Case of the Day: Third Point LLC v. Fenwick
Posted on May 6, 2011
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.