Indexed As: Halifax (Regional Municipality) Pension Committee v. State Street Bank and Trust Co. et al.

Transcription

1 The Halifax Regional Municipality Pension Committee (plaintiff) v. State Street Bank and Trust Company and State Street Global Advisors Ltd./Conseillers en Gestion State Street Ltée (defendants) (Hfx. No ; 2011 NSSC 355) Indexed As: Halifax (Regional Municipality) Pension Committee v. State Street Bank and Trust Co. et al. Nova Scotia Supreme Court Duncan, J. September 30, Summary: The plaintiff managed municipal pension funds. The defendants were an investment manager and a financial services provider. The plaintiff chose a "130/30" investment strategy (short positions to maximum of 30% of portfolio value). A trust agreement settled the funds (approximately $47,000,000) on the defendants to invest in the "Alpha Fund", a common trust fund controlled by one of the defendants. Custody of, and prime brokerage for, the "Alpha Fund" was transferred by the defendants to Lehman Brothers Inc. (LBI), which then transferred the funds to an affiliate, Lehman Brothers International (Europe) (LBIE). LBI became insolvent, then bankrupt. LBI's administrator "froze" the funds in the "Alpha Fund" and the plaintiff's attempt to have the funds returned were unsuccessful. The plaintiff brought an action against the defendants for a return of the funds, alleging negligence, breach of fiduciary duty and breach of contract. The plaintiff argued that it did not authorize the transfer to LBI, nor was it informed of the transfer. The defendants pleaded that the transfer was authorized by the plaintiff, that LBI's bankruptcy was "sudden and unexpected" and that its actions were consistent with industry practice and contractual expectations. The parties were at an impasse respecting the extent of their mutual disclosure obligations and the timetable to effect disclosure and discovery. The plaintiff moved for an order compelling documentary disclosure, providing directions respecting disclosure, and setting a trial date. The defendants, by counter-motion, sought an order compelling the plaintiff to expand its search for documents and electronic information and to disclose that information, including information over which the plaintiff claimed solicitor/client privilege. The defendants also sought a schedule for the exchange of relevant documents, electronic information and discovery examinations. The Nova Scotia Supreme Court allowed both motions in part. Practice - Topic 4559 Discovery - Production and inspection of documents - General - Cost of production - A party was required to disclosure "relevant" information during discovery - The Nova Scotia Supreme Court discussed the meaning of "relevancy" by considering case law and academic authorities - Rule 14.08(3) provided for an exemption from having to disclose relevant information where the cost, burden and delay in producing the information would be disproportionate to the likely probative value of the evidence and the importance of the issues to the parties - The court stated that rule 14.08(3) "will not justify an exemption of that which is highly relevant. It may support relief from

2 disclosing otherwise relevant information that the cost and delay does not justify production of." - See paragraphs 29 to 39. material to matters in issue - [See Practice - Topic 4559]. contractual expectations - The plaintiff sought disclosure of all documents relating to the defendants' knowledge of the risks involved in placing the entire fund with a single institution - The Nova Scotia Supreme Court agreed that the disclosure request was overly broad - The court ordered production of all documents in the possession or control of the defendants' custodians (including senior management or those involved in the Alpha Fund) who oversaw or were responsible for the decision to retain LBI as prime broker of the funds and all documents relating to the defendants' knowledge of the risks involved in counter party concentration of credit risk with a single prime broker - Included were documents relating to the persons who oversaw or made the decision to retain LBI and their knowledge of, monitoring of, analysis of, or response to market concerns respecting LBI - The court determined which specific subcategories of documents requested by the plaintiff were relevant and disclosable - See paragraphs 61 to 94; 111 to 118.

3 contractual expectations - The plaintiff sought disclosure of all documents relating to the defendants' efforts to retrieve the "frozen" funds from LBI's insolvency administrator - The plaintiff claimed the information was relevant to damages, particularly whether the defendants were pursuing the plaintiff's interests unreservedly or making concessions in favour of other creditor groups, favouring the defendants' own interests - The Nova Scotia Supreme Court ordered that the defendants disclose all communications with the administrator concerning all funds for which LBI acted as prime broker - See paragraphs 95 to 99. contractual expectations - The plaintiff sought disclosure of all information respecting the defendants' knowledge of, analysis of and response to the prior financial failure of Bear Stearns, as that was relevant to whether the LBI financial collapse was foreseeable - The Nova Scotia Supreme Court ordered disclosure, subject to giving the defendants an opportunity to make submissions on whether disclosure would create an undue burden for which they would seek relief under rule 14.08(3) - See paragraphs 100 to 110.

