Marion Family Ventures Inc. v. Lam

2021 BCSC 1076 Marion Family Ventures Inc. v. Lam

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Marion Family Ventures Inc. v. Lam, 2021 BCSC 1076 Date: 20210604 Docket: S172910 Registry: Vancouver Between: Marion Family Ventures Inc. Plaintiff And Annie Wai Fun Lam, and The Toronto-Dominion Bank Defendants In Chambers Before: The Honourable Mr. Justice Gomery On appeal from: An order of the Master, dated October 7, 2020 (Marion Family Ventures Inc. v. Lam, 2020 BCSC 1526). Reasons for Judgment Counsel for the Defendant (Appellant), The Toronto-Dominion Bank, via videoconference: J.D. Shields Counsel for the Plaintiff (Respondent), via videoconference: E.J. Allan Place and Date of Hearing: Vancouver, B.C. May 25, 2021 Place and Date of Judgment: Vancouver, B.C. June 4, 2021 Table of Contents Overview.. 3 Standard of review.. 5 The master's reasons. 6 Analysis. 8 The grounds of appeal 8 The Bank's first and second propositions. 9 The Bank's third proposition. 12 The Bank's fourth proposition. 13 The Bank's individual arguments. 14 Conclusion. 16 Overview [1] The plaintiff maintains that it is the victim of a fraud in January 2017, by which one of its employees, Ms. Lam, was induced to wire transfer approximately $1 million from its accounts with the Toronto-Dominion Bank (the "Bank") to offshore accounts. The money has been lost and the plaintiff claims against Ms. Lam and the Bank. The claim against the Bank is for breach

of a contractual term requiring the Bank to exercise reasonable care in carrying out the plaintiff's banking. There is also a claim for negligent misrepresentation. [2] The action is in its early stages and document discovery is taking place. On receipt of the Bank's document list, the plaintiff applied for and obtained production of a Due Diligence Policy referenced in an internal Bank email addressing approval of the wire transfers in issue. The Due Diligence Policy referenced further documents and the plaintiff demanded that they be produced. Specifically, the plaintiff demanded production of five categories of internal bank policies or procedures related to wire payments, and four categories of banking documents relating to the plaintiff. [3] The Bank refused the demand, and the plaintiff applied to court. In reasons for judgment indexed at 2020 BCSC 1526, Master Elwood allowed the plaintiff's application. The Bank appeals the master's order. [4] Rule 7-1 of the Supreme Court Civil Rules [Rules] governs document discovery. It establishes a two-stage discovery process. [5] Subrule (1) of R. 7-1 requires parties to an action to list and produce documents that could "be used by any party of record at trial to prove or disprove a material fact" or to which a party intends to refer at trial. Production under subrule (1) may be thought of as "Stage 1" production. [6] Subrules

(11) to (14) provide for the listing and production of additional documents. This may be thought of as "Stage 2" production. Stage 2 production is demand driven and discretionary. [7] The threshold for production under Stage 2 is that the documents must "relate to any or all matters in question in the action". The appeal turns on the scope of production contemplated by this threshold. [8] The Bank contends that the master's decision was clearly wrong on various grounds. Central to its arguments on appeal are the following four propositions: 1. The threshold for Stage 2 production is not satisfied merely on the basis that the documents in question "may relate" to a matter in question in the action. More is required by virtue of the requirement that the documents "relate to any or all matters in question".

2. For the purpose of determining the threshold of Stage 2 production, the "matters in question" must be expressly pleaded.

3. The Bank's internal policies and procedures are irrelevant to the matters in question in this action because the plaintiff's claim is that the Bank was negligent and the standard of care in negligence is objective.

4. Because the Bank contracted to provide banking services to the plaintiff in 1996 and is suing on an alleged misrepresentation in 2014, the Bank's subsequent policies and procedures in 2017 cannot relate to the matters in question. [9] In my opinion, for the reasons that follow, these four propositions underlying the Bank's argument on appeal are untenable. In particular: 1. It is settled law that documents "relate to any or all matters in question" if they contain information that may, not must, either directly or indirectly, enable either party to advance its own case or damage the case of its adversary.

