Court File and Parties
COURT FILE NO.: 2007- 013279
DATE: 20220128
SUPERIOR COURT OF JUSTICE - ONTARIO
IN THE ESTATE OF Tracy Lynne Jones, Deceased
JAMES RUSSELL TAYLOR, in his capacity as co-Estate Trustee of the Estate of Tracy Lynne Jones
Applicants
- and –
MARK REID in his capacity as co-Estate Trustee of the Estate of Tracy Lynne Jones, CLAUDIA REID in her capacity as co-Estate Trustee of the Estate of Tracy Lynne Jones, HAILEY CHARLES and LINDSAY CHARLES
Respondents
AND BETWEEN:
CLAUDIA REID, in her capacity as co-Estate Trustee of the Estate of Tracy Lynne Jones, MARK REID, in his capacity as co-Estate Trustee of the Estate of Tracy Lynne Jones LINDSAY CHARLES-JONES and HAILEY CHARLES-JONES
Applicants by Counter application
- and –
JAMES RUSSELL TAYLOR and FINANCIAL HEALTH MANAGEMENT GROUP INC.
Respondents by Counter application
BEFORE: Kimmel J.
COUNSEL: Mr. Fred Tonelli, counsel for the Applicants ftonelli@hullandhull.com
H. Richard Bennett, counsel for the Respondents, Applicants by counter-application, Hailey Charles-Jones and Lindsay Charles-Jones hrbennett@.rickettsharris.com
Bikram Singh Bal, counsel for the Respondents, Applicants by counter-application, Claudia Reid and Mark Reid bsinghbal@fdhlawyers.com
Veronica Sjolin and Mahnaz Shariati, counsel for the non-party FundEX Investments Inc. vsjolin@blg.com; mshariati@blg.com
HEARD: January 20, 2022
ENDORSEMENT
[1] The respondents/applicants by counter-application Hailey and Lindsay Charles-Jones and Claudia and Mark Reid (the “moving parties”) seek production from the non-party FundEX Investments Inc. (“FundEX”), a mutual fund company that the applicant James Russell Taylor (“Taylor”) was formerly associated with. They rely upon Rules of Civil Procedure, R.R.O. 1990, Reg. 194, r. 30.10, r. 74 and 75 and the inherent jurisdiction of the court.
[2] The production sought relates to the applicants’ management and handling of certain FundEX mutual fund and investment accounts of the deceased, Tracy Lynne Jones (“Tracy”). In particular, it relates to the question of whether Taylor was acting in a manner contrary to FundEX’s compliance and procedures manuals or policies and/or to his regulatory obligations by performing the dual roles of estate trustee and financial advisor to the estate of Tracy Lynne Jones (the “estate”).
[3] FundEX resists production on the basis that the court does not have jurisdiction to order production from a non-party in an application under r. 30.10 or by virtue of the court’s inherent jurisdiction. FundEX also resists production on the basis that the test for production from a non-party has not been met (this is said not to be a case where the applicants by counter-application would be so unfairly prejudiced by the non-disclosure of FundEX's documents, particularly since FundEX maintains that the moving parties have not exhausted other sources from which to obtain the documents), and the scope of production is disproportionate (including because some of the documents date back twenty years).
Factual Background and Procedural History
[4] The following summary of the relationship between the parties and the background to this motion is uncontroverted, although the parties attach different significance to these facts:
a. Tracy passed away on October 12, 2006. In her will dated December 30, 2003, Tracy purported to appoint Taylor as both estate trustee and financial advisor of her estate. The Reids were appointed as co-estate trustees. The Charles-Jones applicants by counter-application are Tracy’s children and the beneficiaries of her estate.
b. Tracy was a client of FundEX and Taylor was the mutual fund salesperson responsible for servicing Tracy's accounts at FundEX.
c. Taylor was registered in Ontario as a mutual fund salesperson/dealer representative with FundEX from April 12, 2002 to January 9, 2016.
d. Although he was not an employee of FundEX, Taylor was required to abide by Mutual Fund Dealers Association (“MFDA”) regulatory requirements and those included Taylor's requirement to abide by FundEX's code of conduct, which is FundEX's compliance and procedure manual.
e. Taylor testified on cross-examination that the FundEX compliance manual was organized by topics and included sections dealing with conflicts of interest and accepting appointments as a power of attorney and/or as an estate trustee.
