Case of the Day: Third Point LLC v. Fenwick

H/T to Antonin I. Pribetic for bringing to light the case of the day, Third Point LLC v. Fenwick, 2011 ONSC 2068, an Ontario case on a letter rogatory from the New Jersey Superior Court seeking a summons for a deposition in Ontario. Canada is not a party to the Hague Evidence Convention, which is why resort to a letter rogatory was necessary.

The Ontario case does not spell out the facts of the underlying case in detail, but in short, Fenwick (who was not a party to the New Jersey case) was a securities analyst employed by Cormark Securities. He was the author or co-author of a document on Fairfax Financial Holdings Ltd., one of the companies he covered, which councluded that “Fairfax was likely to perform with its peer group.” The plaintiffs in the New Jersey case alleged that the defendants there “did their best to dissseminate false information so that they could profit when the price of the shares of Fairfax declined.” The plaintiffs claimed reputational damage. The defendants sought to depose Fenwick, because they believed that his analysis was inconsistent with Fairfax’s claims.

After referring to the relevant statutes (the Canada Evidence Act and the Ontario Evidence Act) and the general principles that the court has power to enforce a letter of request, that it will do so when possible for reasons of comity, and that the court will not enforce a letter of request if “contrary to public policy or otherwise prejudicial to the sovereignty or the citizens of Canada,” the court identified six relevant factors: (1) relevance of the evidence; (2) necessity of the evidence for trial; (3) whether the evidence is otherwise available; (4) public policy; and  (5) undue burden. Fortunately (from the perspective of U.S. lawyers if not of Canadian witnesses), the court held that it could grant the application even if the evidence was sought in the course of pre-trial discovery and not for use at trial. Even if the factors are satisfied, the court has discretion to deny to execute the letter rogatory or to limit its scope.

Although the letter rogatory, which was a request from the New Jersey court rather than the parties to the New Jersey litigation, asserted that the evidence sought was relevant, the judge undertook an independent and somewhat searching examination of the asserted relevance of Fenwick’s testimony and found none. This is surprising from the U.S. perspective, where relevance is defined broadly. Relevance for purposes of the law of evidence is defined as “evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence.” Relevance for purposes of pre-trial discovery is defined even more broadly to include testimony that is relevant for purposes of trial and testimony that “appears reasonably calculated to lead to the discovery of admissible evidence.” The theory of relevance suggested by the defendants was that the Fenwick report “suggests Fairfax stock is not undervalued to any significant extent.” The third amended complaint alleged that Fairfax’s stock price had fallen from 1.42 times book value in 2007 to “amost 1.0 ‘today'”. The judge acknowledged this reference to harm that continued into 2011 but found it insufficient to make Fairfax’s analysis as of February 2011 relevant:

Assuming [the defendants’] interpretation of the [Fairfax] analysis is correct, why is it relevant? It is possible Fairfax alleges that it continues to suffer reputational damage in 2011 but I have not seen anything which suggests that is so except, perhaps, the paragraphs in the third amended complaint to which I have already referred.

It seems to me that the judge is applying too strict a test here. It’s not clear why the reference to continuing reputational harm in the pleadings was insufficient to satisfy the judge’s concerns about relevance. But in any event, it followed from the judge’s view of the irrelvance of the evidence that the evidence was not necessary for trial.

The remainder of the opinion is fairly straightforward: the judge found that the evidence might have been otherwise obtainable from other analysts who covered the company, and that public policy did not bar the application, even though Fairfax asserted that the application was objectionable insofar as it supposedly asked Fairfax to provide expert testimony. The court also suggested that the application was overbroad in some respects, though the overriding concern seemed to be with the relevance of the evidence sought.

It is interesting to compare the result here with the likely result under the Evidence Convention. Article 12 of the Convention provides:

The execution of a Letter of Request may be refused only to the extent that—

(a) in the State of execution the execution of the Letter does not fall within the functions of the judiciary; or

(b) the State addressed considers that its sovereignty or security would be prejudiced thereby.

Execution may not be refused solely on the grounds that under its internal law the State of execution claims exclusive jurisdiction over the subject-matter of the action or that its internal law would not admit a right of action on it.

(A state party to the Convention, by making a declaration under Article 23, may also refuse to execute letters of request seeking production of documents for pretrial discovery purposes, but in the case at hand the applicants sought only testimony, not documents).

