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Evidence Case Dicta - Adverse Inferences (2). SS&C Technologies Canada Corp. v. The Bank of New York Mellon Corporation
In SS&C Technologies Canada Corp. v. The Bank of New York Mellon Corporation (Ont CA, 2024) the Ontario Court of Appeal dismissed a contractual appeal, and here considers the evidentiary doctrine of spoliation as it may form the basis of a spoliation tort:(ii) Spoliation and Adverse Inference
[154] SS&C asserted a claim of spoliation regarding the missing usage data. Spoliation is a common law doctrine, which finds its origins in the legal system of ancient Rome. It was first developed in Canada in 1896 by the Supreme Court in St. Louis v. The Queen, 1896 CanLII 65 (SCC), [1896] 25 S.C.R. 649, and has not changed much in the past 128 years: Gideon Christian, “A ‘Century’ Overdue: Revisiting the Doctrine of Spoliation in the Age of Electronic Documents” (2022) 59:4 Alta. L. Rev. 901. It is an evidentiary rule that allows the court to remedy abuses of its process, although whether it is also a free-standing tort claim remains unresolved: Trillium Power Wind Corporation v. Ontario, 2023 ONCA 412, 167 O.R. (3d) 321, at paras. 21-22, 24, leave to appeal refused, [2023] S.C.C.A. No. 363.
[155] In St. Louis, the court found that the doctrine creates a rebuttable presumption that evidence destroyed would have been unfavourable to the party who destroyed it: at pp. 652-665. More recently, the constituent elements of spoliation have been described as follows: “to prove spoliation, a party must prove: (i) that relevant evidence was destroyed; (ii) that legal proceedings existed or were pending; and (iii) that the destruction was an intentional act indicative of fraud or intent to suppress the truth”: Stamatopoulos v. The Regional Municipality of Durham, 2019 ONSC 603, 85 M.P.L.R. (5th) 31, at para. 606, aff’d, 2022 ONCA 179, 26 M.P.L.R. (6th) 1, leave to appeal refused, [2022] S.C.C.A. No. 12. Thus, the unintentional destruction of documents is not spoliation, although it may still attract sanctions or remedies: Christian, at p. 912; McDougall v. Black & Decker Canada Inc., 2008 ABCA 353, 302 D.L.R. (4th) 661, at paras. 24-25.
[156] Intent has two elements. It is not enough that the destruction of the document be proven to be intentional. In addition, the claimant must also prove “a mala fides desire to prevent the use of the document in litigation, to suppress the truth, and hence impact the outcome of the litigation”: Christian, at pp. 911-12.
[157] An important factor relevant to the issues of intent and whether litigation is contemplated, is whether a party is served with a preservation notice. Such a notice demands that the served party preserve documentation relevant to active litigation or anticipated litigation. In the present case, counsel for SS&C, Chris Paliare, wrote to senior executives of BNY asserting his client’s position regarding the anticipated litigation. In that letter, Mr. Paliare stated “We trust that you will ensure preservation of all communications, documents, and files related in any way to BNY’s relationship with SS&C and BNY’s provision or sharing of Data to any third-parties.” This was a sensible approach because it removed any doubt that BNY understood that it had an obligation to preserve relevant documents.
[158] BNY’s then counsel, a lawyer then at McCarthy Tétrault (who did not appear on this appeal), responded to Mr. Paliare’s letter. He stated that “SS&C’s management has also known that CIBC Mellon has been by far the largest user of the Data. In fact, the usage by the other Mellon Trust business lines over the years was such that, but for CIBC Mellon’s need for the Data, the Agreement would never have been signed…In sum, BNY Mellon categorically denies that a breach of the Agreement has occurred. Accordingly, BNY Mellon declines to accede to the demands set forth in your letter.”
[159] As we know, the trial judge rejected BNY’s position that the use of the data by entities other than CIBC Mellon was de minimis. Therefore, the basis for the rejection of the preservation and production of the data was invalid. What is more concerning is that the obligation to preserve relevant documents was eschewed on the basis of BNY’s views about SS&C’s claim. It is not open to lawyers or parties to ignore their obligations under the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, and at common law based on their opinion of the merits of a potential claim. As found by the trial judge, BNY knew or ought to have known that the data was required for the litigation, yet it was never produced, and no explanation was ever proffered by BNY or its counsel regarding why it was not preserved.