2. While the matters in question are defined by the pleadings, they need not be expressly pleaded.

3. While it is trite law that the standard of care in negligence is objective, it is an objective standard grounded in the circumstances of the case. Moreover, the matters in question in this action are not limited to the existence and content of the standard of care, but extend to an assessment of whether the Bank's actions met that standard. The Bank's internal policies and procedures may assist the plaintiff in addressing these matters at trial.

4. The content of the standard of care governing the Bank's dealings with the plaintiff was not permanently fixed at the commencement of the banking relationship in 1996. Referring to the Bank's policies and procedures at the time of the alleged negligent breach of duty in 2017 may assist the plaintiff in addressing the question of its compliance with the standard of care at that time. [10] The master did not err on any of the grounds advanced by the Bank. His reasons are cogent and legally correct, and he did not err in the exercise of his discretion. The appeal is dismissed. Standard of review [11] On an appeal from a master in respect of a purely interlocutory order, the appellant must show that the order is clearly wrong; Kondori v. New Country Appliances Inc., 2017 BCCA 164 at paras. 16-19, affirming the test established in Abermin Corp. v. Granges Exploration Ltd. (1990), 45 B.C.L.R. (2d) 188 (S.C.). A purely interlocutory order is to be contrasted with one that raises questions vital to the final issue in the case, or is one of those final orders which a master is entitled to make. [12] While counsel for the Bank argued weakly to the contrary, citing Ho. v. Ming Pao Newspapers (Western Canada) Ltd., [1997] B.C.J. No. 2539 (S.C.), an order respecting the production of documents prior to trial is the epitome of a purely interlocutory order. It only sets the stage for the

determination of the issues at trial; Merth v. Merth (1993), 18 C.P.C. (3d) 361 (B.C.S.C.) at para. 5; Martell v. Ewos Canada Ltd., 2003 BCSC 1376 at para. 25; Astels v. Canada Life Assurance Co., 2005 BCSC 1232 at para. 20, aff'd 2006 BCCA 110. [13] In Shantz v. British Columbia's Children's Hospital, 2005 BCSC 1747 at paras. 10-20, Loo J. comprehensively reviewed the authorities, including Ho, and held that the "clearly wrong" standard of review should be applied on appeals from document production orders except where the particular document in question is of vital importance. While Ho contains dicta to the contrary, Loo J. interpreted Ho as a case in which the document in question was of vital importance. It is worth noting that an alternative ground of decision in Ho was that the order under appeal was clearly wrong. There is nothing in the record to suggest that the documents at issue in this appeal are so critical to the determination of the issues that the order should be regarded as critical to the determination of an issue rather than interlocutory, and I would suggest, with respect, that Ho is anomalous in this regard. [14] I conclude that the burden is on the Bank to show that the master's decision is clearly wrong. The master's reasons [15] The master focused much of his analysis on the policy and procedure documents sought by the plaintiff, turning to the other

documents at the end. On appeal, the Bank confined its substantive argument to the policy and procedure documents. It treated as an afterthought the documents described by the master as banking documents relating to the plaintiff. Surprisingly, counsel for the Bank advised me that he has not reviewed these documents. [16] The master began his analysis by noting the difference between Stage 1 and Stage 2 discovery (this terminology is mine) and agreeing with the Bank that its internal policies and procedures do not meet the threshold for Stage 1 production because they cannot be used to prove or disprove a material fact in the case. He went on to address the requirement for Stage 2 production that the documents "relate to any or all matters in question" and concluded that this threshold requirement, as interpreted by the jurisprudence, is satisfied in this case in respect of all the documents sought by the plaintiff. He stated: [24] Documents relate to matters in question if they may properly be said to advance a litigant's case or damage the case of one's adversary: Global Pacific Concepts Inc. v. The Owners, Strata Plan NW 141, 2011 BCSC 1752, at para. [9]. [25] An application for production of documents under this broader scope of discovery requires some evidence to support a connection between the documents sought and the matters in question: Araya v. Nevsun Resources, 2019