4 contractual expectations - The Nova Scotia Supreme Court order disclosure of documents involving all persons who oversaw or made the decision to retain LBI relating to choosing LBI as the prime broker for the "Alpha Fund" and three similar extension funds - See paragraphs 119 to 125. contractual expectations - The Nova Scotia Supreme Court ordered disclosure of documents relating to the use of the defendants' disclaimer warning that a failure or insolvency of the prime broker made the funds subject to set off loss and that the fund could become an unsecured creditor of the prime broker - The disclaimer was highly relevant to the defendants' awareness of the risks and its recognition of the obligation to advise the plaintiff of that risk - See paragraphs 126 to 131.

5 contractual expectations - The Nova Scotia Supreme Court ordered disclosure of documents relating to potential or actual securities lending arrangements involving the "Alpha Fund", including documents explaining the extent to which the fund was being loaned to LBI or was being used as collateral for short sales - See paragraphs 132 to 151. contractual expectations - The Nova Scotia Supreme Court declined to order the defendants to disclose "all documents evidencing any participation by [the defendants], pension plans or funds for employees of [the defendants], or clients of [the defendants'] internal advisory group, in an 'extension strategy' or 'edge strategy' investment" - The request would require a search for and disclosure of information that, at this point, had not been shown to be relevant - See paragraphs 152 to 165.

6 contractual expectations - The Nova Scotia Supreme Court ordered disclosure of "all documentation reviewed or produced by the [defendants'] risk management analysts [during the specified dates] in connection with the selection and monitoring by the defendants of any [LBI] entity as prime broker, including any documentation used for purpose of assessment or comparison of [LBI] as a prime broker, whether [LBI] is mentioned in the document or not" - See paragraphs 166 to 176. contractual expectations - The defendants sought an order that the plaintiff preserve and search for relevant electronic information maintained by plaintiff's committee members and search all reasonably accessible relevant electronic information, including its thirdparty investment advisors and consultants - The defendants alleged that the plaintiff knew that the defendants engaged a prime broker to implement the fund strategy, that LBI was the prime broker and that LBI had the ability to transfer, pledge and re-hypothecate fund assets - The Nova Scotia Supreme Court determined what information had to be searched for and disclosed - See paragraphs 237 to 301.

7 contractual expectations - The defendants sought an order to compel the plaintiff to produce relevant documents and electronic information in the possession of the law firm retained by the plaintiffs respecting advice given by the law firm before the plaintiff chose to invest in the "Alpha Fund" - The information was relevant to the issue of the plaintiff's authorization of the transfer to LBI - Some relevant information for which solicitor-client privilege had been waived had been produced - At issue was whether privilege had been waived for the balance of the information in the law firm's files (i.e., "where fairness and consistency required, partial waiver can lead to full waiver") - The Nova Scotia Supreme Court determined which documents had to be disclosed - The court ordered the law firm to provide the court with the balance of the file for which solicitorclient privilege was claimed, to permit the court to determine whether privilege should be impliedly waived - See paragraphs 302 to 345. Practice - Topic 4577 Discovery - What documents must be produced - Privileged documents - Attorney-client communications (legal advice privilege) - [See eleventh ]. Practice - Topic 4585 Discovery - What documents must be produced - Privileged documents - Waiver - The Nova Scotia Supreme Court stated that "privilege should not be treated as waived by implication except in those circumstances where it has been shown that it is likely that the defendants or the court will be misled if there is a failure to disclose the related material. Notions of fairness cannot be a guise for a fishing expedition into the plaintiff's lawyers files" - See paragraphs 342. Practice - Topic Trials - General - Trial schedule or time table - The plaintiff managed a pension fund - The defendants were an investment manager and a financial services provider - The plaintiff chose an investment strategy and a trust agreement settled the funds on the defendants to invest in the "Alpha Fund", a common trust fund controlled by one of the defendants - Custody of, and prime brokerage for, the "Alpha Fund" was transferred by the defendants to Lehman Brothers Inc. (LBI), which then transferred the funds to an affiliate, Lehman Brothers International (Europe) (LBIE) - LBI became bankrupt - LBI's administrator "froze" the funds in the "Alpha Fund" - The plaintiff's attempt to have the funds returned were unsuccessful - The plaintiff sued the defendants for return of the funds, alleging negligence, breach of fiduciary duty and breach of contract - The defendants had yet to disclose all relevant documents - The plaintiff applied under rule 26.04(1)(b) for a judge presiding at a "conference" to fix a trial date - The Nova Scotia Supreme Court declined to fix a trial date - A "conference" was either a date assignment

