Court File and Parties

COURT FILE NO.: CV-20-644524-00CP DATE: 2022-03-02

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Timothy Kwong AND: iAnthus Capital Holdings, Inc., Hadley Ford and Julius Kalcevich

BEFORE: J.T. Akbarali J.

COUNSEL: Manjit Singh and Albert Pelletier for the plaintiff Jeffrey Levine, Stephen Brown-Okruhlik and Guneev Bhinder, for the defendants iAnthus Capital Holdings, Inc. and Julius Kalcevich Kathryn J. Manning and Corey Groper for the defendant Hadley Ford

HEARD: In writing

Proceeding under the Class Proceedings Act, 1992

Endorsement

[1] The plaintiff has commenced a putative class action against the defendants, alleging misrepresentations in the secondary market under Part XXIII.1 of the Securities Act, R.S.O. 1990, c. S.5. Under s. 138.8 of the Securities Act, leave is required to commence his claim. The plaintiff has delivered a motion record in support of his request for leave, to which the defendants have responded. The plaintiff now seeks production of documents from the defendants before serving his reply record, arguing that the documents he seeks are referenced in the defendants’ affidavits. Alternatively, he argues that portions of the defendants’ affidavits that reference these documents should be struck. The defendants resist the motion.

[2] To be permitted leave to proceed with a secondary market misrepresentation claim, a plaintiff must show that the claim has a reasonable possibility of success: Theratechnologies Inc. v. 121851 Canada Inc., 2015 SCC 18, at paras. 36-38. The leave requirement in s. 138.8 of the Securities Act gives the court “an important gatekeeping role”; it is more than a speed bump: Theratechnologies, at paras. 36-38. Rather, the leave requirement is “a robust deterrent screening mechanism so that cases without merit are prevented from proceeding”: Bradley v. Eastern Platinum Ltd., 2016 ONSC 1903, at para. 51.

[3] To establish a reasonable possibility of success, the claimant must “offer both a plausible analysis of the applicable legislative provisions, and some credible evidence in support of the claim.” The threshold requires that there be a “reasonable or realistic chance that the action will succeed.” However, the leave stage should not be treated as a mini-trial: Theratechnologies, at paras. 38-39.

[4] Section 138.8(2) of the Securities Act provides that, on a leave motion, the plaintiff and each defendant shall serve affidavits setting forth the material facts upon which each intends to rely. Under s. 138.8(3), an affiant may be examined on her affidavit in accordance with the rules of court.

[5] Jurisprudence establishes that plaintiffs seeking leave under s. 138.8 of the Securities Act have no entitlement to documentary or oral discovery. Defendants are not required to lead any evidence on a leave motion: Johnson v. North American Palladium Ltd., 2018 ONSC 4496, at paras. 21 and 48. As Belobaba J. said in Mask v. Silvercorp Metals Inc., 2014 ONSC 5727, leave to appeal refused, 2014 ONSC 7381 (Div. Ct.), the moving party on a leave motion is not permitted “to engage in a discovery-like ‘rummage’ through the defendant’s corporate files ‘in the hope of uncovering something helpful to her case.’” This statement was adopted by Rady J. in Bradley, at para. 24.

[6] There are rules that are relevant to production requests arising out of an affidavit. Rule 30.04 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, governs the inspection of documents referenced in, among other things, an affidavit. Rule 30.04(2) provides that a request to inspect documents (Form 30C) may be used to obtain the inspection of any document in another party’s possession, control or power that is referred to in an affidavit served by the other party.

[7] The plaintiff does not rely on r. 30.04(2). For r. 30.04(2) to apply, a party must first serve a request to inspect on the other party: r. 30.04, Greek Canadian Community of Peel & Halton v. Clergy Properties Ltd., 2015 ONSC 2912, at para. 27. No request to inspect has been served in this case.

[8] Second, the document must be in the possession, power or control of the party from whom it is requested. The defendant Hadley Ford has led evidence indicating that he does not have any of the documents requested.

[9] Finally, the document must be specifically referenced in the requested party’s affidavit; general references to non-specific documents does not give rise to a right to inspect under r. 30.04(2): Kenning v. Odaguchi, 1992 CarswellOnt 3782 at para. 5; Wallbridge v. Brunning et al., 2017 ONSC 6283, at para. 88. In this case, the documents the plaintiff seeks are not specifically referenced in the affidavits. Presumably if they were, the plaintiff would have delivered a request to inspect.

[10] A party served with an affidavit that does not specifically reference documents that it can inspect has an opportunity to compel production through a Notice of Examination, which can require an affiant to bring documents to a cross-examination under r. 34.10(2)(b). However, a party cannot cross-examine an affiant until the cross-examining party has served every affidavit on which he intends to rely: r. 39.02(1), Rules of Civil Procedure. Thus, while the plaintiff may be able to compel the production he seeks through a Notice of Examination (subject to other objections the defendants may raise), he cannot do so until after he has served his reply. This avenue of production is thus premature, and, in the plaintiff’s view, unhelpful because he alleges he requires production before completing his reply material.

[11] An affiant under cross-examination may also be asked to undertake to produce documents pursuant to r. 34.10(4). This avenue of production suffers from the same defect in the plaintiff’s view, that is, it is an avenue of production unavailable to him until he has filed his reply materials. It too is subject to objections the defendants may raise.

