Tietz v. Affinor Growers Inc.

COURT OF APPEAL FOR BRITISH COLUMBIA

Citation:

Tietz v. Affinor Growers Inc.,

2022 BCCA 307

Date: 20220913

Dockets: CA47311; CA47314; CA47395;

CA47396; CA47459; CA47974;

CA47975; CA47977; CA47978

Docket: CA47311

Michael Tietz and Duane Loewen

Appellants

(Petitioners/Respondents)

And

Affinor Growers Inc. and Sam Chaudhry

Respondents

(Respondents/Applicants)

And

Cryptobloc Technologies Corp., Bam Bam Resources Corp. (formerly

known as Kopr Point Ventures Inc. and New Point Exploration Corp.),

Kootenay Zinc Corp., Affinor Growers Inc., Green 2 Blue Energy Corp.,

Beleave Inc., Citation Growth Corp. (formerly known as Liht Cannabis Corp,

and Marapharm Ventures Inc.), BLOK Technologies Inc.,

PreveCeutical Medical Inc., Abattis Bioceuticals Corp.,

Speakeasy Cannabis Club Ltd., Anthony Jackson, Cameron Robert Paddock,

Von Rowell Torres, Neil William Stevenson-Moore, Kenneth Clifford Phillippe,

Brian Biles, Bryn Gardener-Evans, Robert Tindall, Nicholas Brusatore,

Slawomir Smulewicz, Michael Young, Glenn Little, Andrew Wnek,

Bojan Krasic, Linda Sampson, David Alexander, Yari Alexander Nieken,

Hanspaul Pannu, Robert Dawson, James Hyland, Stephen Van Deventer,

Shabira Rajan, Robert Abenante, Kent McParland, Marc Geen,

Mervyn Geen, Jeremy Ross, and Alexander Kaulins

Respondents

(Respondents)

- and -

Dockets: CA47314; CA47395; CA47459

Between:

Michael Tietz and Duane Loewen

Appellants

(Petitioners/Applicants)

Tietz v. Affinor Growers Inc.

Page 2

And

Cryptobloc Technologies Corp., Bam Bam Resources Corp. (formerly

known as Kopr Point Ventures Inc. and New Point Exploration Corp.),

Kootenay Zinc Corp., Affinor Growers Inc., Green 2 Blue Energy Corp.,

Beleave Inc., Citation Growth Corp. (formerly known as Liht Cannabis Corp,

and Marapharm Ventures Inc.), BLOK Technologies Inc.,

PreveCeutical Medical Inc., Abattis Bioceuticals Corp.,

Speakeasy Cannabis Club Ltd., Anthony Jackson, Cameron Robert Paddock,

Von Rowell Torres, Neil William Stevenson-Moore, Kenneth Clifford Phillippe,

Brian Biles, Bryn Gardener-Evans, Robert Tindall, Nicholas Brusatore,

Sam Chaudhry, Slawomir Smulewicz, Michael Young, Glenn Little,

Andrew Wnek, Bojan Krasic, Linda Sampson, David Alexander,

Yari Alexander Nieken, Hanspaul Pannu, Robert Dawson, James Hyland,

Stephen Van Deventer, Shabira Rajan, Robert Abenante, Kent McParland,

Marc Geen, Mervyn Geen, Jeremy Ross, and Alexander Kaulins

Respondents

(Respondents)

- and -

Docket: CA47396

Between:

Michael Tietz and Duane Loewen

Appellants

(Petitioners/Respondents)

And

Cryptobloc Technologies Corp., Bam Bam Resources Corp. (formerly

known as Kopr Point Ventures Inc. and New Point Exploration Corp.),

Kootenay Zinc Corp., Affinor Growers Inc., Green 2 Blue Energy Corp.,

Beleave Inc., Citation Growth Corp. (formerly known as Liht Cannabis Corp,

and Marapharm Ventures Inc.), PreveCeutical Medical Inc.,

Abattis Bioceuticals Corp., Speakeasy Cannabis Club Ltd.,

Anthony Jackson, Cameron Robert Paddock, Von Rowell Torres,

Neil William Stevenson-Moore, Kenneth Clifford Phillippe,

Brian Biles, Bryn Gardener-Evans, Robert Tindall, Nicholas Brusatore,

Sam Chaudhry, Slawomir Smulewicz, Michael Young, Glenn Little,

Andrew Wnek, Bojan Krasic, Linda Sampson, David Alexander,

Yari Alexander Nieken, Hanspaul Pannu, Robert Dawson, James Hyland,

Stephen Van Deventer, Shabira Rajan, Robert Abenante, Kent McParland,

Marc Geen, Mervyn Geen, Jeremy Ross, and Alexander Kaulins

Respondents

(Respondents)

Tietz v. Affinor Growers Inc.

Page 3

And

BLOK Technologies Inc.

Respondent

(Respondent/Applicant)

- and -

Docket: CA47974

Between:

Michael Tietz, Duane Loewen, and Mike Dotto

Appellants

(Petitioners)

And

Cryptobloc Technologies Corp., Bam Bam Resources Corp. (formerly

known as Kopr Point Ventures Inc. and New Point Exploration Corp.),

Kootenay Zinc Corp., Affinor Growers Inc., Green 2 Blue Energy Corp.,

Beleave Inc., Citation Growth Corp. (formerly known as Liht Cannabis Corp,

and Marapharm Ventures Inc.), BLOK Technologies Inc.,

PreveCeutical Medical Inc., Abattis Bioceuticals Corp.,

Speakeasy Cannabis Club Ltd., Anthony Jackson, Cameron Robert Paddock,

Von Rowell Torres, Neil William Stevenson-Moore, Kenneth Clifford Phillippe,

Brian Biles, Bryn Gardener-Evans, Robert Tindall, Nicholas Brusatore,

Sam Chaudhry, Slawomir Smulewicz, Michael Young, Glenn Little,

Andrew Wnek, Bojan Krasic, Linda Sampson, David Alexander,

Yari Alexander Nieken, Hanspaul Pannu, Robert Dawson, James Hyland,

Stephen Van Deventer, Shabira Rajan, Robert Abenante, Kent McParland,

Marc Geen, Mervyn Geen, Jeremy Ross, and Alexander Kaulins

Respondents

(Respondents)

- and -

Docket: CA47975

Between:

Von Rowell Torres

Appellant

(Respondent)

And

Michael Tietz and Duane Loewen

Respondents/

Appellants on Cross Appeal

(Petitioners/Applicants)

Tietz v. Affinor Growers Inc.

Page 4

And

Robin Lee

Appellant on Cross Appeal

(Petitioner)

And

Cryptobloc Technologies Corp., Bam Bam Resources Corp. (formerly

known as Kopr Point Ventures Inc. and New Point Exploration Corp.),

Kootenay Zinc Corp., Affinor Growers Inc., Green 2 Blue Energy Corp.,

Beleave Inc., Citation Growth Corp. (formerly known as Liht Cannabis Corp,

and Marapharm Ventures Inc.), BLOK Technologies Inc.,

PreveCeutical Medical Inc., Abattis Bioceuticals Corp.,

Speakeasy Cannabis Club Ltd., Anthony Jackson, Cameron Robert Paddock,

Neil William Stevenson-Moore, Kenneth Clifford Phillippe,

Brian Biles, Bryn Gardener-Evans, Robert Tindall, Nicholas Brusatore,

Sam Chaudhry, Slawomir Smulewicz, Michael Young, Glenn Little,

Andrew Wnek, Bojan Krasic, Linda Sampson, David Alexander,

Yari Alexander Nieken, Hanspaul Pannu, Robert Dawson, James Hyland,

Stephen Van Deventer, Shabira Rajan, Robert Abenante, Kent McParland,

Marc Geen, Mervyn Geen, Jeremy Ross, and Alexander Kaulins

Respondents

(Respondents)

- and -

Docket: CA47977

Between:

Kootenay Zinc Corp., Anthony Jackson, and Robert Tindall

Appellants

(Respondents)

And

Michael Tietz and Duane Loewen

Respondents/

Appellants on Cross Appeal

(Petitioners/Applicants)

And

Robin Lee

Appellant on Cross Appeal

(Petitioner)

Tietz v. Affinor Growers Inc.

Page 5

And

Cryptobloc Technologies Corp., Bam Bam Resources Corp. (formerly

known as Kopr Point Ventures Inc. and New Point Exploration Corp.),

Affinor Growers Inc., Green 2 Blue Energy Corp., Beleave Inc.,

Citation Growth Corp. (formerly known as Liht Cannabis Corp, and

Marapharm Ventures Inc.), BLOK Technologies Inc.,

PreveCeutical Medical Inc., Abattis Bioceuticals Corp.,

Speakeasy Cannabis Club Ltd., Cameron Robert Paddock, Von Rowell Torres,

Neil William Stevenson-Moore, Kenneth Clifford Phillippe,

Brian Biles, Bryn Gardener-Evans, Nicholas Brusatore,

Sam Chaudhry, Slawomir Smulewicz, Michael Young, Glenn Little,

Andrew Wnek, Bojan Krasic, Linda Sampson, David Alexander,

Yari Alexander Nieken, Hanspaul Pannu, Robert Dawson, James Hyland,

Stephen Van Deventer, Shabira Rajan, Robert Abenante, Kent McParland,

Marc Geen, Mervyn Geen, Jeremy Ross, and Alexander Kaulins

Respondents

(Respondents)

- and -

Docket: CA47978

Between:

Bam Bam Resources Corp. (formerly

known as Kopr Point Ventures Inc. and New Point Exploration Corp.)

