Dow Chemical Canada ULC v NOVA Chemicals Corporation, 2021 ABQB 784

Court of Queen’s Bench of Alberta Citation: Dow Chemical Canada ULC v NOVA Chemicals Corporation, 2021 ABQB 784 Date: 20210929 Docket: 0601 07921 Registry: Calgary Between: Dow Chemical Canada ULC and Dow Europe GmbH Respondents/Plaintiffs - and - NOVA Chemicals Corporation Applicant/Defendant _______________________________________________________ Decision of the Honourable Madam Justice B.E. Romaine _______________________________________________________ I.

Introduction [ 1 ] On November 8, 2021, this Court will conduct a hearing to determine Dow's damages according to the Court of Appeal's remand and according to this Court's prior reservation of jurisdiction: Dow Chemical Canada ULC v NOVA Chemicals Corporation , 2018 ABQB 482 ; Dow Chemical Canada ULC v NOVA Chemicals Corporation , 2020 ABCA 320 . NOVA applies for an order

compelling Dow to produce 25 categories of production in relation to the damages hearing. [ 2 ] I dismiss NOVA's application, except to direct Dow to produce internal documents of Dow that relate to NOVA's efforts to try to comply with its obligations under the joint venture agreements that were stymied due to Dow's refusal to co-operate, including any reports of Dow's technical and/or commercial personnel that comment on these stymied efforts, and records or analysis pertaining to Dow's consideration of constraints reported by the operator during the top-up-period, to the extent that these documents have not already been produced, and subject to a claim of litigation privilege.

II. Analysis A. The engagement agreements and any written instructions from counsel regarding the Shehadeh Report and the Mikulka Report. [ 3 ] NOVA submits that these documents are relevant and material to an assessment of the qualifications of the experts and to how the experts prepared their reports, and that they "set the parameters and context of the opinion." [ 4 ] Counsel for Dow confirmed that there were no engagement letters for Dr. Shehadeh and Mr. Mikulka with respect to their recent reports, as both had testified during the trial and were then asked to continue their engagements.

However, it was unclear whether there is any written correspondence relating to the reports between Dow counsel and its experts and also unclear whether NOVA is still seeking all correspondence with Dow's experts. Therefore, I will address the issue. [ 5 ] NOVA submits that, once privilege over an expert report is waived, the expert must disclose the materials informing the preparation of the report, citing general comments at para. 10 of Deloitte & Touche LLP v Institute of Chartered Accountants (Complaints Injury Committee) , 2008 ABCA 162 at para. 10 .

That case is distinguishable on its facts and did not address the issue in question before me in this application. NOVA also cites Lamont Health Care Centre v Delnor Construction Ltd. , 2002 ABQB 1125 at para. 12 , in which Macklin, J in oral reasons noted that, while production of information relied upon by an expert is producible, it is equally important for opposing counsel to be able to explore with the expert in cross-examination the factual information, which may include statements of parties or witnesses, that the expert had but did not consider probative to the opinion he or she formed.

He stated: ...the information the expert had in his possession but disregarded or did not rely upon or which he had for other reasons ignored when forming an opinion, may very well be considered by others, including the Court, as relevant to the determination of the issue being considered and, more particularly, the credibility of the expert and the validity of his opinion. [ 6 ] In the result, statements of witnesses in the expert’s possession that he did not rely upon were ordered to be produced for the purpose of cross-examination. Communications with counsel were not at issue.

Both of these cases were decided in reference to previous Rules, although the new Rules are not substantially different with respect to what is required to be produced. [ 7 ] NOVA also submits that, while privilege may not be waived over every document in the expert's possession, it is waived over the documents used by the expert to prepare the report, including instructions and communications from counsel. For this, NOVA relies on BJM v SLM , 2012 ABQB 731 at para. 36 , an oral decision of Phillips, J., in which the Court notes that documents reviewed by the expert in preparing their report must be disclosed.