BCSC 511, at paras. 90-97. [26] Matters in question in this action include whether the banking contract had the terms alleged in para. 3(c) of the second amended notice of civil claim, the standard of care under the contract or at common law, and whether the bank acted reasonably and in compliance with the contract when it approved the wire transfers. [27] In my view, the Due Diligence Policy produced by the bank, and the references in that document to the policies and banking records sought by the plaintiff, provides the required evidentiary link between the documents sought on this application and the matters in question. [17] The master turned to the arguments and authorities put forward by the Bank. He rejected the Bank's submission that its internal policies in 2017 are irrelevant to a contract made in 1996 or any legal standard of care, viewing the question of the significance of the policies as one to be determined by the trial judge rather than pre-emptively resolved on discovery. At para. 30, he stated that: the question on this application is not whether the policies in question establish the standard of care, but whether those documents can properly be used by the plaintiff to advance its case or damage the bank's case with respect to a legal standard of care. [18] The master reviewed authorities cited by the Bank, holding that none of them stood for "the general

proposition that internal banking policies are never relevant in an action against a bank by a customer" (para. 31). [19] Accordingly, the master concluded that the policy and procedure documents satisfy the threshold for Stage 2 discovery. He stated: [37] Each case must be decided on its own merits. In my view, the additional policies referenced in the Due Diligence Policy are relevant, in the sense discussed in para. 24 above, to the standard of care and the reasonableness of the bank's belief that the wire transfers requested by Ms. Lam were authorized by the plaintiff. [20] Turning to the banking documents relating to the plaintiff, he found that they also satisfy the threshold for Stage 2 discovery. He stated: [38] Further, in my view, the banking records sought, being the financial profile and CIF of the plaintiff as of January 2017, any ongoing data entry reports in relation to the plaintiff in mid-January 2017, and any unusual transaction reports for that period in relation to the plaintiff, are relevant to the bank's state of knowledge and whether it fell below the standard of care when it approved the wire transfers requested by Ms. Lam. [21] At paras. 40-45, the master held that production of the documents would be proportionate, considering the magnitude of the plaintiff's claim, that the documents were all readily accessible, and the absence of third-party privacy

issues. He therefore exercised his discretion to order production. Analysis The grounds of appeal [22] The appeal proceeded on the basis that the master correctly held at paras. 19-22 that the documents sought need not be listed and produced at Stage 1 because they could not be used to prove or disprove a material fact in this case. The plaintiff did not suggest that the master erred in this regard and I will assume, without deciding, that he was correct. [23] In its notice of appeal, the Bank states the following grounds of error on the part of the master: 1. In finding the additional internal policies and documentation related to matters at issue; 2. In disregarding the actual pleadings filed by the Plaintiff; 3. In finding that the internal policies and documentation were part of the Plaintiff's case, or that of the Bank; 4. In finding that the policies were relevant to the standard of care, when His Honour had previously found that they were not; 5. In finding that the policies were relevant to the Bank's knowledge when TD doesn't rely on them; 6. In making the orders in the absence of evidence that the additional policies actually related to the matters in issue; 7. And such other grounds as the Appellant may advise. [24] These grounds do not fully capture the argument advanced, and some of them do not fairly reflect the master's reasoning. The master did not disregard the

plaintiff's pleading, as suggested in ground 2. At paras. 7 to 11 of his reasons, he quoted from and described the second amended notice of civil claim. The master did not find that the internal policies and documentation were part of the plaintiff's case or that of the Bank, as suggested in ground 3. To the contrary, at para. 20 of his reasons he accepted the Bank's submission that the documents in question cannot be used to prove or disprove a material fact in the case. [25] In its written argument on appeal, the Bank restates the grounds of appeal by listing seven points of argument on which it submits that the master was clearly wrong. Most of the seven arguments are grounded in one or more of the four propositions I identified at the outset of these reasons. In what follows, I address the four propositions and then turn to the individual arguments. The Bank's first and second propositions [26] For ease of reference, I repeat the Bank's first and second propositions: 1. It does not suffice to order Stage 2 production that the documents in question "may relate" to a matter in question in the action. More is required by virtue of the requirement that the documents "relate to any or all matters in question".