Appellant

(Respondent)

And

Michael Tietz and Duane Loewen

Respondents/

Appellants on Cross Appeal

(Petitioners)

And

Cryptobloc Technologies Corp., Kootenay Zinc Corp.,

Affinor Growers Inc., Green 2 Blue Energy Corp., Beleave Inc.,

Citation Growth Corp. (formerly known as Liht Cannabis Corp, and

Marapharm Ventures Inc.), BLOK Technologies Inc.,

PreveCeutical Medical Inc., Abattis Bioceuticals Corp.,

Speakeasy Cannabis Club Ltd., Anthony Jackson, Cameron Robert Paddock,

Von Rowell Torres, Neil William Stevenson-Moore, Kenneth Clifford Phillippe,

Brian Biles, Bryn Gardener-Evans, Robert Tindall, Nicholas Brusatore,

Sam Chaudhry, Slawomir Smulewicz, Michael Young, Glenn Little,

Andrew Wnek, Bojan Krasic, Linda Sampson, David Alexander,

Yari Alexander Nieken, Hanspaul Pannu, Robert Dawson, James Hyland,

Tietz v. Affinor Growers Inc.

Page 6

Stephen Van Deventer, Shabira Rajan, Robert Abenante, Kent McParland,

Marc Geen, Mervyn Geen, Jeremy Ross, and Alexander Kaulins

Respondents

(Respondents)

Before:

The Honourable Mr. Justice Willcock

The Honourable Mr. Justice Abrioux

The Honourable Mr. Justice Marchand

On appeal from: Orders of the Supreme Court of British Columbia, dated

February 5, 2021 (Tietz v. Cryptobloc Technologies Corp., 2021 BCSC 187,

Vancouver Docket S202110); March 23, 2021 (Tietz v. Cryptobloc

Technologies Corp., 2021 BCSC 680, Vancouver Docket S202110);

April 9, 2021 (Tietz v. Cryptobloc Technologies Corp., 2021 BCSC 810,

Vancouver Docket S202110); and November 22, 2021 (Tietz v. Cryptobloc

Technologies Corp., 2021 BCSC 2275, Vancouver Docket S202110).

Counsel for the Appellants in CA47311,

CA47314, CA47395, CA47396, and

CA47459 (Respondents and Cross

Appellants in CA47975, CA47977 and

CA47978) Michael Tietz and Duane

Loewen, and for the Appellant in CA47974

Mike Dotto, and for the Cross Appellant in

CA47975 and CA47977, Robin Lee:

P. Bennett

R. Mogerman, K.C.

N. Baker

Counsel for the Appellant in CA47975,

(Respondent in CA47311, CA47314,

CA47395, CA47396, CA47459, CA47974,

CA47977 and CA47978) Von Rowell

Torres:

D.C. Lysak

Counsel for the Appellants in CA47977,

(Respondents in CA47311, CA47314,

CA47395, CA47396, CA47459, CA47974,

CA47975 and CA47978) Kootenay Zinc

Corp., Anthony Jackson, and Robert Tindall:

P.J. Sullivan

J. Cytrynbaum

Counsel for the Appellant in CA47978,

(Respondent in CA47311, CA47314,

CA47395, CA47396, CA47459, CA47974,

CA47975 and CA47977) Bam Bam

Resources Corp. (formerly known as Kopr

Point Ventures Inc. and New Point

Exploration Corp.):

D.L.R. Yaverbaum

K.F. Alibhai

Tietz v. Affinor Growers Inc.

Page 7

Counsel for the Respondent Sam

Chaudhry:

D.W. Gibbons

E.S. Bohm

Counsel for the Respondent Affinor

Growers Inc.:

J.M. Young

M.J. Harmer

Counsel for the Respondent Nicholas

Brusatore:

A. Dosanjh

N.E. John

Place and Date of Hearing:

Place and Date of Judgment:

Vancouver, British Columbia

June 13–15, 2022

Vancouver, British Columbia

September 13, 2022

Written Reasons by:

The Honourable Mr. Justice Willcock

Concurred in by:

The Honourable Mr. Justice Abrioux

The Honourable Mr. Justice Marchand

Tietz v. Affinor Growers Inc.

Summary:

Page 8

Appeals and cross appeals arising from orders made in relation to a statutory claim

for secondary market misrepresentation in a proposed class action. Held: Appeals

allowed in part, some evidence admitted, leave to bring secondary market

misrepresentation claim granted, all other appeals and cross appeals dismissed.

The petitioners in the underlying class action alleged that various parties entered

into a scheme, in which purported consultants purchased shares issued by private

placement. These private placements were conditional upon consulting fees,

substantially equivalent to the purchase price, being paid back to the consultants

without them actually providing any consulting services. The petitioners alleged that

this effectively misrepresented the purchase price of the shares and the working

capital available to the issuers. They sought to commence a statutory action in

addition to the common law claims pleaded in the class proceedings.

In support of their application, the petitioners sought to adduce various affidavits,

some of which were late filed. The judge refused to admit this evidence or struck

references to various respondents. She reasoned that this amounted to case

splitting and that some evidence was inadmissible as hearsay or for lack of probative

value. While the judge did not err in finding that the rule against case splitting

applied, or in stating the test for late-filed evidence, some of the affidavits were both

admissible and probative. They were admissions against interest and, in any event,

hearsay evidence was admissible on the leave application, as it would not result in a

final order. Once properly admitted, there was sufficient evidence that the petitioners

could establish a reasonable possibility that they would be successful at trial, such

that leave should be granted to bring a claim against the one set of parties where

leave had originally been denied.

Table of Contents

Paragraph

Range

INTRODUCTION

[1] - [19]

[3] - [16]

[17] - [19]

[20] - [43]

[23] - [27]

The Underlying Class Action

The Application For Leave

EVIDENTIARY APPLICATIONS

The PreveCeutical Application (Tietz v. Cryptobloc

Technologies Corp., 2021 BCSC 186)

The Affinor Application (Tietz v. Cryptobloc Technologies

Corp., 2021 BCSC 187)

[28] - [30]

[31] - [35]

The Petitioners’ Application to File Chan Affidavit #5 (Tietz v.

Cryptobloc Technologies Corp., 2021 BCSC 190)

Tietz v. Affinor Growers Inc.

Page 9

The BLOK Application (Tietz v. Cryptobloc Technologies

Corp., 2021 BCSC 522)

[36] - [37]

[38] - [39]

[40] - [42]

The Petitioners’ Application to File the Krasic Affidavit (Tietz v.

Cryptobloc Technologies Corp., 2021 BCSC 680)

The Petitioners’ Application to File the Hung Affidavit (Tietz v.

Cryptobloc Technologies Corp., 2021 BCSC 810)

The Costs Order

[43] - [43]

[44] - [47]

[48] - [48]

SUBSTANTIVE JUDGMENT AND ORDERS

GROUNDS OF APPEAL: THE EVIDENTIARY ORDERS

AND THE COSTS ORDER

GROUNDS OF APPEAL AND CROSS APPEAL: THE

SUBSTANTIVE LEAVE ORDERS

[49] - [53]

DISCUSSION AND ANALYSIS

[54] - [155]

[54] - [70]

[71] - [116]

[71] - [81]

[82] - [84]

Overview

The Evidentiary Appeals

Application of the Rule Against Case Splitting

Admissibility of Audited Financial Statements of Affinor and

BLOK, BLOK Consulting Agreements and the BLOK News

Release

Admissibility of the Brusatore Affidavit

Admissibility of the Krasic Affidavit

Admissibility of the Costin Affidavits

Awarding Costs Thrown Away as Special Costs

The Substantive Appeals

[85] - [96]

[97] - [104]

[105] - [112]

[113] - [116]

[117] - [155]

[117] - [141]

[142] - [151]

[152] - [155]

[156] - [158]

The Petitioners’ Appeal

The Kootenay Appeal

The New Point Appeal

DISPOSITION

Tietz v. Affinor Growers Inc.

Page 10

Reasons for Judgment of the Honourable Mr. Justice Willcock:

Introduction

[1]

Section 140.3 of the Securities Act, R.S.B.C. 1996, c. 418 [Securities Act],

establishes the statutory liability of issuers of securities to persons who suffer certain

losses in the secondary market for those securities. It provides that a person who

acquires or disposes of securities has a right of action against the issuer, its officers

and directors, and certain experts and influential persons for a misrepresentation in

a document or public oral statement, without regard to whether the person relied

upon the misrepresentation. Leave to bring an action under this provision must be

sought pursuant to s. 140.8 of the Securities Act and may be granted only where the

court is satisfied that:

a) the action is being brought in good faith; and

b) there is a reasonable possibility that the action will be resolved at trial in

favour of the plaintiff.

[2]

These are appeals from orders made by a judge on a petition for leave to

commence secondary market claims in a proposed class action. Some of the

appeals arise from orders striking evidence or refusing leave to adduce evidence on

the applications for leave (the “Evidentiary Appeals”). Other appeals arise from the

substantive judgment on the leave applications (the “Substantive Appeals”).

The Underlying Class Action

[3]

The orders appealed are made in an action initially brought by Michael Tietz

and Duane Loewen against the respondents under the Class Proceedings Act,

R.S.B.C. 1996, c. 50, on behalf of persons who acquired securities issued by certain

of the respondent corporations between January 2018 and November 2018.

[4]

The notice of civil claim alleges that between January 2018 and August 2018,

respondents identified as “Purported Consultants” participated in a scheme with

respondents identified as “Issuers”. Pursuant to that scheme, the Purported

Tietz v. Affinor Growers Inc.