f. Taylor testified on cross-examination that the FundEX corporate policies in place at the time, which includes compliance manuals, would have informed Taylor as to whether or not he was in a conflict of interest situation when he was appointed in 2006.
g. Taylor also testified on cross-examination that the FundEX policies in place at the time would assist in determining whether or not Taylor was prohibited from agreeing to being named as an executor in Tracy's will that was signed in 2003.
h. Taylor’s ability to act as both estate trustee and financial advisor to the estate was questioned by his co-executors, the Reids, shortly after Tracy died in 2006, due to the potential conflict of interest. They agreed to his continued involvement in the administration of the estate without prejudice to their ability to object to Taylor’s dual role. Taylor agreed to this without prejudice arrangement in an exchange of correspondence in June and July of 2007.
i. Taylor commenced a small claims court application in August of 2017 in which he sought to recover fees from the other estate trustees and the estate for work he did in his capacity as financial advisor.
j. The moving parties defended that small claims action, in part, on the basis that Taylor was not permitted to act in that role and thus was not entitled to recover any fees for same while he was also acting as a co-estate trustee of the estate.
k. Taylor commenced this application on or about January 30, 2019 under Rules 9.01, 14.05, 7.03, 74 and 75, seeking his removal as estate trustee, in the context of which he seeks to pass his accounts and recover professional fees in his role as financial advisor (among other relief).
l. The Reids and Charles-Jones commenced a counter-application on or about March 11, 2019 under Rules 14.05, 74 and 75, in which they not only oppose the recovery of fees sought by Taylor, but seek various other relief in connection with actions taken by Taylor in both roles, as estate trustee and financial advisor (among other relief).
m. Following a Notice of Hearing issued on December 5, 2017, Taylor entered into a settlement agreement with his regulator, the MFDA, on July 17, 2019. Taylor admits as part of that settlement to certain allegations of wrongdoing against him that relate to his management and handling of Tracy’s accounts while acting as an executor of Tracy’s estate. Specifically, he admits that commencing in 2011, he acted as an executor for Tracy’s estate, contrary to FundEX policies and procedures and MFDA Rules 2.3.1, 2.1.4, 1.1.2, 2.5.1, and 2.1.1.
[5] The following procedural history is relevant to the determination of the applicability of r. 30.10 and will be briefly reviewed in service of that:
a. Pursuant to the Order of Justice Chiappetta dated May 31, 2019, and on consent of the parties, the parties were ordered to make best efforts to resolve all issues raised in the applications, failing which, the parties were ordered to attend at mediation.
b. Pursuant to a further Order of Justice Chiappetta dated June 6, 2019, also on consent of the parties, Taylor's small claims court action in Hamilton was transferred to the Toronto Estates Court and that action, and Taylor's Application and the Reids' / Charles-Jones' counter-applications, were all ordered to be heard together.
c. A mediation was scheduled to take place on March 25, 2020. In advance of that mediation, the moving parties sought various productions from Taylor regarding his management and handling of Tracy’s accounts at FundEX while also acting as co-estate trustee. In particular, they sought production relating to the question of whether acting in these dual roles from and after 2006 was offside of any policies, rules, regulations, and the like that applied to him as a result of his association with FundEX. Taylor refused to provide these documents in advance of the mediation.
d. The mediation was cancelled due to the COVID-19 pandemic. It is expected that the mediation will be rescheduled, after it is determined whether the moving parties are entitled to receive the third party production that they seek on this motion.
e. The moving parties asked the non-party FundEX for the productions in its possession, control, and/or power that Taylor had refused to produce.
f. FundEX initially agreed to make some production, but later refused to do so based on the scope of production sought, leading to this motion.
The Requested Third Party Production
[6] The requested scope of production contained in a draft order provided to FundEX, that was objected to, includes the following:
a. All FundEX compliance policy and procedure manuals, revisions, or amendments thereto, in place for the timeframe of January 1, 2002 to January 31, 2016.
b. All memoranda, bulletins, circulars, emails, letters, agreements, or any other written communication between Taylor and FundEX, or FHMG [the company through which Taylor operated] and FundEX, for the timeframe of January 1, 2002 to January 31, 2016.
c. All memoranda, bulletins, circulars, emails, letters, agreements, or any other written communication between Taylor and FundEX, FHMG and FundEX, Taylor or any other person, and FHMG and any other person, in respect of Tracy Lynne Jones for the timeframe of January 1, 2002 to January 31, 2016.
d. All memoranda, bulletins, circulars, emails, letters, agreements, or any other written communication in respect of the MFDA investigation conducted in respect of Taylor in 2018 or prior and the settlement reached in 2019, insofar as such documents relate to Tracy Lynne Jones.
