence written by Perell J. in para. 28 as follows:
In the immediate case, the Plaintiffs have no cause for complaint because of the lack of comprehensive personal knowledge of Mr. Shin or Ms. DeWeerd, both of whom met and went beyond the call of duty in preparing for the examinations for discovery and in undertaking to provide information. [Emphasis added.]
[15] Such was not the case here.
[16] In Little v. Ellerbrock, 2014 ONSC 5945 Justice Quinlan set out the factors that inform the availability of relief under Rule 31.03 as follows:
A review of the case law establishes the following principles to be applied on motions for leave to examine a second representative of a party:
(a) “It is not enough that the evidence is important to the moving parties, who must demonstrate that to refuse the second examination is to deprive them of a meaningful discovery.”[^2]
(b) “The fact that the person whom the moving party seeks to examine may be an important witness at trial, is not sufficient grounds for ordering an additional examination. It is only where the representative can not or will not satisfactorily inform himself that an additional representative will be ordered to be produced.”[^3]
(c) “Such orders are rarely granted. Special circumstances are required and the test is a very strict one.”[^4]
(d) “To show that an examination for discovery has been unsatisfactory so as to entitle a party to a further examination, it is necessary to demonstrate that questions asked have not been answered, or that answers given are incomplete, unresponsive, or ambiguous, or the follow-up questions have similarly not been answered in a clear, complete and responsive way.”[^5]
(e) “The test for whether an examination for discovery has been satisfactory is not a subjective test depending on the view of the examiner. The question is whether there has been a full inquiry into all matters which may be relevant to the issues raised on the pleadings.”[^6]
(f) “It remains important to assess the willingness and ability of the deponent to provide the information sought, and to ensure that an evaluation of the quality of the evidence provided is measured by an objective standard, as opposed to the examiner simply being dissatisfied with the answers provided.”[^7]
[^2]: Scintilore v. Larche, 1995 CarswellOnt 2380 at para. 51 (Ont. Ct. Gen. Div.).
[^3]: Baylis Estate v. Canada (Att. Gen.) (2000), 49 C.P.C. (4th) 179 (Ont. S.C.J.), at para. 9, Leave to appeal dismissed at [2000] O.J. No. 4931 (Div. Ct.).
[^4]: Infinium Capital Corporation v. AB 2000 Software Corporation, 2010 ONSC 812, at para. 8.
[^5]: Fortini v. Simcoe (County), 2012 ONSC 1034, at para. 10.
[^6]: Fortini v. Simcoe (County), supra, at para. 10.
[^7]: Fortini v. Simcoe (County), supra, at para. 15.
[17] I agree with all of these factors that are largely echoed by Perell J. in Fischer as well.
[18] As was argued in Fischer, New Vector submits that the plaintiff has no cause for complaint because of the lack of comprehensive personal knowledge of Mr. O’Connor. New Vector argues that the plaintiff had a very full examination of the first witness produced in October, 2015 and had a full opportunity to ask for undertakings about anything that it wished to ask Mr. O’Connor. I disagree. This case is not at all like Fischer. Here two judges have made express findings concerning the need for a full and complete fact base. When the first examination occurred, New Vector had produced only 150 documents. It had not even looked for the 150,000 or so other documents that it had. Although the issues revolve solely around a legal transaction, New Vector had not obtained its counsel’s file. The issue concerning the missing laptop and spoliation had not been disclosed. New Vector had not looked for Old Vector’s documents that remain missing (and perhaps destroyed). Then, after discovery, when New Vector fulfilled its obligations to search for documents, it found that it had so many documents that it was able to convince a judge that it should not even review them to list relevant documents in an Affidavit of Documents and foisted the task of reviewing its own documents on the plaintiff. It then produced a witness who had done nothing to prepare himself beyond the barest minimum. He did not know that the company for whom he was produced as the representative (and of which he was a member of the board of directors) had been the purchaser of the Old Vector’s assets in the transaction that lies at the heart of the case.[^8]
[19] It is true that the plaintiff could have sought undertakings from Mr. O’Connor. Mr. O’Connor’s breach of his duties as discovery representative just made the process longer and more cumbersome. But, when counsel’s obstruction is layered on top, as noted above, the discovery purpose was effectively thwarted by New Vector.
[20] Having read the transcript in full, the notion that the plaintiff’s counsel could have had a meaningful examination by asking for undertakings in light of the combination of lack of disclosure, lack of preparation, and obstruction by improper refusals is fanciful. New Vector failed to search for let alone produce its documents; it failed to provide a witness who had fulfilled his basic duty to prepare himself to represent the company; and its counsel obstructed proper questioning. While the plaintiff may have had a full examination in October, 2015 based on what New Vector had made available up to that time, New Vector denied the plaintiff a full and proper discovery on the new documents and issues drawn from subsequent searches and disclosures. This is indeed the rare case with special circumstances that justify the order sought. Failure to make the order sought in this case would reward and invite abuse of the discovery process and obstruction.