Page 11

Consultants were alleged to have agreed to buy shares issued by private placement

at a publicly disclosed share price on the condition that the Issuers would pay them

or related entities lump-sum consulting fees on the closing of the placements or

shortly thereafter. It is alleged that the total amounts paid to the Purported

Consultants under the consulting agreements consisted of a significant portion (in

some cases, substantially all) of the proceeds of the private placements.

[5]

The pleadings contain allegations that the consulting agreements were a

“scam and false [pretense]”, that neither the Issuers nor the Purported Consultants

had any bona fide expectation that services of any real value would be provided, and

that no services were in fact provided. As a result, the plaintiffs allege, the Issuers

misrepresented the price at which the shares were acquired and the proceeds

available to the Issuers as working capital.

[6]

The plaintiffs allege there was no public disclosure of the nature of the

scheme until November 26, 2018, when the British Columbia Securities Commission

(the “Commission”), as a result of its investigation, issued a temporary order against

the Issuers and Purported Consultants prohibiting trading or distribution of the

Issuers’ shares.

[7]

The plaintiffs allege they suffered losses as a result of the purchase of shares

at a price higher than they would have paid but for the scheme, and as a result of

erosion in the value of their shares after disclosure of the scheme.

[8]

The notice of civil claim identifies what it characterizes as misleading

statements by the Issuers, including representations in documents consisting largely

of news releases and notices of proposed issuance of listed securities (“Form 9s”):

By Kootenay Zinc Corp. (“Kootenay”):

February 2, 2018 news release announcing closing of private

placement

February 8, 2018 news release on market activity

March 19, 2018 Form 9

Tietz v. Affinor Growers Inc.

Page 12

By Affinor Growers Inc. (“Affinor”):

March 5, 2018 news release announcing private placement

March 8, 2018 news release announcing closing of private placement

March 8, 2018 Form 9

March 16, 2018 news release on market activity

By Global Estimate Capital Corp., formerly known as Cryptobloc Technologies

Corp. (“Cryptobloc”):

May 18, 2018 news release announcing private placement

June 5, 2018 Form 9

June 6, 2018 news release announcing closing of private placement

June 8, 2018 material change report

June 14, 2018 news release on market activity

By BLOK Technologies Inc. (“BLOK”):

June 1, 2018 news release announcing private placement

June 1, 2018 Form 9

June 8, 2018 news release announcing closing of private placement

September 26, 2018 further Form 9

By PreveCeutical Medical Inc. (“PreveCeutical”):

April 9, 2018 news release announcing private placement

June 25, 2018 news release announcing oversubscription of private

placement

June 29, 2018 news release announcing closing of private placement

June 29, 2018 Form 9

September 18, 2018 news release on market activity

Tietz v. Affinor Growers Inc.

Page 13

By Bam Resources Corp., formerly known as KOPR Point Ventures Inc., and

New Point Exploration Corp. (“New Point”):

July 25, 2018 news release announcing private placement

August 8, 2018 Form 9

August 9, 2018 news release announcing closing of private placement

[9]

The notice of civil claim identified similar statements made in documents

released in the same period by other Issuers: Green 2 Blue Energy Corp (“Green”),

Beleave Inc. (“Beleave”), Citation Growth Corp. (“Citation”), Abbatis Bioceuticals

Corp. (“Abbatis”) and Speakeasy Cannabis Club Ltd. (“Speakeasy”).

[10] The pleadings set out the relationships amongst the Purported Consultants,

and between them and the Issuers. Many Purported Consultants participated in

multiple private placements, including:

a) Detona Corp. (“Detona”), said to have purchased shares in the private

placements of Kootenay, Affinor, Green, Beleave, Citation, Cryptobloc, BLOK,

and PreveCeutical;

b) Cameron Paddock, a director of Rockshore Advisors Ltd. (then known as

Cam Paddock Enterprises Inc.) (“Rockshore”), said to have purchased shares

in the private placements of Kootenay, Citation, and PreveCeutical;

c) Northwest Marketing Inc. (“Northwest”), said to have purchased shares in the

private placements of Kootenay, Affinor, Beleave, Citation, PreveCeutical,

and Speakeasy;

d) Rockshore, said to have purchased shares in the private placements of

Affinor, Green, Beleave, Cryptobloc, and Speakeasy;

e) JCN Corp. (“JCN”), said to have purchased shares in the private placements

of Affinor, Citation, Cryptobloc, and BLOK;

Tietz v. Affinor Growers Inc.

Page 14

f) Hunton Ltd., said to have purchased shares in the private placements of

Green, Citation, BLOK, and New Point;

g) Kendl Ltd., said to have purchased shares in the private placements of

Green, Citation, and BLOK;

h) Sway Corp., said to have purchased shares in the private placements of

Beleave, Citation, and Cryptobloc; and

i) Tavistock Corp., said to have purchased shares in the private placements of

Citation, BLOK, and New Point.

[11] I will refer to Detona, Northwest, Rockshore and JCN collectively as the

“Affinor Subscribers”.

[12] Many Purported Consultants participated in two private placements:

a) Justin Liu, a director of Lukor Corp., said to have purchased shares in

Kootenay and Speakeasy;

b) Tollstam & Co., said to have purchased shares in Green and Beleave;

c) Jarman Corp., said to have purchased shares in PreveCeutical and New

Point;

d) Kier MacPherson, said to have purchased shares in Beleave and BLOK;

e) Escher Invest S.A., said to have purchased shares in Citation and New Point;

and

f) Simran Gill, the sole director of BridgeMark Management Ltd. (“BridgeMark”),

said to have purchased shares in Citation and Cryptobloc.

Tietz v. Affinor Growers Inc.

Page 15

[13] Some persons or corporations that only purchased shares in one private

placement were related to others alleged to have participated in the scheme

described in the notice of civil claim:

a) BridgeMark (owned by Mr. Gill), said to have purchased shares in Beleave;

b) Danilen Villanueva (sole director, president and beneficial owner of Detona),

said to have purchased shares in Citation;

c) Lukor Corp. (of which Mr. Liu was a director), said to have purchased shares

in New Point;

d) Anthony Jackson (a director of Kootenay and the sole director of BridgeMark),

said to have purchased shares in Kootenay; and

e) Konstantin Lichtenwald (associated in business with BridgeMark), said to

have purchased shares in Kootenay.

[14] Mr. Paddock was also a director, at some material times, of Abbatis and

Cryptobloc.

[15] Escher Invest S.A. and Hunton Ltd. are alleged to be beneficially owned by

the respondent, Randy White.

[16] The relief sought includes damages or disgorgement of proceeds on the

following grounds:

a) Unlawful Conspiracy

The plaintiffs allege that the scheme described in the pleadings constituted a

fraud on the market for the Issuers’ shares, contrary to ss. 380(1)(a)

and 380(2) of the Criminal Code, R.S.C. 1985, c. C-46, and conduct resulting

in or contributing to a misleading appearance of trading activity in the Issuers’

shares, contrary to s. 57 of the Securities Act. They allege that the scheme

was conceived and agreed to by Mr. Jackson, Mr. Liu, Mr. Paddock, and Aly

Tietz v. Affinor Growers Inc.

Page 16

Babu Mawji (said to be a de facto officer of Northwest) in or around January

2018, and implemented by them with respect to a private placement by

Kootenay. They claim the Issuers became parties to the unlawful conspiracy

when each Issuer agreed to undertake their respective private placements in

accordance with the terms of the scheme.

b) Waiver of Tort

In the alternative, the plaintiffs waive the tort of unlawful conspiracy against

the Purported Consultants who sold some or all of the shares they acquired

under the private placements. Instead, they seek to recover the benefit

accrued to the Purported Consultants as a result of their tortious conduct.

c) Statutory Damages

The plaintiffs claim, on behalf of both themselves and the proposed class

members, a right of action for secondary market misrepresentation under

s. 140.3 of the Securities Act in respect of the news releases and the Form 9s

released or filed by the Issuers in respect of the private placements, subject to

leave to do so being granted under s. 140.8 of the Securities Act. Mr. Tietz

pleads a right of action for damages in respect of his purchase of Cryptobloc

shares. Mr. Loewen pleads a right of action in respect of his purchase of New

Point shares. The prospective class members are said to have a similar right

of action for damages in respect of their purchase of shares in the remaining

Issuers.

d) Fraudulent or Negligent Misrepresentation

The claim for misrepresentation is founded upon the allegation that, when the

news releases and Form 9s were released or filed, the Issuers’ officers and

directors knew they contained misrepresentations or acted with reckless

disregard to whether to the representations were true, with the intention of

inducing the plaintiffs and the prospective class members to purchase

shares. In the alternative, they allege each of the Issuers’ officers and

Tietz v. Affinor Growers Inc.

Page 17

directors knew that the press releases and Form 9s would reasonably be

relied upon by the class members, including the plaintiffs, in making their

decision to purchase shares in the Issuer. It is alleged the Issuers’ officers

and directors breached their duty of care by failing to take reasonable steps

to ensure that the material information in the news releases and the Form 9s

was fair and accurate.

The Application For Leave

[17] On February 24, 2020, Mr. Tietz and Mr. Loewen filed a petition seeking

leave to advance the secondary market claims described in the notice of civil claim.

In support of the application, they relied upon three affidavits:

a) affidavit #1 of Michael Tietz;

b) affidavit #1 of Duane Loewen; and

c) affidavit #1 of Stephanie Chan, a paralegal for Bennett Mounteer LLP, the

solicitors for the petitioners.

