The Halifax Regional Municipality Pension Committee Plaintiff v. State Street Bank v. Trust Company and State Street Global Advisors Ltd./ Conseillers En Gestion Global State Street, Ltée, 2011 NSSC 447

SUPREME COURT OF NOVA SCOTIA Halifax (Regional Municipality Pension Committee) v. State Street Global Advisors Ltd., 2011 NSSC 447 Date: 20111201 Docket: Hfx 309063 Registry: Halifax Between: The Halifax Regional Municipality Pension Committee Plaintiff v. State Street Bank and Trust Company and State Street Global Advisors Ltd./ Conseillers En Gestion Global State Street, Ltée Defendants Judge : The Honourable Justice Patrick Duncan Heard: November 18, 2011, in Halifax, Nova Scotia Counsel: George MacDonald, Q.C., Jane O’Neill, and Peter Rogers, Q,C, for the plaintiff Michael Ryan, Q.C.

John Keith, Michael Dube for the defendants By the Court : INTRODUCTION [ 1 ] I rendered a decision, cited as Halifax (Regional Municipality Pension Committee) v. State Street Global Advisors Ltd., 2011 NSSC 355 , that responded to a series of motions brought by the parties seeking to resolve disputes as to ongoing production and

scheduling issues. [ 2 ] At a scheduled Case Management Conference (by telephone) held on November 15, 2011, counsel sought to make submissions on the form of order to give effect to the decision, as the parties could not agree on its construction. This, together with other issues in dispute, made it apparent that any outstanding questions should be addressed on the record. [ 3 ] On November 18, 2011 court was convened to receive submissions on matters that called for my determination and to address case management questions.

This decision follows upon that hearing and the decisions and directions that I made at the time. FORM OF ORDER [ 4 ] I have been provided with a series of draft orders that reflect the points of agreement and of disagreement as between the parties. Both parties have made written and oral submissions in support of their respective positions. [ 5 ] As they are unable to resolve these disputes I am forwarding to counsel, under separate cover, the forms of Orders that I conclude accurately reflect the decisions.

The Orders that flow from this decision are made pursuant to Rule 78.04(3)(e). [ 6 ] The following comments present a brief response to some of the points of dispute. They are not meant to respond to all of the proposed or accepted changes and so the parties must have regard to the terms of the Orders whether or not spoken to in this decision. Plaintiff’s First Motion:

Preamble to Categories 1, 4 and 5 [ 7 ] At paragraph 66 of my decision I specified who was intended to be captured by the term “custodians”, which was used in the

Preamble to certain categories for production. [ 8 ] In argument the parties agreed that the plaintiff’s version correctly employed the language I used in paragraphs 69, 118, and 125 of the decision to describe who was a “custodian”. The plaintiff however says that the wording of the order: ... might exclude persons who were involved in the operation of the Fund unless they were personally responsible for or oversaw the decision to hire and retain Lehman Brothers.

This could exclude portfolio managers who may have had input or expressed thoughts or concerns about the hiring or continued use of Lehman Brothers, even though, within the organizational hierarchy, the decision to hire and retain Lehman Brothers was made by other persons.

One might expect the portfolio managers to be aware of investment indicators, such as Lehman Brothers shareprice declines or the pricing of Lehman brothers credit default swaps that might influence their questioning the ongoing advisability of continuing to utilize Lehman Brothers as a prime broker for the fund. [ 9 ] Subsequent to the hearing I had more opportunity to consider this question, consider the oral submissions and look at both proposed versions of the order in light of the Decision. I conclude that the wording set out in the defendants’ draft accurately captures my intent.

[ 10 ] If the type of information which the plaintiff is concerned about was in the hands of the “custodians” as described, then it is to be produced, whatever its source, and so if the portfolio managers did have the input suggested then it should be evidenced in the disclosure required by the defendants’ version of the order. If, through discovery or other productions, relevant information is identified from sources not captured by the order then the plaintiff may expect it to be produced.

