Mellon Corporation, 2019 ONSC 5494

COURT FILE NO.: CV-17-11727-00CL

DATE: 20190924

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: SS&C TECHNOLOGIES CANADA CORP., Applicant/Responding Party

AND:

THE BANK OF NEW YORK MELLON CORPORATION and CIBC MELLON GLOCAL SECURITIES SERVICES COMPANY, Respondents/Moving Parties

BEFORE: Penny J.

COUNSEL: Ren Bucholz for the Applicant/Responding Party

Eli Mogil and Erin Chesney for the Respondents/Moving Parties

HEARD: September 18, 2019

ENDORSEMENT

Overview

[1] This is a motion by the respondents, following cross examinations conducted in respect of this application, under Rule 39.02(2) for leave to file the affidavit of Daniel J. Smith.

[2] The test on such a motion is fourfold:

(a) is the evidence relevant?

(b) does the evidence respond to a matter raised on cross-examination, not necessarily for the first time?

(c) would granting leave cause non-compensable prejudice? and

(d) is there an adequate explanation why the evidence was not filed earlier?

See First Capital Realty Inc. v. Centrecorp Management Services Ltd. 2009 CarswellOnt 6914 (Div. Ct.)

[3] In 1944949 Ontario Inc. (OMG ON THE PARK) v. 2513000 Ontario Ltd., 2019 ONCA 628 at para. 34, the Court of Appeal confirmed that a flexible, contextual approach is to be taken in applying this test with regard to the overriding principle that the Rules are to be interpreted liberally to ensure a just, timely resolution of the dispute.

[4] For the reasons that follow, leave is granted, on terms, to file a portion of the Smith affidavit.

Background

[5] The applicant SS&C licenses proprietary market data to large financial institutions. In 1999, the applicant entered into agreements to provide this proprietary market data with CIBC Mellon in Toronto and Mellon Trust in Massachusetts.

[6] Mellon Financial Corporation acquired Boston Safe & Deposit Co. in 1993. Following that acquisition, Mellon’s trust and custodial services were provided under the brand name “Mellon Trust.” In 2007, the Bank of New York merged with Mellon Financial Corporation creating BNY Mellon. The Mellon Trust agreement with SS&C was, thereafter, assigned to BNY Mellon.

[7] CIBC Mellon represented the segment of Mellon’s trust business that is conducted in Canada. The CIBC Mellon contract was terminated in 2011.

[8] BNY Mellon continued to receive market data following the termination of the CIBC Mellon agreement with the applicant. The applicant learned in 2016 that BNY Mellon had continued to provide proprietary market data to CIBC Mellon following the termination of CIBC Mellon’s agreement with the applicant in 2011. The applicant alleges that CIBC Mellon, and other entities, received proprietary market data that they were not entitled to receive under the Mellon Trust agreement assumed by BNY Mellon in 2007. Thus, the applicant alleges that BNY Mellon and CIBC Mellon breached the terms of their agreements.

[9] The notice of application seeks declarations that BNY Mellon and CIBC Mellon breached their agreements and provided market data to unauthorized third parties. It also seeks accounting and tracing orders as well as damages of $50 million.

[10] In describing the parties, the notice of application pleads:

BNY claims that “Mellon Trust”, the named counterparty in the Mellon Agreement (defined below), is a brand of BNY Mellon. The corporate legal standing of Mellon Trust and the relationships between BNY Mellon and Mellon Trust is not known to SS&C.

[11] A central issue in dispute in this litigation is the scope of the authorized use of the market data under the agreements. The applicant says only CIBC Mellon and Mellon Trust/BNY Mellon, were entitled to use the market data and that, in the case of CIBC Mellon, only until it terminated its contract with the applicant in 2011. The respondent argues that Mellon Trust was not a legal entity but a brand name and that use of market data under the agreements extended to various other Mellon Trust entities such as Mellon Financial Corporation, its affiliates, subsidiaries and the like. It is the use of the market data by these other Mellon entities which constitutes the breaches of the agreements alleged by the applicant.