[18] On March 13, 2020, the petitioners applied for leave to add eight plaintiffs to

the action and to amend the pleadings so as to refer to those additional plaintiffs and

to describe additional representations made by respondents. The additional plaintiffs

were purchasers of shares issued by the respondent Issuers other than Cryptobloc

and New Point. The additional representations were, in particular, Management

Discussion and Analysis documents (“MD&As”) released by Affinor, Beleave and

PreveCeutical, and material change reports released by Cryptobloc, PreveCeutical,

Abbatis and New Point. In support of that motion, they relied upon the previously

filed affidavits and affidavit #2 of Stephanie Chan.

[19] After filing the petition, the petitioners settled and discontinued their statutory

claims against Beleave. After the leave hearing in April and May 2021, but before

the November 22, 2021 judgment, the petitioners also entered into a settlement with

PreveCeutical.

Tietz v. Affinor Growers Inc.

Page 18

Evidentiary Applications

[20] A case management conference was heard before Justice Wilkinson on

November 3, 2020, and from that date forward until the leave hearing, she

addressed the evidentiary and case management issues.

[21] A series of applications brought by the parties to address evidentiary issues

were filed in late 2020 and heard in December 2020. Judgment was reserved until

the judge issued three judgments on February 5, 2021.

[22] Two further applications were heard in March 2021.

The PreveCeutical Application (Tietz v. Cryptobloc Technologies Corp.,

2021 BCSC 186)

[23] In October 2020, after the respondents had filed response materials and after

the deadline set by the case management judge for service of reply affidavits, the

petitioners served affidavit #3 of Ms. Chan (“Chan Affidavit #3”) and the affidavits of

Cyrus Khory (the “Khory Affidavit”) and Adam Werner (the “Werner Affidavit”) on the

respondents. Chan Affidavit #3 contained numerous exhibits, all but one created

in 2018 and 2019, including PreveCeutical’s 2018 financial statements. Both the

Khory Affidavit and the Werner Affidavit expressed expert opinion, and each

appended an expert report as an exhibit. Mr. Khory opined on whether the financial

statements of five Issuers—including Cryptobloc, Affinor, and Blok—complied with

applicable accounting standards. The petitioners asserted that this was appropriate

reply to the evidence of PreveCeutical and associated individuals (the

“PreveCeutical Respondents”), anticipating that they would assert compliance with

standards. However, they conceded that the Khory Affidavit did not directly address

the misrepresentation claims asserted.

[24] The PreveCeutical Respondents applied for an order striking references to

PreveCeutical in all three of the affidavits served in October 2020. The case

management judge, for reasons indexed as Tietz v. Cryptobloc Technologies Corp.,

2021 BCSC 186 [PreveCeutical Application], found that the new material appended

to Chan Affidavit #3 and most of the expert opinions of Mr. Khory and Mr. Werner

Tietz v. Affinor Growers Inc.

Page 19

were not proper reply evidence, and granted the order sought by PreveCeutical. She

did so, in part, because she was of the view that the rule against case splitting is

applicable to applications for leave under s. 140.8 of the Securities Act:

[46]

The rule against case splitting has … been applied to applications for

leave to commence secondary market liability claims. In this context, the

Court in Johnson v. North American Palladium Ltd., 2018 ONSC 4496, struck

a reply affidavit that was being used to correct deficiencies in the plaintiffs’

case in chief. …

[25] She referred to a trial court decision in British Columbia to the same effect,

C.N. Railway v. H.M.T.Q. in Right of Canada et al, 2002 BCSC 1669, which in turn,

cited Allcock Laight & Westwood Ltd. v. Patten (1966), [1967] 1 O.R. 18, 1966

282 (C.A.). The judge addressed the argument that a more discretionary

standard should be applied, in the following terms:

[54]

The petitioners submit that a more discretionary standard has been

applied in Ontario and British Columbia on certification applications: Cannon

v. Funds for Canada Foundation, 2011 ONSC 2960 at paras. 16-18,

and Cantlie v. Canadian Heating Products Inc., 2014 BCSC 2029 at para. 11.

In both of these cases, the Court emphasized that the test for the

admissibility of reply affidavits is a “balancing exercise, with the goal of

ensuring that each party has a fair opportunity to present its case and to

respond to the case put forward by the other party”: Cantlie at para. 12,

citing Cannon at para. 18. The test for case splitting as it applies to

certification applications can be differentiated from the test as it applies to

applications for leave under the Act. However, the Court in Cantlie when

deciding whether to refuse to admit late expert evidence, highlighted the fact

that the proceedings were case managed and subject to a timetable which

should focus the parties on making decisions on what evidence to lead. The

following language from Cannon was endorsed in Cantlie at para. 12:

[17]

That being said, class proceedings are case managed and

important motions like certification or summary judgment are

invariably subject to a timetable that requires each party to think

carefully about the evidence it will produce. It can be unfair, inefficient

and expensive for one party – whether through inadvertence, lack of

foresight or deliberate tactics – to introduce new and unanticipated

evidence at a late stage in the proceedings.

Tietz v. Affinor Growers Inc.

Page 20

[26] She noted that in Round v. MacDonald, Dettwiler and Associates Ltd., 2011

BCSC 1416, aff’d 2012 BCCA 456, class action certification applications had been

distinguished from leave applications under the Securities Act, and concluded:

[58]

The traditional rule against case splitting should apply to leave

applications to bring secondary market claims under the [Securities Act].

These applications are final in nature and merits-based. They are not

primarily procedural. The threshold is not minimal. The legislative scheme

provides a gatekeeper function which is not only in place to protect the

investing public but also protect the capital markets from undue disruption

and issuers from claims that do not have a reasonable possibility of success.

...

[63]

I agree with the PreveCeutical Respondents that the evidence now

sought to be adduced which they oppose will cause prejudice to them. They

have prepared their submissions and collected evidence to meet the case

advanced against them through an extensive petition response and three

affidavits, including an expert affidavit.

[64]

It cannot be said the petition response and affidavits would have been

prepared in the same form had the PreveCeutical Respondents been

provided with the petitioners’ new affidavit material in chief. They will incur

additional expenses if they are required to respond to the Werner and Khory

Affidavits, expenses that may not have been necessary nor to the same

degree if these affidavits were presented as part of the plaintiffs’ evidence in

chief. The delivery of the new affidavits has delayed the hearing of the

petition. That delay is prejudicial for a public company, particularly a junior

public company that depends on private placements to raise funds required

for its operations and one that is likely negatively affected by ongoing

litigation. The new affidavits, if admitted, will increase the length and the cost

of the petition hearing.

[65]

In this case, I find it is no answer to this unfairness to suggest that the

respondents can be compensated through costs.

[27] While the claim against PreveCeutical has been settled, such that there is no

appeal from that order, these reasons served as the foundation of other orders that

have been appealed.

The Affinor Application (Tietz v. Cryptobloc Technologies Corp.,

2021 BCSC 187)

[28] The second judgment issued on February 5, 2021, addressed the application

of Affinor and Sam Chaudhry (the “Affinor Respondents”) for orders of the same

nature as those obtained by the PreveCeutical Respondents. For reasons indexed

as Tietz v. Cryptobloc Technologies Corp., 2021 BCSC 187 [Affinor Application],

Tietz v. Affinor Growers Inc.

Page 21

references to the Affinor Respondents in Chan Affidavit #3 (in particular Affinor’s

Audited Consolidated Financial Statements for the financial years ending May 31,

2018 and 2019, dated October 2, 2019) and portions of the Khory Affidavit and the

Werner Affidavit were also struck.

[29] The petitioners had argued that the first audited financial statements issued

by Affinor subsequent to the Commission’s announcement of its investigation were

evidence that a large portion of the financing raised under the March 8, 2018 private

placement was paid out in the form of consulting fees: 14 three-month contracts for

consulting services totaling $3.5 million. They argued this was an acknowledgement

that directly linked the funds raised by the private placement to the consulting

agreements.

[30] The judge held that admission of this material in reply would amount to case

splitting:

[33]

Chan Affidavit No. 3 contains material which is available to the

petitioners when they filed their supportive materials…. [I]t is not responsive

to the evidence of the Affinor Respondents. The evidence appears to be

submitted in an attempt to buttress their case, waiting to submit this evidence

in the form of reply is inappropriate and leads to inefficiencies. There are also

hearsay and reliability issues in connection with some of the evidence in the

manner in which it is submitted.

[34]

The Khory Affidavit raises new issues regarding non-compliance with

IFRS [International Financial Reporting Standards] as a material

misrepresentation. Mr. Khory presents opinions on non-compliance with

accounting standards which is an entirely new matter, not evident from the

materials filed in support of the petition. This is fresh evidence raising novel

claims.

[35]

[36]

The petitioners are attempting to split their case with this evidence.

The prejudice to the Affinor Respondents is similar to that found in

[2021 BCSC 186], at paras. 63-64. As in that decision, I find it is insufficient to

redress the unfairness of allowing the material objected to in Chan Affidavit

No. 3 and the Khory Affidavit to be considered on the leave application

through a costs order. It is also not an appropriate case to allow sur-reply or

impose terms given the time it has already taken to proceed with the

application for leave.

Tietz v. Affinor Growers Inc.