[160] SS&C complains that the trial judge drew an adverse inference against BNY but made no factual findings about the extent of the unauthorized use of data. Instead, all he found was: “that the unaccounted for data was used by unauthorized entities within the BNY group other than CIBC Mellon”, and that he could not find that “non-CIBC Mellon users made only de minimis use of the data.”
[161] The trial judge rejected SS&C’s spoliation claim on the grounds that “spoliation as a standalone tort is one for which the wrongdoer can be liable for damages. The applicant seeks no such remedy here. The applicant seeks an adverse inference.” He also stated that “adverse inferences of that sort have nothing to do with spoliation but have to do with party’s failure to produce evidence to support a proposition that it is advancing.” The trial judge proceeded to draw the adverse inference noted above.
[162] If the trial judge meant that the remedy for spoliation was limited to damages or that an adverse inference is not an available remedy where spoliation is established, he erred in law. Regardless of whether spoliation is only an evidentiary rule or is also a standalone tort claim, an adverse inference is an available remedy where spoliation has been established: Doust v. Schatz, 2002 SKCA 129, 227 Sask. R. 1, at para. 29; Trillium Power Wind, at para. 24. Indeed, in St. Louis, the Supreme Court held that where spoliation has been established, a rebuttable presumption is created that the evidence destroyed would have been unfavourable to the party who destroyed it. As the trial judge found, BNY has not explained why the data was not preserved. Therefore, it has not rebutted that presumption. On this appeal, SS&C asserts that the trial judge erred in not drawing a more comprehensive adverse inference. As I will explain, I am not persuaded that there is any basis for this court to interfere with the adverse inference found by the trial judge. Moreover, in my view, SS&C’s adverse inference ground of appeal amounts to nothing more than an alternative attack on the trial judge’s damages theory.
[163] As for the merits of SS&C’s spoliation argument, although the trial judge did not offer a view regarding whether SS&C had established spoliation in this case, I have no doubt that it did. Having been warned to preserve data and with full knowledge that litigation was going to be commenced, BNY refused to do so on the basis that it rejected the allegations made against it. The reasonable inference is that it did so to suppress the truth in the litigation. In short, it failed to preserve important data that was highly relevant to the issue of data sharing, and it chose to ensure that the data would not be available in any legal proceeding. BNY has offered no compelling evidence to rebut this inference.
[164] It is evident that the trial judge was troubled by BNY’s conduct in the litigation. His concerns were well founded. The failure to preserve and produce relevant documents is conduct worthy of censure and the drawing of an adverse inference was appropriate in the circumstances of this case. Our civil justice system cannot function when parties do not comply with their disclosure obligations. That said: “whether to draw an adverse inference is a highly discretionary fact-based assessment which must be accorded deference”: The Cambie Malone’s Corporation v. British Columbia (Liquor Control and Licensing Branch), 2016 BCCA 165, 87 B.C.L.R. (5th) 219, at para. 40. See also: Parris v. Laidley, 2012 ONCA 755, at para. 2.
[165] A different judge may have drawn another adverse inference or ordered a different remedy. For example, where spoliation has been established, it is open to a judge to strike a pleading, including a statement of defence. Thus, the tactical decision to ignore production obligations is fraught with danger. Moreover, I am troubled by the position taken by BNY in this litigation. It smacks of contempt for the justice system. I hasten to add that my criticism is not directed at BNY’s former counsel. He is an experienced litigator, and I must assume he advised his client that its position was unsustainable.
[166] SS&C submits that the finding that the non-CIBC Mellon entities usage was not de minimis is not a positive finding about who used the data, how much, or over what period. Further, it argues that the findings leave open an array of possibilities when there is actually only one reasonable conclusion. Once the trial judge rejected BNY’s theory that the other entities only made minimal use of the data, he had to conclude that they all made widespread use of the data. It says that the trial judge should have presumed that the destroyed and non-produced records would reveal widespread usage by the unauthorized entities and applied the negotiated fee schedule under the Mellon Trust Agreement. Accordingly, he is alleged to have erred by stopping short of deciding the ultimate factual issue before him.