2. For the purpose of determining whether Stage 2 production is justified, the "matters in question" must be expressly pleaded. [27] These are propositions concerning the requirement in R. 7-1(11) that documents sought and produced in Stage 2 must "relate to any or all matters in question in the action". This is language carried over from R. 26(1) of the former Rules of Court. It imposed an obligation to give discovery of documents in the following terms: A party to an action may deliver to any other party a demand in Form 92 for discovery of the documents which are or have been in the party's possession or control relating to any matter in question in the action, and the other party shall comply with the demand within 21 days by delivering a list, in Form 93, of the documents that are or have been in the party's possession or control relating to every matter in question in the action. [Emphasis added.] [28] The long settled law was that the obligation under R. 26(1) to produce documents "relating to every matter in question in the action" extended to documents containing information that may relate to a matter in issue; Dufault v. Stevens (1978), 6 B.C.L.R. 199 (C.A.) at para.

9. The test was one established by Cie Financiere du Pacifique v. Peruvian Guano Co. (1882), 11 Q.B.D. 55 (C.A) [Peruvian Guano] where the Court stated at 63: It seems to me that every document relates to the matters in question in the action, which not only would be evidence upon any issue, but also which, it is reasonable to suppose, contains information which may -- not which must --either directly or indirectly enable the party ... either to advance his own case or to damage the case of his adversary. I have put in the words 'either directly or indirectly,' because, as it seems to me, a document can properly be said to contain information which may enable the party ... either to advance his own case or to damage the case of his adversary, if it is a document which may fairly lead him to a train of inquiry, which may have either of these two consequences. [29] A principal purpose of pretrial discovery procedures, including discovery of documents, is to level the playing field between the parties by giving each access in advance of the trial to documents in the possession or control of its opponent that may assist it in making out its case or defeating its opponent's case at trial. That purpose is served by a policy of generous access exemplified by the Peruvian Guano standard. [30] However, a policy of generous access is also costly and may give rise to privacy concerns.

With the proliferation of volumes of documents generated by electronic messaging and record-keeping, lawyers and courts expressed discomfort with the scope of production required as a matter of course through the automatic application of the Peruvian Guano standard; Centura Building Systems Ltd. v. Blackcomb Mountain Development Ltd., 2007 BCSC 939 at paras. 11-14. These concerns were eventually addressed in 2010 by the replacement of R. 26 of the former Rules of Court with R. 7-1 of the current Supreme Court Civil Rules. [31] Under the former R. 26, the obligation to produce documents was triggered by delivery of a blanket demand requiring production according to the Peruvian Guano standard. Rule 7-1 substituted the two stage process described above. The first stage is automatic, not demand-driven, and the scope of production is narrower. The second stage is demand-driven and discretionary. The threshold test for production at Stage 2 is unchanged; Marsh Canada Limited v. BFL Canada Insurance Services Inc., 2014 BCSC 1171 at para. 65; Global Pacific Concepts Inc. (cited by the master) at para. 9; Biehl v. Strang, 2010 BCSC 1391 at paras. 10-15, 29; Burgess v. Buell Distribution Corporation, 2012 BCSC 1494 at para.