Page 22

The Petitioners’ Application to File Chan Affidavit #5 (Tietz v. Cryptobloc

Technologies Corp., 2021 BCSC 190)

[31] The third judgment issued on February 5, 2021 addressed the petitioners’

application to file affidavit #5 of Stephanie Chan (“Chan Affidavit #5”), sworn

November 20, 2020, which attached:

a) a copy of an affidavit of the respondent, Nicholas Brusatore, sworn on

September 22, 2020, but not filed (the “Brusatore Affidavit”);

b) additional documents issued by the respondents, including MD&As and

financial statements; and

c) the June 12, 2020 decision of the Commission in Re BridgeMark Financial,

2020 BCSECCOM 188 [Commission Decision].

[32] The petitioners had submitted that Mr. Brusatore, Affinor’s former CEO, had

attested under oath to the fact that consulting payments were an integral part of the

private placements. His evidence was that, in or about February 2018, he met with

Mr. Liu and Mr. Jackson at the offices of BridgeMark, and they offered to make two

purchases of Affinor shares, the first of which would be a $4 million purchase,

conditional upon the payment of consulting fees. The petitioners’ position was that

they understood that they had received a draft response to petition from

Mr. Brusatore’s counsel attaching a copy of this affidavit, and assumed it would be

filed in due course. They argued that Mr. Brusatore would suffer no prejudice if the

petitioners filed a copy of his affidavit because its contents could not come as a

surprise to him.

[33] For reasons indexed at 2021 BCSC 190 [Chan #5 Application], the judge held

that most of the evidence in Chan Affidavit #5, other than the Brusatore Affidavit,

was available when the original affidavits were filed, and that evidence was not

necessary to establish an essential element of the case in any event:

[29]

The petitioners do not allege that there will be a substantial injustice if

the Chan Affidavit No. 5 is not permitted to be filed. They advance arguments

that the content of the affidavit is relevant or plainly relevant to the issues to

Tietz v. Affinor Growers Inc.

Page 23

be determined at the hearing of the petition. Relevance is the minimal

requirement for admission of any evidence, but more is required to be able to

admit evidence late in proceedings.

[30]

In [First National Financial GP Corporation v. 0734763 B.C. Ltd., 2020

BCSC 1349], at para. 62, the Court denied leave to file a late affidavit under

R. 8-1(14) where “it would not change [the Court’s] conclusion”.

[31]

All parties cite Servatius v. Alberni School District No. 70, 2020 BCSC

15 at paras. 111-112, for the premise that the discretion under the R. 16-1(7)

[of the Supreme Court Civil Rules, B.C. Reg. 168/2009] should be exercised

where the affidavit is important to the petitioner’s case and “necessary” to

establish proof of one of the requisite elements of the case. However, the

petitioners in this application before me do not assert the affidavit material is

necessary for them to establish the elements as required under the test for

leave.

[32]

The petitioners have not proven to me that the affidavit material is

essential or otherwise necessary for success on their petition, nor have they

provided an adequate explanation for why they could not have included the

material, apart from the Brusatore Affidavit, with their original affidavits in

support of the petition. Furthermore, to submit that a party has not responded

or has responded in a pro forma manner does not justify granting leave to file

a supplemental affidavit.

[34] The Brusatore Affidavit was dealt with as follows:

[33]

With respect to the Brusatore Affidavit, its content is not very

probative, and its admissibility, being a copy and attached to another

person’s affidavit, would likely be inadmissible hearsay at the hearing of the

application.

[35] She concluded that the petitioners had shown neither the necessity of

permitting the late filing nor the injustice that would result if she did not admit the

affidavit, which was a discretionary decision. She therefore dismissed the application

to file Chan Affidavit #5.

The BLOK Application (Tietz v. Cryptobloc Technologies Corp.,

2021 BCSC 522)

[36] The first of the two March 2021 orders addressed an application by BLOK for

an order of the same nature as those obtained by the PreveCeutical Respondents

and the Affinor Respondents. On March 23, 2021, for reasons indexed as Tietz v.

Cryptobloc Technologies Corp., 2021 BCSC 522 [BLOK Application], the judge

struck references to BLOK in Chan Affidavit #3 and the Khory Affidavit.

Tietz v. Affinor Growers Inc.

Page 24

[37] The judge dismissed the petitioners’ submission that they should be allowed

to adduce material evidence that had been omitted by oversight. She held:

[29]

In their defence, the petitioners submit that counsel’s judgment or

oversight should not be used as a reason to deny substantive justice to the

petitioners. They refer me to First Capital Realty Inc. v. Centrecorp

Management Services Ltd., [2009] O.J. No. 4492 for the proposition that “An

overly rigid interpretation [of the rules] can lead to unfairness by punishing a

litigant for an oversight by counsel” at para. 14. However, this is not simply an

instance of oversight. Counsel clearly made a strategic decision not to file this

evidence once identified, and instead to lie in wait to see if they somehow

actually needed it. Now they submit it is necessary.

[30]

They cannot have it both ways. The necessary elements required in

support of the petition for leave would have been known to counsel when

framing their petition for leave and presenting their case in chief. Counsel

confirm they put their minds to this when making the decision to hold back on

filing the additional documents.

…

[32]

This is a clear instance of case splitting and I do not find that it would

result in an injustice to strike the evidence now sought to buttress the

petitioners’ claim. BLOK played no role in the petitioners’ delay in discovering

the documents. BLOK is entitled to base its response upon the petitioners’

evidence as set out in chief when BLOK made its determination of what

evidence it would rely upon in response.

The Petitioners’ Application to File the Krasic Affidavit (Tietz v.

Cryptobloc Technologies Corp., 2021 BCSC 680)

[38] At the same time as the BLOK application in March 2021, the petitioners

applied under R. 16-1(7) of the Supreme Court Civil Rules, B.C. Reg. 168/2009

[SCCR], for leave to file a late affidavit, affirmed on February 22, 2021 by Bojan

Krasic (the “Krasic Affidavit”). Mr. Krasic was the former Chief Financial Officer of

Beleave. That affidavit had been obtained by the petitioners pursuant to the

cooperation provisions of a settlement agreement entered into with Beleave Inc. and

its two former officers, Mr. Krasic and Andrew Wnek. In his affidavit, Mr. Krasic

confirmed the truth of the facts set out in the Beleave settlement agreement with the

Commission: details of the consulting agreements into which Beleave entered, the

fees paid, and the contemporaneous and conditional nature of some of the

agreements with subscription of shares in Beleave’s private placements in April and

June 2018. The petitioners argued that the Krasic Affidavit was direct evidence that

Tietz v. Affinor Growers Inc.

Page 25

three of the four Affinor Subscribers participated in one or both of the Beleave

private placements, where they entered into consulting agreements

contemporaneously with, and as a condition of, those private placements;

consulting fees under those agreements were prepaid from the private placement

financing; and no services were ever provided pursuant to those consulting

agreements. The petitioners’ position was that evidence of the Beleave scheme,

employed by consultants—nearly all of whom were parties who also participated as

subscribers or consultants in private placements at issue in the petition during a

similar period of time—was probative of their case.

[39] In her reasons for judgment, reserved to March 23, 2021 and indexed at

2021 BCSC 680 [Krasic Application], the judge accepted that the Krasic Affidavit

contained evidence unavailable to the petitioners prior to the settlement agreement.

It was not, therefore, inadmissible because its late admission would permit the

petitioners to split their case. However, she held:

[22]

It would be too speculative, at the leave application stage or

otherwise, to infer that it is likely possible for the petitioners, based on this

evidence, to show that the consultants linked to the Beleave facts as set out

in a limited fashion by Mr. Krasic somehow behaved in the same or similar

way with the other issuers. Evidence of other transactions involving third

parties to the petition is not probative of the conduct of the issuer

respondents. That some or all of the respondent issuers had a relationship

with some of the third parties involved with Beleave is not sufficient to impugn

the conduct of the respondents.

[23]

The Krasic Affidavit provides no similar fact evidence with respect to

the conduct of the respondent issuers. I do not see how the Krasic Affidavit

can prove or disprove any of the elements of the petitioners’

misrepresentation claims against the respondent issuers.

[Emphasis added.]

The Petitioners’ Application to File the Hung Affidavit (Tietz v.

Cryptobloc Technologies Corp., 2021 BCSC 810)

[40] At the same hearing in March 2021, the judge had permitted the petitioners to

withdraw an application to file an affidavit of Mark Mounteer sworn on February 23,

2021 and an additional affidavit sworn by Ms. Chan, and instead apply to substitute

for them what they considered to be more reliable evidence to the same effect. On

Tietz v. Affinor Growers Inc.

Page 26

March 24, 2021, the petitioners applied under R. 16-1(7) of the SCCR for leave to

file:

a) Affidavit #1 of Amal Scratch (the “Scratch Affidavit”), a corporate development

analyst with the Canadian Securities Exchange, to which were attached

Canadian Stock Exchange listed securities trade reports; and

b) Affidavit #1 of Joanne Hung (the “Hung Affidavit”), to which were attached

redacted copies of affidavits sworn on November 21, 2018, November 26,

2018 and March 22, 2019 by Alan Costin, a lead investigator with the

Commission (collectively, the “Costin Affidavits”). The affidavits were sworn in

the Commission proceedings and received by the petitioners following

protracted litigation on March 11, 2021. Mr. Costin’s first affidavit refers to

electronic trading records he obtained, showing that between March 6, 2018

(the day after the private placement closed), and April 19, 2018, the Affinor

Subscribers sold all the shares they had acquired in the private placement.

Ms. Hung deposed that counsel for the Commission had informed the

petitioners that an affidavit from Mr. Costin in these proceedings would not be

provided to the petitioners.