8 conference or a trial readiness conference - Rule 26.03(2) gave discretionary authority to convene a conference for certain purposes, but it could not circumvent the prescribed provisions for assigning a trial date - The four requirements under rule 4.13(1) for assigning a trial date, including completed disclosure, were not met - Rule 4.13(2) permitted assignment of a trial date without satisfaction of the four requirements, but "it would be extraordinary to set a date for trial in the absence of the information that the court relies upon to accurately assess the requirements for trial" - The plaintiff sought to "jump the cue" to the prejudice of other litigants who met the four requirements and were ready to proceed to trial - See paragraphs 226 to 236. Cases Noticed: Saturley v. CIBC World Markets Inc. (2011), 297 N.S.R.(2d) 371; 943 A.P.R. 371; 2011 NSSC 4, refd to. [para. 30]. Brown v. Cape Breton (Regional Municipality) (2011), 302 N.S.R.(2d) 84; 955 A.P.R. 84; 2011 NSCA 32, refd to. [para. 31]. Murphy v. Lawton's Drug Stores Ltd. (2010), 295 N.S.R.(2d) 1; 935 A.P.R. 1; 2010 NSSC 289, refd to. [para. 32]. R. v. Arp (B.), [1998] 3 S.C.R. 339; 232 N.R. 317; 114 B.C.A.C. 1; 186 W.A.C. 1; 129 C.C.C.(3d) 321, refd to. [para. 35]. Halifax-Dartmouth Bridge Commission v. Walter Construction Corp. et al. (2009), 286 N.S.R.(2d) 179; 909 A.P.R. 179; 2009 NSSC 403, refd to. [para. 315]. Blood Tribe Department of Health v. Privacy Commissioner (Can.) et al., [2008] 2 S.C.R. 574; 376 N.R. 327, refd to. [para. 316]. R. v. McClure (D.E.), [2001] 1 S.C.R. 445; 266 N.R. 275; 142 O.A.C. 201, refd to. [para. 316]. Canada Life Mortgage Services Ltd. v. Leeside Estates Ltd. et al. (2002), 201 N.S.R.(2d) 32; 629 A.P.R. 32; 2002 NSSC 30, refd to. [para. 326]. S. & K. Processors Ltd. v. Campbell Avenue Herring Producers Ltd. et al., [1983] 4 W.W.R. 762; 45 B.C.L.R. 218 (S.C.), refd to. [para. 326]. Hanscom et al. v. Coyle et al. (1995), 167 A.R. 169; 26 Alta. L.R.(3d) 313 (Q.B. Master), refd to. [para. 326]. Allied-Signal Inc. v. Dome Petroleum Ltd. et al., [1995] 1 W.W.R. 726 (Alta. Q.B.), refd to. [para. 326]. Verney v. Great-West Life Assurance Co. (1998), 55 O.T.C. 149; 38 O.R.(3d) 474 (Gen. Div.), refd to. [para. 326]. Trask v. Canada Life Assurance Co., [2002] B.C.T.C. 1741; 2002 BCSC 1741, refd to. [para. 326]. Kwok v. Kwok, [2008] B.C.T.C. Uned. 21; 78 B.C.L.R.(4th) 377 (S.C.), refd to. [para. 330]. Harris v. Doucette and Harris (1988), 99 N.S.R.(2d) 241; 270 A.P.R. 241 (T.D.), refd to. [para. 330]. R. v. Campbell (J.) and Shirose (S.) (1999), 237 N.R. 86; 119 O.A.C. 201; 133 C.C.C. (3d) 257 (S.C.C.), refd to. [para. 330]. R. v. Chapelstone Developments Inc. et al. (2004), 277 N.B.R.(2d) 350; 727 A.P.R. 350 (C.A.), refd to. [para. 330]. Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. et al. (1995),