Plaintiff’s Second Motion: Targeted Follow Up [ 11 ] I directed the defendants to provide information to the plaintiff about the targeted follow-ups conducted of the defendants’ employees. The wording proposed by the defendant mimics the language used in paragraph 189 of the decision. To that extent the proposed form is acceptable. [ 12 ] The plaintiff seeks to add wording that requires the “details” of the targeted follow-up. The defendant says that this term is too vague and would have the potential to create future disagreements. [ 13 ] I agree with the plaintiff that a

preamble to the description of the information to be provided is appropriate but conclude that the provision suggested by the plaintiff is too vague. [ 14 ] To achieve a result that generates the same disclosure by the defendant about targeted follow-ups as that which the plaintiff provided will require some additional language. Therefore the defendant will be required in part (ii) of the Order to provide the plaintiff with: (ii) The methodology of the targeted follow-up carried out in respect of employees, including in each instance:

a) Whether the targeted follow-up includes searches of electronic mailboxes belonging to the person(

s) and whether said searches included archived mailboxes and home drives;

b) The search terms applied to the mailboxes of the person(

s) subject to targeted follow-up that included searches of electronic mailboxes; and Defendants First Motion: Categories 1 - 4 [ 15 ] The first point of dispute is whether the scope of production required from the Committee by the decision in paragraphs 237- 301 should be limited by a timeframe. [ 16 ] I conclude that the plaintiff is correct - production of documents in these categories is only relevant for the time period that begins with the Committee’s consideration of the investment until the failure of LBI and LBIE. i.e., March 1, 2006 to September 15, 2008. [ 17 ] The second point of dispute is whether the order should only apply to those Committee members or alternates who “continue to serve”.

The plaintiff seeks this limiting term as it does not “control” past Committee members since they are not employees of the Committee, but were representatives to the Committee on behalf of various employee groups within the Halifax Regional Municipality. [ 18 ] A related problem for the plaintiff is the degree to which it can access third party servers, in particular that of the Municipality, which is not itself a member of the Committee, but whose server is common to the various employees who are or were Committee members.

[ 19 ] In my view the order cannot be limited to those who “continue to serve” as it would necessarily omit those whose records would be concurrent to the committee’s considerations of the investment. [ 20 ] I recognize that the plaintiff, in relation to these individuals, their personal computers, and third party servers, may experience some lack of co-operation in attempts to comply with the order. In paragraphs 280 and 281, I referred the parties to the obligations created by Rules 15.02(1)(

c) and 16.03 (1)(

c) to “acquire and disclose relevant documents” or “electronic information” where the party has “control” but not “possession” of that information. I do not accept that the order should include language that might be interpreted to undermine that obligation. [ 21 ] Where the information is neither in the “possession” nor “control” of the plaintiff, then the defendants’ remedy is to present a motion for third party production under Rule 14.12. To facilitate such a motion the plaintiff must advise the defendants of any person or place that may have relevant documents or information and that is determined to be beyond the plaintiff’s possession and control. Rule 15.02(2)(

a) and 15.07, for example, countenance this general direction to the plaintiff. [ 22 ] The third point of dispute is as to some of the language used in describing the production obligations for Categories 3 and 4. The plaintiff offers a version that is intended to eliminate duplication. I am generally in favour of such an effort, but in this case the order will have the more specific language employed by the defendants’ version.

This litigation is strenuously contested by both parties and it is better in my view to exercise caution which might ensure that there is no room for misunderstanding the obligations created by the order. [ 23 ] The final point of dispute is the description of RBC Dexia information and contacts to be searched. The plaintiff says that the defendants’ proposed wording is too broad and will capture a massive number of irrelevant “hits”. [ 24 ] This question was addressed in paragraphs 283-290 of the decision. The evidence on the motions was that a search of the plaintiff’s managers had already been conducted.

I accepted the plaintiff’s position that any search for RBC Dexia related information had to be very limited. see, paragraph 287. [ 25 ] The decision requires the plaintiff to use the same search terms, whatever they were, and apply them to the Committee members and their alternates. I specifically stated this at paragraphs 288 and 289: 289....

The intention is to ensure that the same information sought of the managers is sought of the decision makers in the Committee. [ 26 ] It is difficult to be much clearer than this. [ 27 ] I have elected to employ the wording proposed by the plaintiff which limits the RBC Dexia search to “ ... employees involved with the plaintiff’s investment in the Global Alpha Edge Fund.” I am doing this as it appears to be consistent with the focus of the intended search. Given the specificity of the decision, the plaintiff should well understand its obligations.