[167] I reject this argument. In the circumstances of this case, BNY’s conduct and the trial judge’s errors regarding the law of spoliation make no difference to the ultimate result. Instead, SS&C’s argument regarding the scope of the adverse inference is a red herring. The trial judge’s calculation of damages was based on data use and his conclusion that whatever data that was unaccounted for should be deemed to have been wrongfully shared. Therefore, the complaint on appeal that the trial judge should have gone farther and provided a detailed calculation of the extent of the sharing is unavailing. The real gravamen of SS&C’s argument is not that a different data calculation should have been made, but that the trial judge failed to impose a series of agreements with substantially the same terms as the Mellon Trust Agreement. As discussed above, the trial judge correctly rejected this argument on the basis that there was insufficient evidence supporting the notion that a multi-enterprise entity would enter into a series of agreements. . Liquid Capital Exchange Corp. v. Daoust
In Liquid Capital Exchange Corp. v. Daoust (Ont CA, 2024) the Ontario Court of Appeal considered the application of an 'adverse inference':(6) The Trial Judge Did Not Err by Failing to Draw an Adverse Inference
[38] Liquid Capital argued in its factum that the trial judge should have drawn an adverse inference from the failure of Zito or Enbridge to produce, at the examination for discovery phase of the proceeding (i) an investigation report which Liquid Capital says was the precursor to Enbridge’s termination of Zito’s employment, and (ii) the termination letter.
[39] Whether to draw an adverse inference from a failure to produce evidence is discretionary: Gourgy v. Gourgy, 2018 ONCA 166, at paras. 8-9; FCP (BOPC) Ltd. v. Suzy Shier (Canada) Ltd., 2024 ONCA 227, at para. 7. The trial judge was not obliged to exercise her discretion to draw such an inference here. As she noted: it was open to Liquid Capital to pursue production of these items before trial and it did not do so. Zito’s evidence at trial was that he no longer had a copy of the termination letter and did not know why he was fired. There was no evidence he ever had a copy of any investigation report to produce. Nor was Enbridge’s witness at trial asked for either the termination letter or any investigation report. . Amtim Capital Inc. v. Appliance Recycling Centers of America
In Amtim Capital Inc. v. Appliance Recycling Centers of America (Ont CA, 2024) the Ontario Court of Appeal dismissed an appeal from a claim by a 'personal services corporation' (essentially an incorporated employee) who provided management and sales services to a Canadian subsidiary. The plaintiff lost their lawsuit for failing to meet their evidentiary onus, here when the defendant did not fully comply with their oral and documentary discovery duties and the plaintiff failed to pursue remedies to that non-compliance fully (ie. to the point required to obtain that necessary evidence).
The adage of the case is that, despite non-compliance with discovery duties by a defendant, the onus remains on the plaintiff to compel compliance to the point necessary to prove their case. A plaintiff cannot rely upon the defendant's non-compliance to support an 'adverse inference' such that the court will infer the necessary fact-findings:[9] Amtim argues that the evidentiary shortfall was the result of ARCA’s failure to comply with its disclosure obligations under the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, with the production order made by Braid J., and with its own undertaking given at discovery.
[10] The trial judge did not accept this argument. He noted, in context at para. 65, that Amtim had not utilised its right to access ARCA’s documents provided in the Governing Agreements. He explained, at para. 93:Very soon after the dispute between the parties arose ARCA invited Amtim to review its records pursuant to the contractual provision permitting access, with or without an auditor of Amtim’s choosing. This invitation was never withdrawn prior to trial. Berta declined to avail himself of the right to review or audit ARCA’s records and there is no indication that he mandated or instructed either of Amtim’s experts to do so. Dowad was not limited to reviewing the documents listed at Appendix A to his report (including the “ARCA Binder”) but had the right of access, by virtue of the Governing Agreements, to all of ARCA’s records pertaining to the Canadian operations. He was simply not mandated by Amtim to do so. [11] The trial judge added, at para 96:Amtim was given full discovery all of the relevant documents including the “raw data” (in electronic format) which ARCA had relied upon in carrying out the calculations contained in the brief of documents produced to Berta in July 2010, as ordered by Braid, J. on March 6, 2018. Although ARCA’s former counsel Mr. McRae was unable to locate sworn copies of the first two of the four Affidavit of Documents which ARCA served, the evidence indicated that the actual documents listed in those draft Affidavits of Documents were produced by ARCA. [12] The trial judge noted, at para. 97, that the appellant had failed to take the usual procedural steps:Even if ARCA’s disclosure of documentation or information might be considered to have been deficient (which I am not persuaded was the case) Amtim’s remedy was to bring a motion to compel production (which it did, leading to the Order of Braid, J.) Since Amtim did not bring any further motion or motions for production, it must be taken to have accepted ARCA’s position that no further production was required, and no adverse inference can be drawn. (see Bawas Gas Bars Ltd. v Kiosses, [1998] O.J. No. 5450 (Gen. Div.), para. 38 and Wade v. Baxter, 2001 ABQB 812, para. 25). [13] The trial judge added that “there was no indication at trial that, following the production by ARCA of the “raw data” as ordered by Braid, J. on March 6, 2018, Amtim took any steps to make enquiries of counsel for ARCA or to otherwise follow up in an effort to render the data production useful for Lewis’ purposes.”