Issues to be Decided:
[7] The following issues require the court’s determination on this motion:
a. Does r. 30.10(1) apply to this proceeding?
b. If no, does the court have inherent or other jurisdiction to order FundEX to make the third party production?
c. If the answer to either or both of (a) or (b) is yes, should FundEX be ordered to make the requested third party production pursuant thereto?
d. What is the appropriate scope of the third party production?
Analysis
[8] I will address each of the issues to be decided in turn.
Rule 30.10(1)
[9] Pursuant to r. 30.10(1), the Court may, on a motion by a party, order that a document in the possession, control or power of a non-party be produced where:
a. The Court is satisfied that the document is relevant to a material issue in the action; and
b. It would be unfair to require the moving parties to proceed to trial without having discovery of the document.
[10] Courts have consistently held that r. 30.10(1) does not apply generically to applications, following the decision of the Divisional Court in 550551 Ontario Ltd. v. Framingham, 1991 CarswellOnt 847, which held at paras. 4 and 6 that: “The words "action" and "trial" in (a) and (b) are essential words in determining the scope of Rule 30.10 and are not just qualifying words to the original words as submitted by the applicants ... In my opinion, Rule 30.10 does not apply to applications.” See also Abaton Pictures Inc. v. Sullivan Entertainment Inc., 2002 CarswellOnt 808 (S.C.), at para. 4, and Pastway v. Pastway, 2000 CarswellOnt 2849 (S.C.), at para. 11.
[11] The moving parties argue that this proceeding includes an “action,” by virtue of the Order of Justice Chiappetta dated June 6, 2019 that transferred the Hamilton small claims court action into the Toronto Estates Court and ordered the application, counter-applications, and action to be heard together. On this basis, they say r. 30.10 applies.
[12] FundEX argues that the issues to which the requested third party production relates are issues that were raised only in the application/counter-application (or issues raised in the small claims court action that the moving parties maintained should have been raised in the application/cross-application). FundEX contends that the moving parties should not be permitted to bootstrap upon the coincidence of the small claims action having been consolidated into this proceeding to gain third party production to which they would not otherwise have been entitled in the application and counter-application under r. 30.10.[^1]
[13] The moving parties point out that this delineation of issues is artificial, but in any event, the defence filed in the third party action specifically raises the conflict of interest and authority/capacity of Taylor to act in his dual roles as estate trustee and financial advisor as one of the grounds for denying any obligation to pay the fees that Taylor was claiming. This is the very issue to which the requested third party production is said to relate.
[14] Once the issues have been joined in one proceeding, as they have in this case, tracing back to the original “source” of the various and overlapping claims and allegations to determine which originated from the “action” as opposed to the application/counter-application, leads to artificial distinctions being drawn with respect to the availability of third party discovery under r. 30.10. The issues are now joined and the proceedings are being conducted pursuant to the Rules of this court.
[15] An order for the proceedings to be heard together, such as was made by Chiappetta J., falls within the scope of relief under r. 6.01(1). Orders for consolidation or for proceedings to be heard together under r. 6 are made when the court has determined that there are questions of law or fact in common or the relief claimed arises out of the same transaction or occurrence or series of transactions or occurrences, among other reasons.
[16] At the heart of the overlapping issues raised in all three proceedings is the status and conduct of Taylor while he was bound by the regulatory regime of the MFDA and the internal corporate policies of FundEX with respect to conflict of interest situations, and his authority to accept a power of attorney or similar authorization, or an executor or estate trustee position in respect of Tracy.
[17] I find that, regardless of how the proceedings began, there is now an action that is part of the consolidated proceeding pending before this court, to which r. 30.10 applies.