However, NOVA did not refer to para. 37 of the decision, in which the Court commented that: I hasten to add that this

interpretation of Rule 5.37(2) does not render it meaningless as there are still other documents that need not be produced and may not be questioned upon. In Ramirez , Mr. Justice Macklin, citing Chernetz , referred to such documents in para. 12 as "working papers", which he interpreted to include "any communications, memoranda, calculations, notes, diagrams or doodles and preliminary opinions".

Any such working documents in this case are not subject to disclosure or questioning at this time, whether Rule 5.37(2) or Rule 6.42 is in play. [ 8 ] Neither the engagement letter nor any written instructions with counsel were the subject of the application in BJM v SLM . [ 9 ] In Drapaka v Patel , 2013 ABQB 247 at para. 33 , the Court stated that litigation privilege is waived when expert reports are used in court. The issue in that case was whether litigation privilege over expert medical reports is maintained before an independent medical examination is performed.

Again, production of engagement letters and communications between counsel and an expert were not at issue. [ 10 ] Finally, NOVA relies on Chernetz v Eagle Copters Ltd. , 2005 ABQB 712 at paras 10 and 11 , another case decided under the previous Rules.

The plaintiff in that case applied for a pre-trial production order, including correspondence to and from counsel, notes on meetings and telephone conversations with counsel and other experts and claim review notes. [ 11 ] The defendants took the position that these documents were not producible unless and until the expert takes the stand as a witness. [ 12 ] McMahon, J denied the plaintiff’s application for pre-trial production. In doing so, he commented as follows: The issue here is privilege and waiver.

Communications between an expert and instructing counsel and working notes created by the expert initially are privileged as having been created for the dominant purpose of use in litigation. When and if the expert takes the stand to testify, the privilege is lost as to those documents that the expert reviewed in forming his opinion , whether the expert relied on, rejected or disregarded the information in those documents. The privilege also is lost on communications between the expert and instructing counsel to the extent that those communications are relevant to the expert’s opinion .

For example, those communications may limit or otherwise set the parameters for the opinion. The opposing party, on cross-examination, is entitled to explore such documents

and communications. . . . I prefer the view that it is the introduction of the expert’s report or opinion into evidence at trial that creates the waiver of privilege. That is so whether the expert testifies or whether notice is given pursuant to Rule 218.1(2) of an intent to file the report without calling the expert and no objection is taken.

If counsel chooses not to introduce the report into evidence, there is no waiver. [ 13 ] I note that the comments of the Court in Chernetz were obiter with respect to communications between counsel and an expert, and qualified by the phrase “to the extent that those communications are relevant to the expert’s opinion”.

With respect, I disagree that privilege is automatically lost on communications between an expert and instructing counsel even if the expert's opinion is tendered at trial. [ 14 ] In the decision of the Court of Appeal for Ontario, Moore v Getahun , 2015 ONCA 55 , the Court stated that the most significant issue raised on appeal involved the trial judge’s finding that it was improper for counsel to assist an expert witness in the preparation of the expert’s report (para. 4).

The trial judge compelled the production of communications between the expert and counsel at trial, and questioned the expert herself on these communications.

The Court found this to be in error. [ 15 ] A number of intervenors, including The Advocates’ Society, and the Canadian Institute of Chartered Business Valuators, supported the appeal, and the respondent conceded that the trial judge was in error on this issue, but that the error did not affect the result. [ 16 ] Sharpe, J.A. for the Court stated as follows at paras 68-70: The starting point for analysis is that such consultations attract the protection of litigation privilege.

Litigation privilege protects communications with a third party where the dominant purpose of the communication is to prepare for litigation. As explained by the Supreme Court of Canada in Blank v.

Canada (Minister of Justice) , 2006 SCC 39 , [2006] 2 S.C.R. 319, at para. 27 , the object of litigation privilege “is to ensure the efficacy of the adversarial process”, and “to achieve this purpose, parties to litigation… must be left to prepare their contending positions in private, without adversarial interference and without fear of premature disclosure.” These concerns are important in the context of the preparation of expert witnesses and their reports.