[12] This dispute about the scope of authorized use in part turns on the meaning of “Client” in the agreements. “CIBC Mellon” is defined as the Client in the CIBC Mellon contract and “Mellon Trust” is defined as the Client in the Mellon Trust contract.

[13] The applicant relies on the affidavit of one witness, Eric Rocks. The respondents rely on the affidavits of five witnesses. One of the respondents’ witnesses is Ms. Amy Harkins. Ms. Harkins gave evidence, among other things, to the effect that Mellon Trust was a “brand name” under which various Mellon entities provided services through a number of subsidiaries and affiliates. She deposed that CIBC Mellon also operated under the Mellon Trust brand name. During cross-examination, for example Ms. Harkins was asked what she meant by her statement that Mellon Trust was a registered trademark that covered Mellon’s “trust lines.” She replied:

We used it from a marketing perspective, Mellon Trust, as an umbrella entity you know, for the business lines that were served.

[14] A number of undertakings were given concerning corporate structure and how the different Mellon entities related to one another. Subsequent to Ms. Harkin’s cross-examination but before answers to undertakings were completed, Ms. Harkins cease to be employed by BNY Mellon. As a result, Ms. Harkins was no longer in a position to marshal the corporate resources necessary to answer outstanding undertakings on behalf of the corporate respondents. This task was assigned to Mr. Smith.

[15] Mr. Smith has been with BNY Mellon for over 30 years exercising leadership functions in many aspects of the global Mellon business. Mr. Smith has, in particular, a detailed understanding of the trust and custody business which is at the heart of the agreements and this lawsuit.

[16] Although aware of the litigation previously, Mr. Smith only became involved when BNY Mellon’s in-house counsel and Ms. Harkins left their employment with BNY Mellon. The new in-house counsel had no familiarity with the litigation and required additional support to provide answers to BNY Mellon’s undertakings.

[17] After reviewing the affidavits and cross examinations, Mr. Smith came to the conclusion that there was “confusion” about the use of the Mellon Trust brand name in relation to Mellon’s asset servicing business. On this basis, and in addition to his involvement in answering BNY Mellon’s undertakings, Mr. Smith swore an affidavit to provide further evidence about the Mellon Trust brand name and the scope of services offered through various subsidiaries, affiliates and joint ventures under that brand name. The affidavit is 11 pages long. The main point addressed in this affidavit is captured in para. 25. Mr. Smith deposes:

In 1999, when the contract between Mellon Trust and SVC was entered into, Mellon Trust was comprised of the trust and custody businesses of Mellon Bank Corporation (which, around the same time, changed its name to Mellon Financial Corporation), including Mellon Bank; N.A. (which included operations in London and various locations throughout the United States), Mellon Securities Trust Company, Mellon Bank (DE) Mellon Bank (MD), Mellon Trust Company of Illinois, Mellon Trust of California, Boston Safe Deposit and Trust Company (which also included operations in the United States and London), CIBC Mellon (a Canadian joint venture between Canadian Imperial Bank of Commerce and Mellon Financial Corporation carried on through CIBC Mellon Global Services Securities Services Company and CIBC Mellon Trust Company), and other entities with whom we had strategic marketing alliances, including ABN AMRO Mellon (which later became an international joint venture between ABN Amro Bank N.V. and Mellon Financial Corporation).

[18] The rest of the affidavit, with a critical qualification which I will addressed below, expands on this point, relating it to how the business was actually carried on and, in several cases, provides context for the answers to undertakings.

[19] The applicant objects to the filing of the Smith affidavit and thus opposes the motion for leave.

Analysis

[20] I will deal with each of the four parts of the test for leave.

Relevance

[21] As noted above, the applicant specifically raised in the notice of application questions about the internal organization of the Mellon Trust business.