The Court’s Inherent or Other Jurisdiction
[18] The applicability of r. 30.10 as a result of this consolidation and continuation the related proceedings renders it unnecessary to consider the court’s inherent jurisdiction but I will do so briefly because it was argued extensively, and in case there remains any doubt about the court’s jurisdiction to order the requested third party production in this (or any other) case. This is an important consideration because FundEX’s position, if taken to its logical extreme, would mean that the court not only should not, but cannot in any contested estate application, order production from a third party before the hearing.
[19] FundEX argues that this court has previously determined that its inherent jurisdiction should not be used to order third party discovery in applications since it is not provided for in the Rules. They rely upon Framingham, at paras. 7 and 9 for this proposition, as well as Ontario (Attorney General) v. Ballard Estate (1995), 1995 CanLII 3509 (ON CA), 129 D.L.R. (4th) 52 (Ont. C.A.) at p. 56, in which the court affirmed that "[s]ave in the circumstances specifically addressed by the rules, non-parties are immune from the potentially intrusive, costly and time-consuming process of discovery and production."[^2]
[20] This may be so, but it begs the question of whether there exists any provision in the Rules for the court to order third party production in the context of a trial of a contested application to pass accounts under r. 74.18(13.1) or in the context of any other contentious estate application under r. 75.06 and/or in the context of mediations conducted under r. 74(13.2) and r. 75.1. In my view, there clearly is jurisdiction for the court to do so within the purview of directions that parties to such proceedings routinely ask the court for. Ultimately, the court may provide any directions regarding procedures in these contested proceedings as are deemed. The directions sought and provided may, and often do (in many instances, on consent), include production from third parties.
[21] Further, r. 74.18(13.2) specifically allows for production of documents in furtherance of mediation. Rule 75.5.05 also gives the court broad powers to give directions with respect to the conduct of a mediation. This proceeding has been stalled because the court ordered mediation has not taken place. The court has not yet had to make a full order for directions regarding the trial of the issues that remain to be decided, but an order for directions regarding discovery could be made as an interim step if deemed appropriate.
[22] Reliance on Rules 74 and 75 is not a circumvention of r. 30.10 as FundEX suggests. Rather, it is an example of elsewhere in the Rules where there is authority and jurisdiction for the court to make third party production orders in the context of contested estates applications.
[23] This is akin to the analysis in the case of James v. Chedli, 2018 ONSC 2559, at para. 54, relied upon by the moving parties. In that case, where the moving party could have obtained the desired third party production by bringing a motion for leave to conduct a r. 39.03 examination (and for documents to be specified in the notice of examination to be presented at the examination), the court was not impressed by the triumph of form over substance in the argument about whether r. 30.10 applied for purposes of production sought in an application: “In short, if the documents are required in order for justice to be done, the ends of justice are not served by requiring additional procedural gymnastics in order to get them”: James, at para. 54, citing Abaton, at paras. 4 – 5.
[24] While I could, and would, have exercised my discretion under rr. 74 and 75 to order part of the requested third party production (based on the principled analysis below), I do not need to do so given that r. 30.10 applies in this case.
Should the Requested Third Party Production be Ordered?
[25] Regardless of which jurisdiction the court relies upon to order production from a third party (under r. 30.10 or its inherent jurisdiction), there are two essential requirements that the moving parties must satisfy the court of:
a. That the requested third party production is relevant to matters in issue; and
b. That it would be unfair for the moving parties to have to proceed without production of the documents.
[26] Relevance in broad terms is not seriously contested. There is an issue raised in the pleadings about whether Taylor had the authority/ability to accept the role as estate trustee and to act in the dual capacity of estate trustee and financial advisor, having regard to the regulatory and compliance framework within which he was required to operate. The material issues in these proceedings relate to the acts and omissions of Taylor, insofar as he purported to act in both of these capacities. The requested third party production relating to these issues is relevant.
[27] Fairness is to be considered broadly in this context. In considering whether it would be “unfair to require the moving party to proceed to trial” without the production, the court can logically consider this to include not only the decision to proceed to trial but also the decision to resolve the matter (for example, at mediation). See Bernatchez v. Barrie (City) Police Services Board, 2019 ONSC 4607, at para. 17.
[28] The moving parties believe that their best chance of resolving all issues raised in the application, counter-application, and small claims court action, which have been ordered to be tried together, depends on having the productions they now seek from FundEX. Chiappetta J. ordered the parties to make best efforts to resolve all issues raised in the applications, failing which, they were ordered to attend at mediation. This is not a large estate and there is a good chance that the success of the mediation will be impacted by this disclosure, one way or the other.