In Blank , the court noted, at para. 34, that litigation privilege creates “a ‘zone of privacy’ in relation to pending or apprehended litigation.” The careful and thorough preparation of a case for trial requires an umbrella of protection that allows counsel to work with third parties such as experts while they make notes, test hypotheses and write and edit draft reports. Pursuant to rule 31.06(3), the draft reports of experts the party does not intend to call are privileged and need not be disclosed.

Under the protection of litigation privilege, the same holds for the draft reports, notes and records of any consultations between experts and counsel, even where the party intends to call the expert as a witness . [emphasis added] [ 17 ] The Court noted that: It is widely accepted that consultation between counsel and expert witnesses in the preparation of [expert reports], within certain limits, is necessary to ensure the efficient and orderly presentation of expert evidence and the timely, affordable, and just resolution of claims: par. 49. [ 18 ] Sharpe, J.A. commented at paras. 63-65: Consultation and collaboration between counsel and expert witnesses is essential to ensure that the expert witness understands the duties reflected by rule 4.1.01 and contained in the Form 53 acknowledgement of expert's duty.

Reviewing a draft report enables counsel to ensure that the report (

i) complies with the Rules of Civil Procedure and the rules of evidence, (ii) addresses and is restricted to the relevant issues, and (iii) is written in a manner and style that is accessible and comprehensible. Counsel need to ensure that the expert witness understands matters such as the difference between the legal burden of proof and scientific certainty, the need to clarify the facts and assumptions underlying the expert's opinion, the need to confine the report to matters within the expert witness's area of expertise and the need to avoid usurping the court's function as the ultimate arbiter of the issues.

Counsel play a crucial mediating role by explaining the legal issues to the expert witness and then by presenting complex expert evidence to the court. It is difficult to see how counsel could perform this role without engaging in communication with the expert as the report is being prepared. Leaving the expert witness entirely to his or her own devices, or requiring all changes to be documented in a formalized written exchange, would result in increased delay and cost in a regime already struggling to deliver justice in a timely and efficient manner.

Such a rule would encourage the hiring of "shadow experts" to advise counsel. There would be an incentive to jettison rather than edit and improve badly drafted reports, causing added cost and delay. Precluding consultation would also encourage the use of those expert witnesses who make a career of testifying in court and who are often perceived to be hired guns likely to offer partisan opinions, as these expert witnesses may require less guidance and preparation.

In my respectful view, the changes suggested by the trial judge would not be in the interests of justice and would frustrate the timely and cost-effective adjudication of civil disputes. [ 19 ] The Court noted that litigation privilege attaching to expert reports is qualified, and disclosure may be required in certain situations: para. 73.

Sharpe, J.A. confirmed that the ends of justice do not permit litigation privilege to be used to shield improper conduct, and: [w]here the party seeking production of draft reports or notes of discussions between counsel and an expert can show reasonable grounds to suspect that counsel communicated with an expert witness in a manner likely to interfere with the expert witness’s duties of independence and objectivity, the court can order disclosure of such discussions: paras 70-71.

[ 20 ] He cautioned that, “absent a factual foundation to support a reasonable suspicion that counsel improperly influenced the expert, a party should not be allowed to demand production of draft reports or notes of interaction between counsel and an expert witness”: para. 78. [ 21 ] There is no evidence of any improper influence on the experts by Dow’s counsel. NOVA’s rationale for production of the requested materials is “the novel damages calculation methodology that [the experts] advance, which diverges from the methodology previously advanced by Dow”.

It also submits that engagement letters and instructions are “relevant and material to an assessment of the expert’s qualifications and to how an expert prepared a report as they set the parameters and content of the opinion.” [ 22 ] The Dow experts were qualified at the trial, and their qualifications can be challenged with respect to their current opinions at the damages hearing. The scope of their opinions are set out in their written reports. The methodology they employed is different due to the Court of Appeal’s findings and directions with respect to damages.