Defendants’ First Motion: Category 5 [ 28 ] The decision requires that plaintiff’s counsel provide certain parts of their pre-litigation file to the court for a determination of whether solicitor-client privilege should prevail over the defendants’ request that it be produced to them. The parties were unable to agree on a

schedule to fulfill this direction. [ 29 ] I made an oral order, at the hearing, pursuant to Rules 78.04(3)(

e) and 78.07 (1 ), which order was later committed to writing (filed November 25, 2011) that:

The plaintiff shall on or before December 5, 2011, deliver to the court, under seal, all materials and electronic information in McInnes Cooper’s possession (including but not limited to email, memoranda, letters, notes, charts, tables, and billing records with dollar amounts redacted) which predate the execution of the Agreement of Trust by the Committee and which concern the trust documents which govern the Global Alpha Edge Fund and the client trust including the following matters: i. the rights, duties and responsibilities of State Street as trustee of the Fund and the client trust; ii. the plaintiff’s right to demand return of the trust assets; and iii. the potential application of the Pension Benefits Act to the investment.

In the event of the plaintiff filing an appeal with the Nova Scotia Court of Appeal on or before December 5, 2011 concerning the order to deliver the listed materials then the operation of the order is stayed pursuant to Rule 78.07 (2) until the final disposition of the appeal. PRODUCTION DATES [ 30 ] Having regard to the submissions of counsel, I direct that all parties complete disclosure/production by February 29, 2012 .

APPLICABLE LAW [ 31 ] At the outset of the hearing, counsel for the defendants put forward the proposition that the law of the Commonwealth of Massachusetts applies to the dispute as that is what the contract stipulates. I infer from counsel’s comments that the law of that jurisdiction is different in some material particular from that of Nova Scotia.

How it differs was not put before me. [ 32 ] The plaintiff takes the position that the law of Nova Scotia prevails and that to the extent that Massachusetts law is applicable it is presumed to be the same as Nova Scotia. [ 33 ] If there is a provision in the Declaration of Trust that provides that the substantive law of Massachusetts governs the

interpretation of the contract, then Civil Procedure Rule 54.04 creates a rebuttable presumption that supports the position taken by the plaintiff. It reads: 54.04

(2) The law of a foreign state is presumed to be the same as the law of Nova Scotia, unless a party gives notice by a pleading that the law of a foreign state is in issue and proves that that law is not the same as the law of Nova Scotia. [ 34 ] I have reviewed the pleadings and there is nothing that provides notice to rebut the presumption. To the contrary, paragraph 8 of the Second Amended Statement of Defence, filed on September 30, 2011 specifically invokes the provisions of the Trustee Act R.S.N.S. 1989, c. 479. Further, in paragraph 12, the defendants specifically deny that the provisions of the Massachusetts Consumer Protection and Unfair Trade Practices Act, Mass. Gen. Laws,

Chapter 93A apply. [ 35 ] I conclude that the presumption as to the

interpretation of Massachusetts law that is set out in Rule 54.04 is not rebutted by the pleadings. It will be for defendants’ counsel to decide whether to pursue a motion to amend the pleadings again, or to seek an alternative remedy.

SUMMARY JUDGMENT MOTION

[ 36 ] On November 1, 2011, the plaintiff filed a motion for

Summary Judgment on evidence together with a supporting affidavit and Brief. The motion is set for hearing on February 15 and 16, 2012. [ 37 ] The defendants are scheduled to file their responding affidavit(

s) and Brief on or before December 16, 2011. They submit that they are prejudiced in their ability to respond to the motion as a result of the incomplete production received from the plaintiff. It is submitted that the hearing should not be held until production is complete and counsel have had an adequate opportunity to review the materials. Under the present

schedule production is to be complete by February 29, 2012, some two weeks after the date of the motion hearing. [ 38 ] The plaintiff replies that the motion is not fact dependent but rather is dependant upon a question of law and so the defendants’ ability to respond is not impacted by incomplete disclosure. [ 39 ] The principal concern of the defendants is that the documents yet to be produced by the plaintiff will speak to those aspects of the Defence which assert that the plaintiff had knowledge and authority to permit the investments that generated the losses incurred in the LBI and LBIE collapse. see, Amended (September 30, 2011) Statement of Defence at paragraphs: 5(b) (sophisticated investor); 5(e) (knowledge of risk of loss); 5(f), (

g) and (h) (knowledge of the use and role of a prime broker); 6(a)(ii) (knowledge of retention and role of Lehman as prime broker). [ 40 ] Counsel for the plaintiff says that, even if the facts asserted by the defendants as to the plaintiff’s understanding, knowledge and approval of the investment are assumed to be true (for the limited purposes of the

summary judgment motion), the motion hearing can proceed and, in their assessment, be successful. They acknowledge that if they adopt that position and are still unsuccessful then the plaintiff may bear the costs consequences of a failed motion. [ 41 ] There is no Rule that prohibits a motion for