19. It is still the Peruvian Guano standard. However, the party seeking Stage 2 production must describe the documents sought "with reasonable specificity" and explain why they should be disclosed, and the responding party may ask the court to exercise its discretion to refuse to order production. [32] Accordingly, it is settled law that documents "relate to any or all matters in question" and are potentially subject to a Stage 2 production order pursuant to R. 7-1(11) to (14) if they contain information that may, not must, either directly or indirectly, enable either party to advance its own case or damage the case of its adversary. The Bank's first proposition is incorrect. [33] I take the Bank's second proposition from the following passage in its written argument: 30. In respect of the wider disclosure of Rule 7-1(11), the matters at issue are determined by the pleadings, in other words, relevance, with such determinative. No issue of TD's internal policies has been pleaded. They are simply not matters at issue. The policies are not "in question". Matters at issue must be expressly pleaded. [Emphasis in original.] [34] The Bank's second proposition is incorrect. While the matters in question in the action are defined by the pleadings, there is nothing in the Rules to suggest that the pleadings must be strictly construed, or that matters are only truly in question if they

are expressly pleaded. The Peruvian Guano standard contemplates the production of documents that may indirectly enable a party to advance its case. The Bank's third proposition [35] For ease of reference, the Bank's third proposition is: 3. The Bank's internal policies and procedures are irrelevant to the matters in question in this action because the plaintiff's claim is that the bank was negligent and the standard of care in negligence is objective. [36] The content of the standard of care owed by the Bank to the plaintiff is objective. It is a question of what steps a reasonable banker should have taken in processing Ms. Lam's instructions to transfer funds overseas. [37] The court's determination of the objective content of the standard of care will be grounded in an understanding of what the Bank was called upon to do and how it could be done. At trial, the court will have to address what steps were taken in fact by the Bank's officers, and what other steps might have been taken but were not. The parties have different perspectives on these matters. The plaintiff's case is that the Bank failed to take all reasonable precautions; the Bank maintains that it did. What the Bank did and did not do, and what it could have done, are matters in question in the action. [38] The Bank is a large, bureaucratic institution. Undoubtedly, it substantially relies on written internal

policies and procedures to manage its operations. An examination of those policies and procedures bearing on the steps taken by the Bank in processing Ms. Lam's instructions to transfer funds overseas may assist the parties and the court in addressing the matters in question. Similarly, in an action against a peace officer or probation officer, internal policies often inform the content of the standard of care and the court's assessment of whether that standard was breached; Bergen v. Guliker, 2015 BCCA 283 at paras. 110-112. [39] Before the master, the Bank cited the following cases in support of its argument that its internal policies and procedures are irrelevant: Alberta Treasury Branches v Hammond (1996), 45 Alta L.R. (3d) 74 at 93 (Q.B.); Alberta Treasury Branches v. Georgopoulos, 1998 ABQB 984 at paras. 12-13; Allen v. Girard, 2002 BCSC 1354 at paras. 143, 158; Isaacs v. Royal Bank, 2010 ONSC 3527 at para. 43, aff'd 2011 ONCA 88; and Bank of Montreal v. Duguid (2000), 47 O.R. (3d) 737 (C.A.) at para.

38. I agree with the master that these cases do not stand for a legal proposition that internal policies and procedures cannot be relevant to the determination of a customer's negligence claim against a bank. [40] The same is true of an additional case cited by the Bank on appeal; Haynes v. Westpac Banking Corporation, [2018] SASCFC 51 [South Aust.]. In Haynes, the Court observed at para. 79 that "the mere departure from the Bank's own rule of general application does not show a breach of its prudential obligation". It does not follow that a departure from the Bank's internal rule may not inform an assessment of the Bank's conduct. [41] In short, the Bank's internal policies and procedures satisfy the Peruvian Guano standard of relevance. The Bank's fourth proposition [42] For ease of reference, the Bank's fourth proposition is: 4. Because the Bank contracted to provide banking services to the plaintiff in 1996 and is suing on an alleged misrepresentation in 2014, the Bank's subsequent policies and procedures in 2017 cannot relate to the matters in question. [43] The Bank made this argument to the master and he rejected it as follows: [28] It was argued by the bank that its internal policies in 2017 are irrelevant to a contract made in 1996 or any legal standard of care. For the purposes of this application, I do not agree with the bank that the terms of the banking contract