[22] And, as it has evolved through the exchange of affidavits and in the cross examinations, a central question in this litigation is whether BNY Mellon’s disclosure of market data to other Mellon entities was a breach of the terms of the agreements. This, the applicant concedes, will require the trier of fact to decide what the parties to the contract would reasonably have understood the contract to mean, having regard to the language used, reading the agreement as a whole in light of the factual matrix existing at the time. This, in turn, will engage the question of whether the applicant’s contract with “Mellon Trust” can be interpreted so as to permit Mellon Financial Corporation’s subsidiaries and affiliates to have licensed access to the market data.

[23] What Mellon Trust was and how the Mellon business was organized in 1999 and thereafter is relevant to this question.

[24] The applicant argues, however, that the Smith affidavit really amounts to self-serving legal argument or lay legal opinion on the ultimate issue before the court. This is, in my view, a valid objection to certain passages in the Smith affidavit but raises the broader question of the difference between permissible objective evidence of the factual matrix and impermissible legal opinion/subjective evidence of intention or understanding.

[25] I find that the objective facts concerning what Mellon Trust was in 1999 and how the Mellon business was organized in relation to “Mellon Trust” and under BNY Mellon are relevant to an important question in dispute in this case.

[26] However, expressions of opinion about what the contract means or conclusions about the scope of the contract or what fell within the concept of “Client,” as that term is used in the agreements, based on subjective understandings are clearly impermissible in the contract interpretation exercise.

[27] Mr. Smith blatantly offends this principle in a number of places in his affidavit. By way of example, the first sentence of para. 27 states:

From its inception, the SVC/SS&C contract was meant to reflect the global trust and custody business of the corporate parent.

Para. 29 states:

Pursuant to the governing agreements, Mellon Trust was authorized to use SVC/SS &C data and reports to its customers, which included all customers of the trust and custody business worldwide.

The second sentence of paragraph 32 states:

So when the Mellon Trust contract refers to “customers”, that can only, for contractual purposes, be a reference to the end customers of our global asset servicing business.

Additional passages falling into this category include the second sentence of para. 26 and all of para. 36.

[28] All of these passages purport to provide conclusions or opinions on what the contract means based on Mr. Smith’s subjective opinions. Altogether apart from the fact that Mr. Smith, by his own admission, was not involved in the negotiation or execution of this contract, such evidence, even if he was involved, is entirely inappropriate.

[29] Mr. Mogil argues for the respondents that admissibility is a question for the application judge. That is generally true. However, this is a motion for leave to admit evidence outside the ordinary course of proceedings established under the Rules. One of the requirements to obtain leave is that the evidence must be relevant. Subjective evidence and lay opinion evidence on matters of domestic law cannot be admitted and therefore, cannot be relevant. Further, these are not determinations requiring a subtle understanding of the full evidentiary context. These are blatant infringements of a fundamental principle of contract interpretation.

[30] Accordingly, I find the objective factual content of the Smith affidavit is relevant but the passages cited in para. 27 above are not. Those passages, therefore, must be struck from the affidavit if it is otherwise admitted.

In Response to an Issue Raised on Cross Examination

[31] Although the applicant argued strenuously to the contrary, I conclude that the Smith affidavit arose directly out of matters that were raised on the cross examination, i.e., undertakings arising out of questions about Mellon Trust and BNY Mellon’s relations and interactions with its affiliates and subsidiaries in connection with the provision of market data under the agreements.

[32] It is a reality of corporate litigation that senior executives sometimes retire or leave their employment during the course of litigation. It is also a reality of corporate litigation that not one person has all the answers. This is, of course, the very reason the need to ask for undertakings arises. Mr. Smith’s affidavit does not, as the applicant argues, introduce a completely new theory. It merely expands on evidence given by Ms. Harkins in respect of which cross-examination took place and certain undertakings were given.

[33] While the affidavit may go beyond the strict four corners of the undertakings requested, the evidence relates, at the very least, to context for those answers which is, I find in the circumstances of this case, sufficient to meet part two of the test for leave.