[29] There is a fairness concern here and a need for some of the requested third party production, but not all of it.
What is the Appropriate Scope of Production?
[30] FundEX says it does not have a “client file” for Tracy. It does not have access to email or other communications between Taylor and Tracy. Those would have to be obtained from Taylor. If he refuses, the moving parties have recourse against him. I agree that all recourse against Taylor must be exhausted in respect of the requested third party production that may be in his possession. I further agree that all recourse must first be exhausted against Taylor for production of any communications involving Taylor or his company, regardless of who else was included, before FundEX should be asked to look for them, especially given that the period of time that has been indicated for such requests spans from 2002 to 2016. Accordingly, I find that it is not proportionate or appropriate to make an order against FundEX for the second and third categories of requested third party production for these reasons.
[31] However, there are two other categories of requested third party production that are specific to FundEX (as opposed to involving communications with Taylor), namely:
a. All FundEX compliance policy and procedure manuals, revisions, or amendments thereto, in place for the timeframe of January 1, 2002 to January 31, 2016; and
b. All memoranda, bulletins, circulars, emails, letters, agreements, or any other written communication in respect of the MFDA investigation conducted in respect of Taylor in 2018 or prior and the settlement reached in 2019, insofar as such documents relate to Tracy Lynne Jones.
[32] These FundEX “compliance” and “investigation” documents are relevant. For reasons previously indicated, I find that it would be unfair for the moving parties to have to proceed to trial without these documents. It would also be unfair for them to have to proceed to a mediation that has been ordered, and at which they will be asked to make compromises on their positions in this proceeding, without having the benefit of knowing the full extent of the compliance policies and procedures and regulatory obligations. These policies, procedures, and obligations may have impacted Taylor’s ability to be appointed and to act as estate trustee while continuing to act as a financial advisor to Tracy and her estate.
[33] There is not just a mere assertion of unfairness in not having the documents. These documents sought from FundEX are of primary importance to the litigation because Taylor's conduct, and specifically his compliance with MFDA rules, by-laws, and policies, and hence FundEX corporate policies, are at the heart of the issues in these proceedings, dating back to his appointment under the will in 2003 and carrying through until he ceased to be associated with FundEX.
[34] As in the James case, the suggestion that this production await a summons to a witness at trial, or some further formality of a motion for directions, is unfair and does not serve the objectives of the Rules, and in particular Rule 1.04 that requires the court to liberally construe the Rules to secure the just, most expeditious, and least expensive determination of every civil proceeding on its merits.
[35] No evidence was presented to establish that these production categories would be too burdensome for FundEX. The mere fact that the scope of production dates back twenty years is not, in itself, evidence that it is burdensome, especially since we are dealing here with compliance policies and procedures that it would not be unusual for a mutual fund dealer to have retained (or if they have not, they can simply say so in their response). The evidence suggests that the compliance policy and procedure manuals are organized by topic and that there are three potentially relevant topics into which the relevant categories of documents would fall. In any event, common sense suggests that many of these would have been the very same materials that were gathered by FundEX for the production made in the context of the MFDA investigation.
[36] Furthermore, I do not agree that the moving parties should be satisfied with the admissions Taylor made in the MFDA settlement regarding having acted contrary to FundEX’s policies and procedures and MFDA rules commencing in 2011 when FundEX revised its policies and procedures to prohibit Approved Persons from being named and/or acting as an executor/trustee for a client’s estate and continuing to act as an advisor for the client or the client’s estate. These admissions were time limited and do not cover the important relevant period starting back in 2003. They relate only to the timeframe from and after 2011, which makes the compliance documents from the earlier timeframe arguably even more important. The admissions are not a satisfactory substitution for the production of compliance and regulatory material sought.
[37] FundEX further argues that all materials within FundEX's possession relating to the MFDA investigation are privileged and cannot be produced. FundEX relies on the decision of the Court in Thomson v. Berkshire Investment Group Inc. et al, 2007 BCSC 50, at para. 68, which found that litigation privilege extends to an institution's response to the MFDA and other entities investigating the activities of its agents, since the institution's "zone of privacy" extends to its MFDA reporting requirements. The Court elaborated that "[i]f it were otherwise, a litigant like Berkshire with reporting requirements to a third party, would rarely be entitled to claim litigation privilege and would be seriously prejudice in defending itself against civil and regulatory claims. Such a result would not be consistent with the rationale for litigation privilege."