None of this meets the necessary factual foundation of improper influence that would warrant pre-trial production. [ 23 ] It is important to acknowledged that the Court in Moore made its decision by reference to the Ontario Rules, particularly amendments to those rules in 2010 following the Osborne report recommendations. The Alberta Rules do not require the extensive information or the certificate required by Ontario Rule 53.03(2.1). [ 24 ] However, as noted by the Court in Moore at para. 52 , these amendments do not create new duties but rather codify and reinforce basic common law principles.

Sharpe, J.A. points out that the ethical and professional standards of the legal profession and other professional bodies and the tool of cross-examination serve to control any improper influence on an expert witness: paras 57-61. [ 25 ] I adopt the reasoning in Moore and decline to order production of any instructions between Dow’s counsel and its experts at this time. B. NOVA Requests 1. Records of ethylene transactions in Alberta 2. Records of ethylene location swaps involving Alberta ethylene 4. Agreements for the purchase and sale of ethylene in Alberta [ 26 ] As Dow notes, its expert Dr.

Shehadeh opines that “[t]here is no “well-functioning market that provides price discovery for ethylene in Western Canada”. In his opinion, evidence of Alberta transactions would not reflect the “value of ethylene”. NOVA’s economist, Dr. Montgomery, disagrees and says that there is a functioning market in Alberta based on the parties’ long-term contracts. [ 27 ] Dow has produced its only long-term contract. [ 28 ] Dr. Montgomery’s opinion does not appear to depend on any other of Dow’s ethylene transaction records. [ 29 ] NOVA references Dr.

Shehadeh’s “value in use” valuation approach, which it characterizes as “the subjective value of ethylene to Dow”, and therefore submits that Dow’s records of its internal view of ethylene value is relevant. Dr. Shehadeh's "value in use" opinion is more nuanced than this, and does not depend merely on the subjective value of ethylene to Dow. [ 30 ] Dow responds that during the relevant period, it made no Alberta/USGC location swaps.

It points out that the vast majority of its ethylene transactions in Alberta were with NOVA, and therefore NOVA has the relevant records. [ 31 ] I find that no further production under these headings is necessary. 5. Inter-company pricing policies, guidelines, analyses, communications, and similar or related records that apply to Dow’s handling of Alberta ethylene 6. Analyses, reports or communications that concern the Alberta ethylene market and/or ethylene value 7. Communications with CRA and accountants/tax advisors concerning inter-company transfer pricing of ethylene 8.

Communications with CRA and other regulators concerning the price of ethylene 9.

Analyses of the value of ethylene in Alberta, including but not limited to any documents that were prepared in association with the economic justification of the expansion of LHC-1 ethylene production capacity at Fort Saskatchewan [ 32 ] Dow has already provided its AOGCL contract prices and volumes for 2013 and 2014, the final two years that the AOGCL contract was in effect, and “numerous spot purchase agreements”. [ 33 ] As Dow points out, no expert suggests that evidence of inter-company transactions would affect the value of ethylene, but at any rate, Dow has already provided its inter-company transactions file and policy.

[ 34 ] The reference in request 6, 7 and 8 to communications with the CRA and Dow’s advisors “concerning” inter-company transfer pricing or "the price of ethylene" is overly broad and not relevant to the value of ethylene as described in the expert reports. [ 35 ] As NOVA, which is the largest seller of ethylene in Alberta, has neither identified this type of record in its production, or produced it, this calls in question NOVA's allegation that these document are material and relevant.

As the largest seller of ethylene, NOVA must have such records itself, which it can use to cross-examine the experts and test their opinions. [ 36 ] With respect to request 9, I refer to my reasons with respect to the following categories of requests. [ 37 ] I decline to order production under these headings. 3. Records with respect to the ethylene storage capacity available to Dow, including the locations of said ethylene storage, the maximum monthly storage available to Dow, and the amount of storage actually utilized each month from 2001 – 2018 10. Canadian Ethylene Supply/Demand balances for each month 12.