Summary Judgment being heard prior to the completion of production. In this case the plaintiff has taken the position that it wants to proceed even though it will not have all of the defendants’ production in hand. In doing so, they accept the risk that the plaintiff may proceed without the benefit of possibly helpful information yet to come from the defendants. I am prepared to let them assume that risk. The defendants do not want to assume a comparable risk. [ 42 ] The parties briefed this question without reference to authorities. During the hearing I noted the decision of Rosinski J. in Casey v.

Halifax (Regional Municipality) 2011 NSSC 267 . Counsel were not familiar with it. In that case, the defendant was seeking a hearing of its motion for

Summary Judgment, while declining to comply with its obligations under Rule 14.08 for full disclosure. Rosinski J. concluded, at paragraph 52: In order for a court to fairly assess, at

summary judgment motion on evidence , whether there is a genuine issue for trial, the Plaintiff must have the proposed disclosure to allow it to effectively advance its position. (emphasis added) [ 43 ] I have concluded that it is appropriate to stay the time for filing of the defendants’ reply affidavit(

s) and Brief. [ 44 ] I am taking this step in order to provide the parties with an opportunity to submit any further arguments and/or authorities that they may choose to bring forward on this question. Barring an appeal, I expect to have the McInnes Cooper files in hand shortly and I want to consider that material prior to final consideration of rescheduling the motion. It may be that a new hearing date, if one is warranted, can be set for a time relatively shortly after production is concluded in February 2012. [ 45 ] Therefore the defendants’ request to delay the hearing of the plaintiff’s motion for

Summary Judgment until after the plaintiff’s

[ 45 ] Therefore the defendants’ request to delay the hearing of the plaintiff’s motion for

Summary Judgment until after the plaintiff’s disclosure is complete is set over for further arguments and consideration on December 15, 2011 . I request that counsel be prepared at that time to speak to availability for hearing of the motion if re-scheduling is determined to be appropriate. PLAINTIFF’S MOTION PURSUANT TO RULE 12 (QUESTION OF LAW) [ 46 ] The plaintiff included in its November 1 st Notice of Motion, as an alternative remedy to

Summary Judgment, a motion seeking a finding on a question of law to be determined in accordance with Rule 12. That Rule establishes a discrete procedure to advance such a motion. As a result, I direct that if the plaintiff seeks to pursue this remedy then it is required to file a separate Notice of Motion that complies with Rule 12. COSTS ON MOTIONS FOR PRODUCTION [ 47 ] The plaintiff submits that costs should be fixed in the amount of $6,000 and payable “in the cause”.

It says that although the results of the motions were mixed, that it was a necessary process for both parties and that the successful party should receive those costs at the end of the proceeding. [ 48 ] The defendants agree with the quantum, but suggest that as results were mixed each party should bear its own costs. Alternatively, the defendants submit the amount of costs can be fixed in the amount of $6,000, but should be made payable in whatever way the judge sees fit, at the end of the proceeding. [ 49 ] The motions were heard over a period of three days. It is correct to say that the results were mixed.

It is not apparent, at this early stage of what is likely to be a complex proceeding, whether either party took positions that should impact on the merits of a claim to an award of costs, and so I am not prepared to order costs payable in the cause. [ 50 ] I set costs on the motions in the amount of $6,000 in accordance with the provisions of Tariff C . I direct that the judge assessing costs at the end of the proceeding will have the discretion to determine how, if at all, these costs are to be awarded.

Future Case Management [ 51 ] The next Case Management Hearing will be in court on December 15, 2011 at 9:30 a.m. [ 52 ] The following items are to be addressed: 1. Status of the production request for the McInnes Cooper file; 2. The defendants’ position as to the plaintiff’s first motion, category 3, see Decision paragraphs 100-110; 3. Progress of the parties in meeting production deadlines; 4. Issues relating to production from third parties. 5.

Summary Judgment Motion schedule;

6. Rule 12 Motion schedule, (if filed); 6. Motion of defendant to amend pleadings schedule, (if filed). [ 53 ] I direct that if counsel seek to make written submissions for consideration on December 15, that they do so by December 9, with replies if any, by the end of business on December 12. Duncan J.