[41] For reasons indexed at 2021 BCSC 810 [Hung Application], the judge

considered the securities trade reports exhibited to the Scratch Affidavit to be direct

evidence of the trading information used by Mr. Mounteer to create charts that had

previously been filed (as exhibits to Ms. Chan’s first affidavit). That evidence was

found to be admissible.

[42] Admission of the exhibits to the Hung Affidavit would not permit the

petitioners to split their case. However, the judge held that the Costin Affidavits, as

attached to the Hung Affidavit, were hearsay. Further, they were “replete with

hearsay and double hearsay in that they contain representations of conversations

with other investigators, information provided by legal counsel for, or directly from,

subjects of the investigation along with interview notes and documents obtained

from third parties including banking and trading records” (at para. 21). They were

Tietz v. Affinor Growers Inc.

Page 27

also thought to contain a significant amount of material irrelevant to the petitioners’

secondary market leave application. The application to file the Hung Affidavit was

dismissed.

The Costs Order

[43]

The judge awarded costs to the respondents who appeared and made

submissions on the application, on the following terms, without expressly addressing

the basis for the order:

[35]

After argument on the two prior affidavits, that of Mr. Mounteer and

Ms. Chan, the petitioners, at their request, were provided with an opportunity

to withdraw those applications and substitute more reliable evidence in their

leave to file application. I have admitted the more reliable evidence otherwise

sought through hearsay in the Mounteer affidavit. I have not admitted the

subsequent Costin related evidence.

[36]

The respondents who appeared and made submissions on the

application to file Mounteer and Chan affidavits will have their costs on that

aspect of the prior application, as costs thrown away and as special costs, in

any event of the cause.

Substantive Judgment and Orders

[44] The leave application was heard over ten days in April and three days in May,

2021. Judgment was reserved to November 22, 2021. For reasons indexed at 2021

BCSC 2275 [Leave Application], the judge made the following orders:

a) Leave was granted to file the amended petition and to add the proposed

plaintiffs (with the exception of the appellant, Mike Dotto, whose application to

be added as a representative plaintiff in respect of secondary market claims

against Affinor was denied – see (c) below);

b) Leave was granted to bring the secondary market claims set out in the

amended notice of civil claim, under s. 140.08 of the Securities Act, nunc pro

tunc to July 11, 2019, against:

i) Kootenay, Anthony Jackson, Robert Tindall, and Von Rowell Torres (the

“Kootenay Respondents”);

Tietz v. Affinor Growers Inc.

Page 28

ii) Cryptobloc, Brian Biles, Kenneth Clifford Phillippe, and Neil William

Stevenson-Moore (the “Cryptobloc Respondents”);

iii) BLOK, David Alexander, Robert Dawson, and James Hyland (the “BLOK

Respondents”); and

iv) New Point and Bryn Gardener-Evans (the “New Point Respondents”).

c) Leave to bring the secondary market claims under s. 140.08 of the Securities

Act against the Affinor Respondents was denied. The petition judge

concluded that the evidence relating to Affinor was insufficient to establish a

reasonable possibility the appellants would be able to prove, at trial, that

the 14 three-month consulting agreements for $3.5 million in consulting fees,

concluded four days before Affinor’s announcement of the $4 million private

placement, were entered into as a condition of the Affinor Subscribers’

participation in the private placement;

[45] While the entered order is silent in this respect, the petition judge made it

clear that leave was granted only to advance secondary market claims founded

upon the allegations that the Issuers had misrepresented the effective purchase

price per share and the proceeds from the share issuance that were available to

each issuer as working capital. The judge noted that, in prior decisions, she had held

that the pleadings setting out the statutory claims with respect to the respondents did

not include allegations of conspiracy or that the consulting agreements were a sham:

PreveCeutical Application at para. 60; Affinor Application at para. 30; Tietz v.

Cryptobloc Technologies Corp., 2021 BCSC 189, and BLOK Application at para. 34.

[46] She held (at para. 61):

… [T]he petitioners’ allegations regarding the consultants’ lack of intention to

provide services and the respondents’ knowledge of that at the time of

entering into the agreements is not properly before the Court on this

application for statutory leave.… The petitioners have not sought to amend

the petition or proposed class action to include the conspiracy allegations

with respect to the consulting agreements within the statutory

misrepresentation claims and as such they are not the subject of the

application for leave under the [Securities Act]. In any event, the vast majority

Tietz v. Affinor Growers Inc.

Page 29

of the allegations of misrepresentations for failing to disclose that the

consulting agreements were a sham are not supported in the evidence before

me. The allegations are too speculative.

[Emphasis added.]

[47] She also dismissed the argument that the disclosure regarding the price paid

by the consulting subscribers under the private placements was misleading or

untrue. The petitioners had argued that the consulting agreements, even if they were

legitimate agreements for future services, could not stand as part of the

consideration for the shares, or constitute part of the “proceeds” received from their

issuance, because s. 64 of the Business Corporations Act, S.B.C. 2002, c. 57 [BCA],

and s. 25 of the Canada Business Corporations Act, R.S.C. 1985, c. C-44 [CBCA],

provide that shares cannot be issued for future services. She held:

[62]

... This legal basis was not set out in the petition or amended petition.

This is a new basis for their application, notice of which was provided to the

respondents less than two weeks before the hearing of this application, within

the petitioner’s 260 pages of written submissions.

[63]

I agree with the respondents that the petitioners have not properly

plead the BCA or CBCA as a legal basis for their application. Furthermore,

such late notice prejudices the respondents to such an extent that it would

render the Court’s consideration of this argument to be unfair. “Pleadings give

opposing parties fair notice of the case to be met and set the boundaries and

context for matters…”: Weaver v. Corcoran, 2017 BCCA 160 at

para. 63. Pleadings are “foundational [and] guide the litigation process,”

ensuring that parties understand the issues of the case and allow them to

respond accordingly: Mercantile Office Systems Private Limited v. Worldwide

Warranty Life Services Inc., 2021 BCCA 362 at para. 21.

Grounds of Appeal: the Evidentiary Orders and the Costs Order

[48] The petitioners submit that the petition judge erred in law and principle and

was clearly wrong in:

a) concluding that the audited financial statements of Affinor and BLOK, the

BLOK consulting agreements, and the BLOK news release the petitioners

sought to file, were not proper reply evidence;

b) applying the rule against case splitting in effectively the same manner as it

would be applied after a full trial on the merits, and requiring the petitioners to

Tietz v. Affinor Growers Inc.

Page 30

show that a substantial injustice would occur if the petitioners were not

granted leave to file evidence which was available to them before the

respondents filed their response materials;

c) refusing to admit a copy of the Brusatore Affidavit on the basis that it was not

very probative and would likely be inadmissible hearsay;

d) denying leave to file the Krasic Affidavit on the basis that it did not constitute

relevant similar fact evidence;

e) refusing to admit copies of the Costin Affidavits on the basis that that they

constituted inadmissible hearsay and were too unreliable to permit a fair

hearing; and

f) awarding costs thrown away as special costs against the petitioners where

there was no finding of reprehensible conduct sufficient to support an award

of special costs, and no foundation at all in the record for such a finding or for

an award of costs thrown away.

Grounds of Appeal and Cross Appeal: the Substantive Leave Orders

[49] The appellants, Mr. Tietz, Mr. Loewen and Mr. Dotto, appeal the order

dismissing the application for leave to bring secondary market claims against the

Affinor Respondents (CA47974). They say the petition judge erred in law in finding

that any rule of evidence prevented her from considering evidence regarding the

Affinor Subscribers’ conduct in other private placements. Further, they contend the

petition judge erred in law and committed a palpable and overriding error in finding

that that there was no reasonable possibility the misrepresentations could be proven

at trial and, as a result, denying the application for leave.

[50] Mr. Tietz and Mr. Loewen, together with Robin Lee (the representative

plaintiff for the Kootenay claim), cross appeal the order granting leave to advance

the secondary market claim against the Kootenay Respondents and the New Point

Respondents on the grounds that the order inappropriately limited the claim (cross

Tietz v. Affinor Growers Inc.

Page 31

appeals in CA47975, CA47977 and CA47978). They say the petition judge was

clearly wrong or erred in law in concluding the following: (1) the secondary market

claim identified in the notice of civil claim did not include the allegation that the

consulting agreements were a sham and a false pretense; (2) the allegations that

the consulting agreements entered into were a sham were too speculative and were

not supported by the evidence; and (3) the petitioners could not advance a claim that

s. 64 of the BCA precluded the Issuers from treating future considerations as part of

the price paid for shares, in support of the price and proceeds misrepresentation

claim.

[51] The Kootenay Respondents appeal the order granting leave to advance

secondary market claims against them (Von Rowell Torres as appellant in CA47975,

and Kootenay, Jackson and Tindall as appellants in CA47977) on the grounds that

the chambers judge erred in law in her assessment of the materiality of the

misrepresentations. In particular, they say she failed to assess materiality in the

context of the regulated regime that governed disclosure and “industry practices

informing continuous disclosure for early stage mining companies”.

[52] The New Point Respondents appeal the order granting leave to advance

secondary market claims against them (as appellants in CA47978) on the grounds

that the judge erred in law by granting leave with respect to a claim that was not

pleaded.

[53] Neither the Cryptobloc Respondents nor the BLOK Respondents appeal the

leave order.

Discussion and Analysis

Overview

[54] In addressing both the evidentiary and the substantive appeals, it must be

borne in mind that the orders appealed were all made in the context of an application

for leave to advance the statutory misrepresentation claims established by the

Securities Act. The orders do not limit or affect the claims other than those identified

Tietz v. Affinor Growers Inc.