The AUBD for LHC -1 and LP7 – January 1, 2013 to June 20, 2018 13. Records relating to debottlenecks or expansions of LP7, including but not limited to proposals, assessments, work undertaken, and the resulting capacity of LP7 26. Records relating to Dow’s ability to move ethylene to LP7 27. Any records or database analogous to the Global Cracker Reports for polyethylene plants.

This request includes any information concerning the capacity and utilization of LP7 and the Dow polyethylene plant at Fort Saskatchewan [ 38 ] At trial, I found as a fact that if it had a reliable source of supply, Dow would reasonably have expanded its existing polyethylene capacity to absorb additional E3 ethylene (para. 950) and that in the but-for world, with an assured supply of its full share of ethylene from a fully optimized E3, there can be little doubt that a solely self-interested Dow Europe would have debottlenecked LP7 even sooner than it did, increasing its own polyethylene-making capacity rather than selling ethylene to Dow Canada for manufacture at Fort Saskatchewan.

I noted that in such a scenario, the Dow plaintiffs’ damages would have been higher still (para. 1162). See also paras 58-59 of Dow v NOVA , 2020 ABQB 441 . [ 39 ] These findings were not disturbed on appeal. Thus, requests for production of this type of material are no longer relevant or material for the issues at hearing, and would be a re-litigation of the finding that Dow’s damages are not limited by polyethylene capacity at its plants at any point in time. [ 40 ] I therefore decline to order production under these headings. 11.

Records concerning the actual or potential transportation of ethylene into or out of Alberta [ 41 ] NOVA submits that under this heading, it seeks disclosure of information concerning ethylene transportation and swaps between Alberta and the USGC. As Dow notes, while the experts indicate that cryogenic transportation of ethylene in such a fashion is theoretically possible, it is not occurring, so there is no such data to produce. I agree that, as no expert proposes a damages theory that includes recovery by Dow of any such costs, such costs are not relevant and material to the damages calculation. 14.

Solomon Study submissions and results for LHC1 20.

Records in the possession of Dow Canada or Dow Europe that compare E3 performance or utilization to other crackers owned or operated by Dow affiliates around the world (see, for example, previously produced Global Cracker Reports) [ 42 ] NOVA submits that production of Dow’s Solomon Study records would allow it to make a “[c]onsideration of LHC-1’s performance on the same metrics as E3 for the same period”, which NOVA says could be “relevant to assessing NOVA’s performance as operator because E3 and LHC-1 are similar sized plants in a similar geography and climate." [ 43 ] However, the issue of NOVA’s performance as operator has already been decided at trial.

If this evidence was relevant, it should have been requested to be produced at trial, not now that this issue, and the issue of E3’s productive capability have been determined. [ 44 ] I therefore decline to order production of these records. NOVA requests 15-19, 23, 24: Notes taken by Dow’s Co-owner representatives and its technical representatives in relation to the E3 Joint Venture Management Committee Meetings that occurred in the period from January 1, 2013 to June 20, 2018; Records or analysis pertaining to Dow’s discussion and

consideration of constraints reported by the operator of E3, or perceived by Dow to exist at E3, for the period from January 1, 2013 to June 20, 2018; Records, including but not limited to correspondence or analysis, created by the Dow parties or their employees pertaining to capital expenditures or maintenance in relation to E3 for the period from January 1, 2013 to June 20, 2018; Records, including but not limited to correspondence or analysis, created by the Dow parties or their employees relating to the rates at which E3 was operating for the period from January 1, 2013 through June 20, 2018; Internal communications associated with E3 Management Committee Meetings and E3 operations generally; Board materials relating to E3 operations, senior management presentations relating to E3 operations [ 45 ] These production requests all relate to internal Dow communications about E3’s operations, capital expenditures and maintenance, all of which must have been reported to Dow by NOVA.