Particularly in civil law systems, where the examination is generally conducted by the court, parties seeking evidence under the Convention would have to tailor the letter of request narrowly so as to permit the court to question the witness pursuant to its own procedures. But the court in the state of execution does not—or at least, should not, under Article 12—make its own inquiry into the relevance of the evidence sought to the underlying action.

About Ted Folkman

Ted Folkman is a shareholder with Murphy & King, a Boston law firm, where he has a complex business litigation practice. He is the author of International Judicial Assistance (MCLE 2d ed. 2016), a nuts-and-bolts guide to international judicial assistance issues, and of the chapter on service of process in the ABA's forthcoming treatise on International Aspects of US Litigation, and he is the publisher of Letters Blogatory, the Web's first blog devoted to international judicial assistance, which the ABA recognized as one of the best 100 legal blogs in 2012, 2014, and 2015.

7 thoughts on “Case of the Day: Third Point LLC v. Fenwick

  1. Good post. It would be far simpler and cost-effective if Canada became a signatory to the Evidence Convention. It does not seem to be a priority for the last few federal governments.

    In my view, the Ontario judge struggled with the paucity of evidence supporting the applicants’ (defendants’) relevance arguments. While the third amended complaint is lengthy, the relevance inquiry for considering letters of request (letters rogatory) is based upon Ontario standards for ordering pre-discovery production from non-parties (Rule 30.10) or oral discovery of non-parties with leave (Rule 31.10).

    In any event, Justice Grace concludes by stating that “application is dismissed without prejudice to the applicants filing a further application with letters of request revised to address the concerns I have, with reluctance, expressed.”

    1. It would be far simpler and cost-effective if Canada became a signatory to the Evidence Convention.

      Agreed. It’s surprising to me that Canada is not a party to either the Evidence Convention or the Apostille Convention. Any idea why?

      1. According to on the Hague Conference on Private International Law website:

        “The Convention does not include a Federal State Clause. Such a clause would have allowed Canada to extend the application of the Convention only to the provinces and territories that implemented the Convention. Without such a clause, the Convention would have to be implemented in all Canadian provinces and territories, which is difficult to achieve.”

        I don’t know what the Canadian federal government’s position is on the Apostille Convention.

  2. Thanks–that’s interesting. The U.S. and Canadian approaches to federalism in this area seem quite different. Here, a federal statute authorizes the federal courts to execute letters of request, without the need for implementing legislation in the states. I take it that for particularly Canadian reasons that won’t work in Canada. I found this explanation on the web, and of course I always trust everything I find on the Internet:

    Canada is a federal state comprising 14 jurisdictions: a federal government, ten provincial governments and three territorial governments. Currently in Canada, treaty-making is a power reserved for the executive branch of government, and is derived from Royal Prerogative. It is therefore the federal government that will negotiate international obligations and ratify (or accede to) international instruments on behalf of Canada.

    However, due to constitutional division of powers in Canada, it is the subject matter of the international instrument that will determine which level of government will be competent to pass implementing legislation. If, under the Constitution Act, the subject-matter falls under provincial jurisdiction, as is often the case with private international law instruments, it will be up to each province to pass implementing legislation. Under Canadian law, there is a well-established principle that the federal government cannot pass implementing legislation in areas that fall within provincial jurisdiction (A.G. Can. V. A.G. Ont. et al. (Labour Conventions Case), [1937] 1 D.L.R. 673). Unlike other federal states, in Canada there is no residual power (to complement the treaty-making power) enabling the federal government to legislate to give force of domestic law to the treaties it negotiates when they fall under provincial jurisdiction. Only if the subject matter of the treaty is federal can the federal government pass implementing legislation. At times, the subject matter falls into shared jurisdiction, and it may be necessary for implementing legislation to be passed by both the provincial and federal levels of government.

  3. If letters rogotary are granted by a Canadian court and depositions in connection with US litigation proceed in Ontario, will the depositions be governed by US law or by Ontario law?

    1. John, let me first refer to you my disclaimer, which notes that I don’t give legal advice here. So if you are looking for legal advice in an actual case, please speak with your lawyer.

      From the US perspective, some departures from the US practices that govern depositions are permissible when the deposition occurs in a foreign country pursuant to a letter of request or letter rogatory. Rule 28(b)(4) of the Federal Rules of Civil Procedure provides:

      Evidence obtained in response to a letter of request need not be excluded merely because it is not a verbatim transcript, because the testimony was not taken under oath, or because of any similar departure from the requirements for depositions taken within the United States.

      But fundamentally, the question of what rules the foreign court will use when acting on a US letter of request will depend on the law of the foreign country, not on US law.

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