Page 32

in the pleadings as secondary market claims. Nor do the orders with respect to the

admissibility of evidence in support of the motion for leave limit the evidence that

may be led or arguments that may be made in relation to other claims that may be

certified as class proceedings, either at the certification stage or thereafter.

[55] As noted above (at para. 16), the petitioners seek to have certified as class

actions the claims founded upon allegations of unlawful conspiracy, waiver of tort,

and fraudulent or negligent misrepresentation, in addition to their claims for statutory

damages.

[56] The statutory damages claim must be founded upon a misrepresentation

made in the form of a document or public oral statement as described in the

Securities Act. The statutory cause of action affords relief to persons who suffer

losses in the secondary market, and relieves them of the obligation to establish the

reliance that might otherwise be necessary in an action for misrepresentation.

[57] It is important to note that the Securities Act provides:

140.93 The right of action for damages and the defences to an action under

section 140.3 are in addition to, and without derogation from, any

other rights or defences the plaintiff or defendant may have in an

action brought otherwise than under this Part.

[Emphasis added.]

[58] Seen in that light, the petition judge’s task in this case was two-fold. First, she

had to determine what evidence was admissible and material to the application for

leave to bring the statutory misrepresentation claims described in the pleadings.

Second, she had to determine whether, based on that evidence, there was a

reasonable possibility that the claims so identified would be resolved at trial in favour

of the petitioners.

[59] The statutory claim was identified by the petitioners as a right of action for

secondary market misrepresentation in respect of the news releases and the Form 9s

released or filed by the Issuers in respect of the private placements (and other

specific documents later identified).

Tietz v. Affinor Growers Inc.

Page 33

[60] Some evidence the petitioners sought to adduce in reply on the application for

leave was excluded on the basis that it ought to have been filed in chief.

Rule 16-1(3) of the SCCR requires petitioners to file and serve the affidavits upon

which they intend to rely with their petition. It further provides for the filing of

affidavits in response and in reply (R. 16-1(4)). Rule 16-1 continues:

(6) A petitioner may file affidavits in response to any document served on the

petitioner … and, in that event, must serve copies of those filed

responding affidavits on each petition respondent no later than the date

on which the notice of hearing is served on that petition respondent....

(7) Unless all parties of record consent or the court otherwise orders, a party

must not serve any affidavits additional to those served under subrules

(3), (4) and (6).

[Emphasis added.]

[61] In my view, the petition judge did not err in law in concluding that the SCCR

are drafted in a manner that is intended to prevent case splitting. Rule 16 applies to

both final and procedural orders sought by petition. Its applicability does not depend

upon the nature of the order sought.

[62] Nor, in my view, did she err in law in her application of the test that should be

applied in determining whether to admit late-filed evidence on the hearing of a

petition (pursuant to R. 16-1(7)).

[63] I am of the view, however, that she erred in law in excluding all of the

evidence of Mr. Brusatore, Mr. Krasic and Mr. Costin as inadmissible hearsay or for

lack of probative value. In my view, at least some of that evidence was admissible

and relevant to the questions before the judge on the leave application.

[64] I am also of the opinion that the judge erred in concluding that there was

insufficient evidence to support a secondary market claim against the Affinor

Respondents. I would grant leave to bring that claim on the same terms as the other

secondary market claims for which leave was granted.

[65] I can see no error, however, in the judge’s conclusion that all the statutory

misrepresentation claims were founded solely upon allegations that the price of the

Tietz v. Affinor Growers Inc.

Page 34

shares issued and the proceeds received were misrepresented in the documents

referred to in the pleadings. While there is no doubt the petitioners alleged

misrepresentations were made to effect a fraud on the market (and as part of a

sham or a fraud), the sham or fraud was only the context of the misrepresentation—

not the substance of the misrepresentation identified in the pleadings.

[66] In my view, it is neither appropriate nor necessary for us to address the

judge’s ruling that the petitioners could not argue that s. 64 of the BCA precludes the

Issuers from treating future considerations as part of the price paid for shares. First,

that ruling is not incorporated in the orders that are before us on appeal. The entered

orders, said to inappropriately limit the scope of the statutory appeals, simply grant

leave to the appellants to advance the claims pleaded. The ruling had no material

effect upon the leave application.

[67] Further, however, I cannot say the judge erred in concluding that the statutory

misrepresentation claim pleaded did not include an allegation that the Issuers falsely

represented that the consulting agreements were valuable consideration for the

shares issued. The plaintiffs alleged that it was a misrepresentation for the Issuers to

fail to disclose the existence of the consulting agreements and that the placements

were conditional upon the consulting agreements. No representation was alleged to

have been made in a document or public oral statement to the effect that the

consulting agreements were valuable consideration for the shares issued.

[68] The ruling does not limit the arguments that may be made in relation to the

non-statutory claims, including the fraudulent misrepresentation claims pleaded. I

would not accede to the petitioners’ submission that the petition judge erred in law in

restricting the legal arguments the petitioners could make at trial. In my view, the

argument is only restricted insofar as the statutory claim has been limited to that set

out in the pleadings.

[69] I would dismiss the other substantive appeals. In my view, there is no error in

the judge’s consideration of materiality of the Kootenay misrepresentations or her

identification of the causes of action pleaded against New Point.

Tietz v. Affinor Growers Inc.

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[70] Last, I would set aside the special costs order in relation to the abandoned

application to introduce late affidavits. There is no suggestion that those applications

were not brought in good faith, or were brought in an abusive manner. They were

wisely abandoned for good reason, and the affidavits substituted for those

abandoned were, in my view, admissible and relevant.

The Evidentiary Appeals

Application of the Rule Against Case Splitting

[71] There is no doubt that the SCCR are drafted in a manner that is intended to

preclude case splitting. That is consistent with the drafters’ intention to establish a

regime that will see disputes resolved in a just, speedy and inexpensive manner on

their merits. There is also no doubt that a case management judge may exercise

their discretion to permit evidence to be adduced at the hearing of a petition, even

where its admission would result in case splitting or it is adduced in breach of a case

management order. Of all the imperatives in the rules of civil procedure, none carries

more weight than the objective of attaining a just result.

[72] The Affinor Respondents, citing McPhee v. British Columbia (Ministry of

Transportation and Highways, 2005 BCCA 139 at para. 55; Lost Lake Properties

Ltd. v. Sunshine Ridge Properties Ltd., 2009 BCSC 938 at para. 67, aff’d 2011

BCCA 473; and Slaughter v. Ximen Mining Corp., 2018 BCSC 573 at paras. 56–7,

submit that the traditional rule against case splitting is fully applicable to petition

proceedings.

[73] The petitioners, for their part, do not claim that there is no applicable rule

against case splitting. They argue, rather, that the judge erred in applying the rule “in

effectively the same manner as it would be applied after a full trial on the merits, and

requiring the [petitioners] to show that a substantial injustice would occur if [they]

were not granted leave to file evidence which was available to them before the

respondents filed their response materials”. This submission reflects a flexible

application of the rule, recognizing that case splitting—while generally to be

Tietz v. Affinor Growers Inc.

Page 36

discouraged—is more prejudicial late in the day, when it more significantly affects a

party’s right to fully respond to the split case.

[74] The judge considered Johnson v. North American Palladium Ltd., 2018

ONSC 4496, to be authority for the proposition that a reply affidavit should not be

used to correct deficiencies in the plaintiffs’ case in chief. In response to the

argument that the rule should be applied more flexibly in relation to petitions than the

manner in which it is applied at trial, she appeared to recognize that the test for the

admissibility of reply affidavits is a “balancing exercise, with the goal of ensuring that

each party has a fair opportunity to present its case and to respond to the case put

forward by the other party” (PreveCeutical Application at para. 54, citing Cantlie v.

Canadian Heating Products Inc., 2014 BCSC 2029 at para. 12, and Cannon v.

Funds for Canada Foundation, 2011 ONSC 2960 at para. 18). She noted that the

fact that the proceedings were case managed and subject to a timetable must be

weighed in that balancing exercise. In addressing the applications to adduce

late-filed affidavits, she expressly considered fairness, efficiency and prejudice to the

respondents.

[75] As discussed below, in most of the cases where the judge refused to permit

the late introduction of evidence, she pointed to what she considered to be problems

with the evidence—such as its lack of probative weight, its hearsay nature or its

unreliability. No significant evidence was excluded simply because it was not proper

reply evidence. While in some cases, in my view, the judge erred in finding evidence

to be inadmissible, I would not accede to the argument that she erred in the

description of the test to be applied when considering the admissibility of late-filed

evidence that is not proper reply evidence. The balancing exercise requires the

judge to give effect to the underlying rationale for the rule: permitting the petition to

be heard fairly and efficiently, and resolved on its merits. The weight of the proposed

evidence must be weighed against the prejudice that may result from its admission.

[76] In some cases, the balancing exercise has led judges to consider whether the

exclusion of the late-proffered evidence will result in “substantial injustice”. The

Tietz v. Affinor Growers Inc.

Page 37

petitioners submit that test, as developed and applied after a trial has concluded or

an application has been fully argued (as in Mandzuk v. Vieira (1983), 43

B.C.L.R 347, 1983 448 (S.C.); Iverson v. Lloyd’s M.J. Oppenheim Attorney In

Fact In Canada for Lloyd's Underwriters et al., 2002 BCSC 1627; and First National

Financial GP Corp. v. 0734763 BC Ltd., 2020 BCSC 1349), was inappropriately

applied by the petition judge. After a trial or the conclusion of argument on an

application, they say, the court is in a position to assess the impact of the evidence

and whether its exclusion will result in a substantial injustice. That is not the case on

an interlocutory application, before an application or petition is heard on the merits.