[21] Accordingly, the court orders that:
(a) In the event that there is an officer, director or employee of New Vector with personal knowledge of the facts relevant to the issues in this case, that person shall attend for examination for discovery, by way of videoconference, on behalf of New Vector;
(b) In the event that there is not an officer, director or employee of New Vector with personal knowledge of the facts relevant to the issues in the case, Mr. O’Connor shall re-attend for examination for discovery, by way of videoconference, on behalf of New Vector;
(c) New Vector’s corporate representative shall fully and carefully prepare himself or herself to answer questions regarding the issues in the case, including by:
(i) Reviewing the pleadings;
(ii) Reviewing the cross examination and discovery evidence given by New Vector’s previous corporate representative, Craig Allen;
(iii) Reviewing the documents identified by Central Sun in advance of Mr. O’Connor’s October 13th examination, and any further documents identified by Central Sun at least two days before the re-examination; and
(iv) Making reasonable inquiries of New Vector’s current and former employees and servants regarding the issues in the case and to determine who else he or she might reasonably contact in order to fulfill the obligations of a party’s representative for discovery;
(d) The further examination shall conducted pursuant to Rule 34.12, such that any question to which objection is taken, other than on the grounds of solicitor-client privilege or settlement privilege, shall be answered on the basis that the answer may not be used without a ruling by the Court at the proceeding at which it is proffered; and
(e) The renewed examination shall take place at a time and place to be set by the plaintiff within the jurisdiction in which the witness resides.
[22] The plaintiff seeks costs on a substantial indemnity basis of $43,047.62 for the motion including costs thrown away for the aborted examination. Costs on a substantial indemnity basis are available only under Rule 49 (which does not apply here) or when a party’s conduct crosses the lines from acceptable, beyond improper, all the way to reprehensible. In my view, this is such a case. New Vector has flouted its discovery obligations at every stage. It has caused significant inconvenience by failing to properly search for and produce documents, by requiring the examining party to provide it with its own documents, requiring counsel here to accommodate a witness overseas, by providing a witness who did not comply with his obligations, and by improperly obstructing the oral examination. The plaintiff’s efforts both before and at the examination to determine if a more qualified representative of New Vector was available were also thwarted by neglect and then inappropriate refusals. In all, I find that New Vector’s approach toward discovery, or more properly, avoiding and thwarting proper discovery, is indeed reprehensible misconduct in this litigation. I note that to the extent that these matters pre-date July, 2016, current counsel was not yet counsel for New Vector.
[23] The fixing of costs is a discretionary decision under section 131 of the Courts of Justice Act. That discretion is generally to be exercised in accordance with the factors listed in Rule 57.01 of the Rules of Civil Procedure. These include the principle of indemnity for the successful party (57.01(1)(0.a)), the expectations of the unsuccessful party (57.01(1)(0.b)), the amount claimed and recovered (57.01(1)(a)), and the complexity of the issues (57.01(1)(c)). Overall, the court is required to consider what is “fair and reasonable” in fixing costs, and is to do so with a view to balancing compensation of the successful party with the goal of fostering access to justice: Boucher v Public Accountants Council (Ontario), 2004 CanLII 14579 (ON CA), (2004), 71 O.R. (3d) 291, at paras 26, 37.
[24] Rule 57.01(4)(c) preserves the court’s authority to award costs on a substantial indemnity basis in an appropriate case. Rules 57.01(1)(e) and (f)(i) support the decision to do so in this case. I note however that the amount claimed by the plaintiff seems a bit high even on a substantial indemnity basis. New Vector is a sophisticated commercial party with its own sophisticated counsel. It should reasonably expect to pay costs at the top end of the market in this case. It is fair and reasonable that New Vector pay costs to the plaintiff of $35,000 inclusive of disbursements and taxes and it is ordered to do so within 30 days.
[25] The plaintiff also seeks costs for the new examination ordered above. As the costs order already made provides the plaintiff with indemnity for substantially all of the costs that it threw away on the aborted examination, the costs slate is wiped clean for the new examination. I decline to deal with those future costs at this time.
F.L. Myers J.
Date: December 16, 2016
[^1]: See, for example, q. 60 of the transcript of the examination for discovery of New Vector taken October 13, 2016 at which counsel for New Vector objected to a question on a document concerning the structure of the acquisition transaction on the bases that the witness had no personal knowledge of the transaction and the transaction had already been the subject of questions at the prior examination before the document at issue had been produced.
[^8]: See q. 110 of the transcript of the examination for discovery of New vector taken October 13, 2016.