9 27 O.R.(3d) 291 (Gen. Div.), refd to. [para. 330]. National Bank Financial Ltd. v. Potter et al. (2005), 233 N.S.R.(2d) 123; 739 A.P.R. 123 (S.C.), refd to. [para. 330]. Leopold v. Leopold, [1999] O.A.C. Uned. 178; 48 R.F.L.(4th) 388 (C.A.), refd to. [para. 330]. Statutes Noticed: Civil Procedure Rules (N.S.), 2009, rule 4.13(1) [para. 229]; rule 4.13(2) [para. 231]; rule 14.01(1) [para. 29]; rule [para. 317]; rule 14.08(2) [para. 22]; rule 14.08(3) [para. 26]; rule 14.08(4) [para. 27]; rule 14.08(5) [para. 21]; rule 15.02(1)(c) [para. 280]; rule 16.03(1)(c) [para. 281]; rule [para. 201]; rule 16.08(1) [para. 207]; rule 26.03(2) [para. 228]; rule 26.04(1)(b) [para. 226]; rule [para. 343]. Rules of Civil Procedure (N.S.) - see Civil Procedure Rules (N.S.). Rules of Court (N.S.) - see Civil Procedure Rules (N.S.). Authors and Works Noticed: Bryant, Alan W., Lederman, Sidney N., and Fuerst, Michelle K., Sopinka, Lederman & Bryant: The Law of Evidence in Canada (3rd Ed. 2009), paras [para. 36]; , [para. 323]. Hubbard, R.W., Magotiauz, S., and Duncan, S.M., The Law of Privilege in Canada (looseleaf), generally [para. 324]. Mewett, Alan W., and Sankoff, Peter, Witnesses (1991 looseleaf) (2011 update - release 2), p [para. 37]. Paciocco, David M., and Struesser, Lee, The Law of Evidence (5th Ed. 2010), p. 30 [para. 33]. Counsel: George MacDonald, Q.C., Jane O'Neill and Peter Rogers, Q.C., for the plaintiff; Michael Ryan, Q.C., John Keith, Christopher Zimmerman, Andrea Robinson and Michael Dube, for the defendants. This matter was heard on August 18-20, 2010, at Halifax, N.S., before Duncan, J., of the Nova Scotia Supreme Court, who delivered the following judgment on September 30, Editor: Steven C. McMinniman Order accordingly. material to matters in issue - A party was required to disclosure "relevant" information during discovery - The Nova Scotia Supreme Court discussed the meaning of "relevancy" by considering case law and academic authorities - Rule 14.08(3) provided for an exemption from having to disclose relevant information where the cost, burden and delay

10 in producing the information would be disproportionate to the likely probative value of the evidence and the importance of the issues to the parties - The court stated that rule 14.08(3) "will not justify an exemption of that which is highly relevant. It may support relief from disclosing otherwise relevant information that the cost and delay does not justify production of." - See paragraphs 29 to 39. Practice - Topic 4577 Discovery - What documents must be produced - Privileged documents - Attorney-client communications (legal advice privilege) - The plaintiff managed a pension fund - The defendants were an investment manager and a financial services provider - The plaintiff chose an investment strategy and a trust agreement settled the funds on the defendants to invest in the "Alpha Fund", a common trust fund controlled by one of the defendants - Custody of, and prime brokerage for, the "Alpha Fund" was transferred by the defendants to Lehman Brothers Inc. (LBI), which then transferred the funds to an affiliate, Lehman Brothers International (Europe) (LBIE) - LBI became bankrupt - LBI's administrator "froze" the funds in the "Alpha Fund" - The plaintiff's attempt to have the funds returned were contractual expectations - The defendants sought an order to compel the plaintiff to produce relevant documents and electronic information in the possession of the law firm retained by the plaintiffs respecting advice given by the law firm before the plaintiff chose to invest in the "Alpha Fund" - The information was relevant to the issue of the plaintiff's authorization of the transfer to LBI - Some relevant information for which solicitor-client privilege had been waived had been produced - At issue was whether privilege had been waived for the balance of the information in the law firm's files (i.e., "where fairness and consistency required, partial waiver can lead to full waiver") - The Nova Scotia Supreme Court determined which documents had to be disclosed - The court ordered the law firm to provide the court with the balance of the file for which solicitorclient privilege was claimed, to permit the court to determine whether privilege should be impliedly waived - See paragraphs 302 to 345.