Non-Compensible Prejudice

[34] I do not accept, as submitted by the applicants, that the need for further affidavits and cross examination to respond to the Smith affidavit constitutes non-compensable prejudice. There was always going to be further examinations on witnesses’ answers to undertakings in any event. Thus, the examination phase was not over and, while the Smith affidavit contributes to the problem of more examinations, it did not cause it. In addition, given the claim for $50 million in damages, it seems likely that there will have to be further evidence in any event. There is also no hearing date as yet. This is unlike many of the cases denying leave where 11^th hour affidavits are introduced on the morning of the hearing. And, while it is not necessarily behaviour to be encouraged, the late filing of the Smith affidavit hardly represents a “never-ending cycle” of affidavits and counter affidavits at this stage of a large, complex proceeding.

[35] I agree, however, with the applicant that, if leave is granted, there will have been and will yet be additional costs thrown away because, had the evidence in the Smith affidavit been presented in the first place as part of the scheduled exchange of material, the cross examinations would have proceeded in a more orderly fashion and the need for re-attendances for further cross examinations to address this evidence would have been, to some extent at least, lessened or avoided. I will deal with this issue when it comes to costs.

Adequate Explanation

[36] Finally, the applicant argues that the respondents have not advanced any reasonable explanation for why the content of the Smith affidavit was not filed before the cross examinations. The applicant relies on judicial authority to the effect that “careful scrutiny” of the adequacy of the explanation is required and that evidence which is merely repetitive of or seeks to clarify earlier evidence is insufficient to meet the fourth component of the test for leave. The applicant argues that the Smith affidavit does nothing more than attempt to “clarify” earlier evidence with self-serving legal interpretations of the contract. The applicant also points to alleged shifting and inconsistent explanations for the scope and purpose of the Smith affidavit which have been offered by the respondents.

[37] The issue of legal interpretation is a valid one. However, as discussed above, that criticism only applies to a portion of the Smith affidavit and can be, and has been, dealt with by striking out those portions of the affidavit.

[38] I agree that gratuitous “clarifications” of the evidence following cross examination would, standing alone, be an insufficient basis to grant leave. But this is not what has happened in this case. One of the purposes of cross examination is often to clarify the evidence – to pin the witness down, so to speak. One of the purposes of asking for undertakings is also, of course, to clarify evidence that was given before the cross examination. Thus the question of whether an affidavit seeks to “clarify” earlier evidence must be considered contextually, not in a vacuum.

[39] In this case, the essence of the reason for the Smith affidavit is to provide (in the context of cross examinations and answering undertakings) more details about an issue which, although raised by Ms. Harkins in her affidavit, were felt by the respondents to be necessary to explain and provide context for the answers to undertakings ultimately delivered. This is the central issue in determining whether the explanation is adequate. The so-called shifting explanations do not change that.

[40] While, of the four factors, this is the one perhaps closest to the line, I am satisfied, having regard to all of the circumstances, that the Smith affidavit shares a sufficient nexus with the undertakings requested and answered to constitute an adequate explanation for its delivery following cross examinations.

Conclusion

[41] Leave is granted to admit the Smith affidavit on terms. The first term is that the paragraphs of the affidavit identified in para. 27 above are struck out. The second term involves costs, which is addressed, below. The third term involves scheduling to ensure this blip in the proceedings does not spin off into unnecessary delay. The parties shall negotiate a timetable for the completion of all remaining evidence in this application as expeditiously as possible. If the parties are unable to come to an acceptable result, there shall be a case conference before me at which I will impose a timetable.

Costs

[42] Additional costs of the applicant associated with this motion and its sequelae shall be borne by the respondents on a substantial indemnity basis. These costs include:

(i) the applicant’s costs of this motion;

(ii) the applicant’s costs of preparing any responding affidavit material to the Smith affidavit; and

(iii) the applicant’s costs of any additional cross examination by any party of any witness arising out of the content of the Smith affidavit.

[43] The parties shall, again, negotiate appropriate amounts as they arise. If the parties are unable to agree, bills of costs and brief written submissions not to exceed three typed, double-spaced pages, will be submitted for my determination. Any such submissions concerning the cost of this motion shall be concluded within two weeks (seven days for the applicant, seven days for the respondents) of the release of these Reasons.

Penny J.

Date: September 24, 2019