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[17] The appellant argues that it was open to the trial judge, and remains open to this court, to remedy the evidentiary shortfall by drawing an adverse inference that, if the documentary evidence had been properly provided, it would have established the appellant’s case.
[18] The trial judge described Amtim’s argument, at para. 87:Amtim seeks to overcome the qualification of Dowad’s opinion by reliance upon the principle permitting adverse inferences to be drawn against ARCA in two respects, as set forth in Mr. Figliomeni’s closing written submissions, as follows:
(a) the court should draw an adverse inference against ARCA resulting from its failure to deliver on its promise to prove that the financial summaries contained at Exhibit 26 (labelled the “ARCA Binder”), which were relied on by all of the expert witnesses, are faithful to the underlying data; and
(b) the court should draw an adverse inference against ARCA for its failure to call any of the accountants or auditors that were allegedly involved in determining the nature and quantum and method of allocation of ARCA’s corporate overhead expenses to ARCA Canada. [19] After instructing himself properly on the law relating to adverse inferences, the trial judge declined, at para. 94, to draw an adverse inference regarding the provision of the underlying data:I am unable to accept Amtim’s submission that ARCA had an obligation to prove that the financial summaries contained in the ARCA Binder “are faithful to the underlying data” and that, in the absence of such proof, the court should draw an adverse inference that they are not. In my view this unjustifiably reverses the onus on Amtim to prove that the calculations were wrong. [20] The trial judge also declined to draw an adverse inference from ARCA’s failure to call auditors or other personnel:For the reasons set forth above, I am also unable to accept Amtim’s submission that the court should draw an adverse inference against ARCA for its failure to call the accountants or auditors involved in determining the allocation of ARCA’s corporate overhead expenses to ARCA Canada: para. 96. [21] As a result, the trial judge dismissed the case. He declined to fix damages on the basis that Amtim, noted at para. 118, “has not proved sufficient facts upon which the damages can be estimated fairly and reasonably.” As already explained, it cannot be said that ARCA’s conduct prevented Amtim from proving its loss.
[22] The trial judge rejected Amtim’s claim to payment for three invoices on the basis that Amtim had failed to prove “that it actually performed the services that would entitle it to payment”: para. 126.
[23] We agree with the trial judge’s analysis and, on that basis, dismissed the appeal.
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[25] As a practice note, this court does not condone inadequate document production under the Rules of Civil Procedure. However, the act of setting an action down for trial signals a party’s willingness to proceed on the record and the evidence that it has, and to forego other procedural remedies. The decision to set an action down has consequences. The appellant made the strategic decision to rest its case on the potential use of an adverse inference and must bear the consequences of its strategic choice. . Kitmitto v. Ontario (Securities Commission)
In Kitmitto v. Ontario (Securities Commission) (Div Court, 2024) the Divisional Court considers (and dismissed) related appeals from two Capital Markets Tribunal (CMT) decisions, one respecting 'merits' and one respecting 'sanctions' [under Securities Act (SA), s.10(1)], here addressing SA 76 "which prohibits insider trading and tipping" ['Part XVIII - Continuous Disclosure ' ('Trading where undisclosed change' and 'Tipping')].
Here the court considers an 'adverse inference' argument, one that may be drawn against a party for failure to call witnesses:[77] I have also concluded that the Tribunal majority did not err in failing to draw an adverse inference against OSC staff for not calling as witnesses other individuals with Aston Financial.
[78] There is no obligation on the prosecution to call a witness that it considers unnecessary to its case. In limited circumstances, a trier of fact may, in the exercise of its discretion, draw an adverse inference from the failure of a party to call a witness, but the inference “should only be drawn with the greatest of caution”; it is “the exception not the rule”: R. v. Lo, 2020 ONCA 622, 152 O.R. (3d) 609, at paras. 156, 162. It should be drawn only “where there is not a plausible reason for nonproduction, i.e., where it would be natural for the party to produce the evidence if the facts exposable by the witness had been favourable”: R. v Lapensee, 2009 ONCA 646, 99 O.R. (3d) 501, at para 42. An adverse inference should not be drawn where the evidence would be unimportant, cumulative or inferior to the evidence already available on the relevant point: Lapensee, at para. 43.
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