[12] The plaintiff’s Notice of Motion identifies certain rules in support of his motion: rr. 1.04(2), 1.05, 2.01 and 59.06(1) of the Rules of Civil Procedure,

[13] Rule 59.06 appears to have no application to this motion. It deals with amending, setting aside, or varying an order. It appears to have been referenced in error.

[14] The plaintiff relies primarily on rr. 1 and 2. Rule 1.04(1) requires that the rules be “liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits.” Rule 1.05 provides that, when making an order under the Rules, “the court may impose such terms and give such directions as are just.”

[15] Rule 2.01(1) provides that a failure to comply with the Rules is an irregularity and does not render a proceeding or a step, document or order in a proceeding a nullity. It allows the court to “grant all necessary amendments or other relief, on such terms as are just, to secure the just determination of the real matters in dispute”, and directs that “only where and as necessary in the interest of justice,” the court may “set aside the proceeding or a step, document or order in the proceeding in whole or in part.” Rule 2.03 allows the court, when it is necessary in the interest of justice, to dispense with compliance with any rule at any time.

[16] The plaintiff argues that together, the Rules give me broad powers to grant the directions the plaintiff requests regardless of any irregularities therein.

[17] I have difficulty with the plaintiff’s interpretation of rr. 1 and 2.

[18] First, r. 2 is corrective. The heading above the rule is “Effect of Non-Compliance”. Rule 2 gives the court powers to amend documents, for example, and to dispense with the requirements of the Rules. It is designed to ensure that technical breaches of the Rules do not get in the way of substantive justice. Rule 2 does not give the court the power to amend the Rules to create procedural rights that do not exist.

[19] Rule 1 directs me to construe the Rules liberally to secure the just, most expeditious, and least expensive determination of every civil proceeding on its merits. But construing the Rules is not the same thing as redrafting the Rules. The plaintiff would have me “construe” the Rules to find a procedural right that does not appear in the Rules, when the Rules provide for production related to an affiant’s affidavit, just not in the way the plaintiff wants it. And when s. 138.8(3) of the Securities Act specifically indicates that examinations on affidavits may be conducted in accordance with the rules of court. And when the Securities Act requires that an action such as the plaintiff’s requires leave before it is permitted to proceed, and our jurisprudence confirms that defendants in such motions are protected from documentary and oral discovery.

[20] The leave mechanism is the balance the legislature struck to advance the purpose of Part XXIII.1 of the Securities Act, described recently by the Court of Appeal in Baldwin v. Imperial Metals Corporation, 2021 ONCA 838, at para. 16, as being “aimed at deterring corporate nondisclosure, protecting investors, and incentivizing accurate and timely disclosure by public issuers, while avoiding the American experience of predatory ‘strike suits.’” Until the leave threshold is passed, the legislature has decided that defendants are only subject to the production obligations that go along with being examined on an affidavit in accordance with the rules of court.

[21] I do not accept the plaintiff’s argument that my ability to make orders that impose such terms and give such directions as are just means that I can do an end run around the clearly chosen legislative limits on production in leave motions under s. 138.8 of the Securities Act, which have been recognized in this court’s jurisprudence repeatedly.

[22] The plaintiff argues that, if he is forced to rely on the Notice of Examination and requests for undertakings, he will not have the documents he says he needs to prepare his reply materials. He will, however, have all the legislature intended him to have. That is how the provisions of the Securities Act and the Rules work together.

[23] Moreover, the plaintiff has not specifically articulated why the documents are necessary for his reply material. Rather, the plaintiff’s affiant deposes that the requested documents “are relevant to numerous allegations in the claim that go directly to multiple issues establishing liability and materiality”, which is a conclusory statement without detail.

[24] I do appreciate the plaintiff’s concern that he may be forced to bring a motion arising out of undertakings and refusals, and if he is successful, he may require follow up cross-examinations, which may lead to a process that does not secure the most expeditious and least expensive determination of the case on its merits. He may have a point.

[25] Or he may not. It is also the case that production outside of the legislated avenues, especially in a leave motion, may cause delay and lead to additional costs.

[26] Moreover, if the issue around any refusal to produce documents or give undertakings (or answer questions for that matter) relates to relevance, the court will be better placed to adjudicate that determination in the context of the examinations having already been conducted.

[27] I thus dismiss the plaintiff’s motion for production of the documents he seeks. He has no right to them at this stage in the process.

[28] Equally, I do not accept that the impugned portions of the defendants’ affiants’ affidavits ought to be struck. The plaintiff argues that the impugned portions of the affidavits are hearsay because they do not attach the documents that would be the best evidence of the events described by the affiants.

[29] The plaintiff does not invoke r. 25.11, which allows a court to strike out all or part of a document if it may prejudice or delay a fair trial, is scandalous, frivolous, or vexatious, or is an abuse of the process of the court. None of these conditions are alleged, with good reason. There is nothing improper about the defendants’ affidavits.

[30] Moreover, to the extent the affidavits contain hearsay, it is permitted. Rule 39.01(4) permits an affidavit for use on a motion to contain statements of the deponent’s information and belief if the source of the information and the fact of the belief are specified in the affidavit. Thus, there is no admissibility issue. There may be a question of the weight to ascribe to hearsay evidence, but the plaintiff can make that argument at the leave motion if he wishes.

[31] The plaintiff’s motion is thus dismissed.

[32] I encourage the parties to attempt to agree on costs. If they are unable to do so, they should advise me within two weeks of the release of these reasons, and I will set a schedule for the exchange of costs outlines.

J.T. Akbarali J.

Date: March 2, 2022