NOVA submits that it should be entitled to explore how Dow used this access to information to provide input into technical and operational matters. To support these requests, NOVA refers to the fact that it is not precluded from attempting to prove that the operation of E3 may have changed during the top-up period.

NOVA refers to the comment of the Court of Appeal at Dow v NOVA , 2021 ABCA 153 at para. 103 that: ... there is also nothing precluding NOVA from leading evidence to demonstrate it tried, but was unable to comply with its obligations under the joint venture agreements due to circumstances beyond its control, or due to circumstances that would constrain production for reasons that are verifiable or reasonable. [ 46 ] NOVA submits that as part of its allegation that constraints may have impacted damages for the top up period, it should be entitled to explore Dow records that document the views of Dow’s technical and commercial personnel on constraints, including “any possible solutions considered by Dow and the proper timeframe for implementing such solutions.” [ 47 ] I accept that some of this category of production of documents is relevant and material, and should be produced.

This does not mean the wide scope of documents referred to in requests 15 – 19, 23 and 24 are to be produced, but only internal documents of Dow that relate to NOVA’s efforts to try to comply with its obligations under the joint venture agreement that were stymied due to Dow’s refusal to co-operate, including any reports of Dow’s technical and/or commercial personnel that comment on these stymied efforts and records or analysis pertaining to Dow's consideration of constraints reported by the Operator during the top-up period, in both cases to the extent that these documents have not already been produced and subject to a claim of litigation privilege.

The broad scope of the requests in their present form is a form of inappropriate fishing. [ 48 ] I note the comment in footnote 74 of NOVA's brief that NOVA can argue during the damages hearing that there is no proof of wilful misconduct or gross negligence in the relevant time period and counsel's comments on that issue during the hearing. At this time, I merely refer to the trial reasons at Dow v NOVA , 2020 ABQB 441 , affirmed by the Court of Appeal in Dow v NOVA , 2021 ABCA 153 . 21.

The published IHS USGC pricing documents relied upon by Charles Mikulka in his July 1, 2021 Expert Report, including the “Contract-Net Transaction Pipeline” price and the “Average Acquisition Contract Estimate Pipeline” price documents, for the period 2001-2018 [ 49 ] As noted by Dow, the HIS USGC prices relied on by Mr. Mikulka were produced with his report. The source pricing indices are published by HIS Markit and are publicly available. [ 50 ] Therefore, I decline to order further production under this heading. 22.

Records reviewed or relied upon by Dow experts in coming to their conclusions in their opinions [ 51 ] These reliance materials are identified in the expert reports, and, where not previously produced, were produced with the reports. If NOVA has doubts about this, the issue can be addressed in cross-examination. 25. Such other records that may be relevant and material to the determination of the issues that have been remanded to the Court or remain to be determined by the Court in this Action [ 52 ] This appears to relate to the issues that will not be determined at the damages hearing.

These issues, as identified by Dow, are:

a) the appointment of a receiver or monitor;

b) NOVA’s request for relief from forfeiture; and

c) the appropriate remedy for the illegality of

section 5.15 of the OSA. [ 53 ] There is no good reason for requiring production of this type of document before a hearing is scheduled to address these issues, and many good reasons why this should not be necessary. The most important of these is that the parties may be able to resolve these issues without further hearings after damages are determined in the upcoming hearing.

Heard on the 16 th day of September, 2021. Dated at the City of Calgary, Alberta this 29 th day of September, 2021. B.E. Romaine J.C.Q.B.A. Appearances: Blair C. Yorke-Slader, Q.C, E. Bruce Mellett, Denise Brunsdon, Ciara Mackey for the Plaintiffs//Respondents Tommy Gelbman, Steven Leitl, Q.C., Bryan Walker, Gunnar Benediktsson, Olivia C. Dixon for the Defendant/Applicant