[38] I have two difficulties with the litigation privilege that FundEX asserts over the MFDA investigation materials. First, even if some of them were subject to litigation privilege, it is not a blanket privilege and it is reasonable to expect that some of the documents that were collected or created in the context of the MFDA are not privileged. But more significantly, it is trite that litigation privilege ends when the litigation ends.[^3] Thus, any litigation privilege associated with the MFDA investigation would have ended with the conclusion of the investigation and the settlement.
[39] FundEX also argued that these could be obtained from the regulator (MFDA). That is not a satisfactory response, but it also is not a response that would be consistent with there being some continuing privilege that attaches to these communications. The regulator is also a third party to this proceeding. If there is going to be a third party production order in respect of these documents, which are relevant and have not been demonstrated to be confidential or privileged, then they should be produced now by FundEX, the third party presently before the court.
[40] Earlier in these proceedings, FundEX indicated (in a June 3, 2020 email) as follows: “[FundEX has] provided copies of the client file to MFDA Enforcement during the disciplinary hearing for Mr. Taylor. Information contained in the file is privileged and a court order will be required to release any personal or confidential information contained in Ms. Jones' client file.” If the privilege referred to relates to Tracy’s investment files, it is not applicable in the context of this proceeding involving the estate trustees and beneficiaries of her estate. To the extent such a court order is required, it is now being made.
[41] Having regard to the principles of fairness and proportionality, FundEX should produce the remaining two categories of requested third party production with respect to compliance obligations and the regulatory investigation, insofar as they may touch upon Taylor’s management and handling of Tracy’s and her estate’s affairs.
Final Disposition and Costs
[42] FundEX is ordered to produce the two categories of requested third party production that are within their possession, power, and control, namely:
a. All portions of FundEX compliance policy and procedure manuals, revisions or amendments thereto, in place for the timeframe of January 1, 2002 to January 31, 2016, which relate to conflict of interest, power of attorney, trustee, and executor of estate relationships or appointments; and
b. All memoranda, bulletins, circulars, emails, letters, agreements, or any other written communication in respect of the MFDA investigation conducted in respect of Taylor in 2018 or prior and the settlement reached in 2019, insofar as such documents relate to Tracy Lynne Jones.
[43] The parties agreed to exchange their costs outlines for this motion by close of business on January 24, 2022. I assume that exchange has taken place. There has been divided success on this motion in that some of the requested third party production has been ordered and some has not. To the extent it was not, some of the requested third party production may still be available from Taylor although no specific order was sought against him by the moving parties on this motion.
[44] I encourage the parties to try to resolve the matter of costs of this motion now that the outcome is known. Counsel should make their best efforts to reach an agreement on costs.
[45] If they are unable to do so, they may request a 9:30 a.m. scheduling appointment with me to determine how the costs issue will be decided. They should upload their respective costs outlines into CaseLines in advance of such scheduling appointment and should come prepared to answer the following questions: What costs are they asking for and from whom? And, what costs are they prepared to pay and to whom?
Kimmel J.
Date: January 28, 2022
[^1]: Although not argued, another coincidental advantage that arose from the transfer of the small claims action to the Toronto Estates List is that the discovery rights are broader in an action that is not longer subject to the small claims court rules.
[^2]: The moving parties rely upon the case of Stein et al. v. Thames Bend Hybrids Inc., 1998 CanLII 28096 (M.B.Q.B.), at paras. 6-10, aff’d (1999), 1999 CanLII 18786 (MB CA), 138 Man. R. (2d) 296 (C.A.), which distinguished Framingham on the basis that it was not one of those “clearest of circumstances” in which an injustice would otherwise be done that might justify the exercise of the court’s inherent jurisdiction, because the documents were potentially available from another party to the judicial review proceeding. It is suggested by the moving parties that, in contrast, this is one of those clearest of cases because Taylor has refused to provide the documents requested of him.
[^3]: This point was not argued. The authority for the proposition that litigation privilege ends when the litigation ends can be found at Lizotte v. Aviva Insurance Company of Canada, 2016 SCC 52, at para. 22.