were frozen in time based on the factual matrix when the plaintiff opened its accounts. The bank's relationship with the plaintiff may have evolved as alleged by the plaintiff with changes in technology and banking practices and new scams such as email spoofing. Whether the banking contract is a living document - or not, as the bank submits - is an issue for the trial judge. I will not prejudge that issue on this application so as to limit discovery to banking policies that existed in 1996. [44] There is an air of unreality to the Bank's argument. Banking practices and commercial practices generally have changed enormously since 1996. The second amended notice of civil claim describes a change in 2014 to a web-based banking system for wire payments. The alleged fraud in this case involved transactions and a sequence of steps taken that could not have occurred in 1996. What constituted the exercise of reasonable care by the Bank in the circumstances could only be assessed with reference to contemporary, not historic, policies and procedures. [45] I agree with the master in his rejection of the Bank's fourth proposition. The Bank's individual arguments [46] I turn to the seven points on which the Bank alleges error on the part of the Master in its written argument. [47] The Bank maintains that the master is "clearly wrong given the Plaintiff hasn't pleaded any reference to TD's

internal policies and procedures". I have already concluded that express reference to the Bank's internal policies and procedures was not required. [48] The Bank maintains that the master is "clearly wrong given TD's internal policies are not relevant to the objective standard of care". I have already concluded that the Bank's policies and procedures satisfy the Peruvian Guano standard of relevance. [49] The Bank maintains that the master is "clearly wrong given TD's subjective internal policies, which may vary over time, may improperly influence the objective standard of care". I agree that the Bank's internal policies may influence the objective standard of care. I disagree that the influence is improper. [50] The Bank maintains that the master is "clearly wrong given the dates of the policies sought - in January, 2017 - have no relation to a contract made in 1996 or an alleged misrepresentation in 2014 or even an alleged wrong in December, 2016". This is the Bank's fourth proposition, which I have rejected. [51] The Bank maintains that the master is "clearly wrong given there is no plea of causation based on the internal policies and procedures, a necessary component to properly found a cause of action". It further argues that the master is "clearly wrong given there is no plea of any damage or loss to the Plaintiff as a result of an alleged breach of TD's internal

policies". [52] Causation is adequately pleaded. At paragraph 12 of part 1 of the second amended notice of civil claim, the plaintiff pleads that: As a direct and foreseeable result of the Defendant Lam's breach of the Employment Contract and her breach of duty of care and the Defendant TD's breach of the Banking Contract and its breach of duty of care, the Plaintiff has suffered and will continue to suffer loss, injury and damages, including the loss of the monies transferred in the course of the Unauthorized Transfers. [53] Finally, the Bank maintains that the master is "clearly wrong given an absence of evidence that the additional policies were relevant to the matters at issue". [54] In para. 27 of his reasons, quoted above at para. [16], the master held that the Due Diligence Policy produced by the Bank and the references in it to the policies and banking records sought by the plaintiff provide the required evidentiary link between the documents sought and the matters in question. The Bank argues that the references establish only that the documents sought exist, and not that they are potentially relevant. [55] The Due Diligence Policy was considered by the Bank in approving the wire transfers in issue. It incorporates by reference the policies and procedures and banking records the master has ordered the Bank to produce. The master did not err in concluding that the

evidence ties these additional policies and procedures to the wire transfers in issue through the Due Diligence Policy. He did not clearly err in the exercise of his discretion to order production of these documents. [56] In short, none of the alleged errors argued by the Bank is made out. Conclusion [57] In making the order under appeal, Master Elwood was not clearly wrong. I agree with him that the documents in issue satisfy the threshold for Stage 2 production under R. 7-1(11) to (14). He did not clearly err in the exercise of his discretion in ordering that they be produced. [58] The appeal is dismissed, with costs to the plaintiff in any event of the cause. "Gomery J."