[77] While the judge did note that the petitioners had not established that

“substantial injustice” would result from the exclusion of the Brusatore Affidavit, that

question was not determinative of the application to adduce late-filed affidavits in this

case (Chan #5 Application at para. 29). After discussing the absence of an allegation

of “substantial injustice”, she considered not just whether the material was essential

for success, but also whether it was “otherwise necessary for success”, and the

reason for the omission of the material from the evidence in chief:

[32]

The petitioners have not proven to me that the affidavit material is

essential or otherwise necessary for success on their petition, nor have they

provided an adequate explanation for why they could not have included the

material, apart from the Brusatore Affidavit, with their original affidavits in

support of the petition. Furthermore, to submit that a party has not responded

or has responded in a pro forma manner does not justify granting leave to file

a supplemental affidavit.

[78] In many cases, on an application to exclude evidence, it is appropriate to not

rule on objections to admissibility until all of the evidence has been heard and its

impact may be assessed, as advocated by the petitioners and as demonstrated in

Achtymichuk v. Bayer Inc., 2020 BCSC 1601, leave to appeal granted, 2021

BCCA 147. It is frequently difficult to weigh evidence when assessing its

admissibility as a preliminary question. Here, however, the petition judge was a case

management judge, and she was very familiar with the context of the application. I

cannot say she erred in the exercise of her discretion to address the admissibility of

late-filed affidavits as a preliminary matter.

Tietz v. Affinor Growers Inc.

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[79] The petitioners argue that the judge erred in her assessment of the prejudice

that would result from case splitting. They contend that, according to Pollack v.

Advanced Medical Optics, 2011 ONSC 850, prejudice only results “if the additional

evidence operates unfairly by, for example, taking advantage of a position taken or

concession made” in the petition response. What was said in Pollack, however, does

not support the petitioners’ argument. Strathy J. (as he was) observed:

[31]

… Not only does case-splitting cause unfairness, it causes expense,

inefficiency and delay, as exemplified by this case. It is also unfair to the

defendant, which has made appropriate concessions concerning the scope of

the battle, only to be surprised by new evidence that seeks to open another

front.

[80] The petition judge here, familiar with the schedule for hearing the petition and

the conduct of the parties, noted that the necessity of answering late evidence would

cause delay and expense. The petitioners say the judge’s approach leads to the

unsatisfactory conclusion that the admission of any additional affidavits after the

respondents have delivered their response materials is inherently prejudicial. That is

so, but that nominal prejudice alone will not necessarily lead to the exclusion of the

evidence. It is but one factor to consider, and it was not an error of law to consider

the prejudice described by the judge in this case.

[81] There is some merit to the petitioners’ argument that it was an error to find the

Affinor Respondents would suffer prejudice as a result of the late admission of the

Brusatore Affidavit, because prejudice was unlikely to be occasioned by the

admission into evidence of the respondents’ own documents. In my view, it is not

necessary to address that argument. The judge was of the view that the petitioners

had explained the late filing of that affidavit, and it was excluded primarily because it

was considered to be inadmissible hearsay evidence. I address that conclusion

below.

Admissibility of Audited Financial Statements of Affinor and BLOK,

BLOK Consulting Agreements and the BLOK News Release

[82] The petitioners contend the BLOK exhibits to Chan Affidavit #3 were proper

reply to the petition response. In their response to petition, the BLOK Respondents

Tietz v. Affinor Growers Inc.

Page 39

had asserted that the petitioners’ claim had no merit because investors should have

known from prior disclosure that the hiring of marketing and business development

personnel was part of BLOK’s 12-month business plan.

[83] In my view, it is not necessary to address the evidentiary rulings with respect

to the case made out against BLOK. Leave was granted to pursue the secondary

market claim against BLOK, founded upon the allegation that BLOK misrepresented

the price paid for shares in the private placement or the capital available to BLOK as

a result of the private placement. That order was not appealed, and the case against

the Affinor Respondents (which is what is in issue here) is not strengthened by

admission of further evidence in support of the case against BLOK.

[84] The petitioners submit that the audited financial statements for fiscal year

2019 were proper evidence in reply to the Affinor response to petition. The Affinor

Respondents had filed audited financial statements for the fiscal year ending

May 31, 2018, but made no reference to those 2018 statements in their response.

The petitioners argue here, as they did below, that they expected the Affinor

Respondents to reply on the audit opinion and the disclosure made in those financial

statements in support of the claim that there was no relationship between the private

placement and the consulting agreements. However, it was open to the judge to

conclude that this “reply” evidence ought to have been part of the case in chief and

did not arise from the material filed by the Affinor Respondents. I agree with the

submission of the Affinor Respondents that, in relation to this evidentiary ruling, no

error of law is made out. Rather, the petitioners’ complaints in this regard are with

respect to how the case management judge exercised her discretion to admit

late-filed evidence.

Admissibility of the Brusatore Affidavit

[85] The petition judge excluded the Brusatore Affidavit when the petitioners

sought to file it as an exhibit to Chan Affidavit #5 because “its content is not very

probative, and its admissibility, being a copy and attached to another person’s

affidavit, would likely be inadmissible hearsay” (Chan #5 Application at para. 33).

Tietz v. Affinor Growers Inc.

Page 40

[86] The Affinor Respondents argue here, as they did below, that the leave order

sought by the petition “is more akin to a final order” than an interlocutory order. As in

an application for a final order, then, only evidence of direct knowledge is admissible

in affidavits sworn in support of the application. They argue that the leave test

requires scrutiny of the merits of the action based on the evidence advanced, and a

weighing of the evidence itself.

[87] The petition judge adopted that view, concluding that a leave application

pursuant to s. 140.8 of the Securities Act is “final in nature and merits-based” and

“not primarily procedural” (PreveCeutical Application at para. 58).

[88] In my view, that conclusion is erroneous. First, any hearsay in the Brusatore

Affidavit is arguably admissible as an admission by Mr. Brusatore against his

interest. If it is so characterized, it may be received in evidence by simply showing

that the admission was made. In my view, Young J. correctly addressed this

question in Cowichan Tribes v. Canada (Attorney General), 2020 BCSC 1968, when

she wrote:

[10]

Out-of-court statements made by a party to the proceedings are

generally admissible at the instance of the opposing party. The Supreme

Court of Canada in R. v. Evans, [1993] 3 S.C.R. 653 at para. 24 held that the

rationale for admitting admissions is based on the theory of the adversarial

system which does not permit a party to complain about the reliability of his or

her own statements. ...

[89] Further, I am of the view that hearsay evidence is not presumptively

inadmissible on an application for leave to bring secondary market claims. The leave

provision appears in Division 4 of Part 16.1 of the Securities Act, which addresses

“Procedural Matters”. The granting of leave does not determine the merits of the

proposed secondary market claim. While the dismissal of an application for leave

has final effect, the order sought is not final, and hearsay evidence may be

submitted in support of the order sought.

[90] This Court concluded, in Primex Investments Ltd. v. Northwest Sports

Entertainment Ltd. (1995), 23 B.C.L.R. (3d) 251, 1995 2383 (C.A.), that an

order granting leave to bring a derivative action is not a final order. Under s. 225 of

Tietz v. Affinor Growers Inc.

Page 41

the Company Act, R.S.B.C. 1979, c. 59 (now s. 232 of the BCA), leave may be

granted to commence a derivative action and permit bona fide and prima facie

meritorious claims to proceed against corporations—a very similar order to the one

sought here.

[91] Primex was relied upon by Verhoeven J. in Jiang v. Piccolo, 2020

BCSC 1584, to arrive at the following conclusions, with which I agree, in a case

where leave was required to commence an action pursuant to s. 151 of the Wills,

Estates and Succession Act, S.B.C. 2009, c. 13;

[43]

Rule 22-2(13) of the Supreme Court Civil Rules, B.C. Reg.

168/2009 allows for the admission of hearsay evidence in an affidavit if the

source of the information and belief of the person swearing the affidavit is

given, and if the affidavit is made in respect of an application [that] does not

seek a final order, or by leave of the court.

[44]

This application is similar to an application for leave to commence a

derivative action. An order granting leave to commence a derivative action is

an interlocutory order, as it does not finally dispose of the rights of the parties:

[Primex]. Therefore, the affidavit relied upon is admissible.

[45]

While the affidavit is admissible, reliance on such evidence is

obviously not ideal. In some circumstances such evidence could be given

less weight, or perhaps even no weight at all. However in the circumstances

of this case, the hearsay nature of the evidence relied upon by the petitioner

does not significantly affect the weight I give to that evidence.

[Emphasis added.]

[92] The Affinor Respondents do not forcefully assert that the Brusatore Affidavit is

hearsay. They contend that the judge’s statement that the Brusatore Affidavit was

“likely” hearsay was “but one concern” she had with the petitioners’ attempt to

introduce the evidence, and not the reason she made her decision. They emphasize

the judge’s conclusion that the Brusatore Affidavit was inessential to the petitioner’s

success. With respect, that conclusion is difficult to reconcile with the judge’s

description of the case against Affinor, without the Brusatore Affidavit, as “thin”

(Leave Application at para. 178).

[93] The petitioners sought to admit the Brusatore Affidavit in support of their claim

that the $3.5 million of consulting agreements entered into four days before the

Affinor private placement were a condition of the subscriptions to that private

Tietz v. Affinor Growers Inc.

Page 42

placement. That evidence went to whether there were misrepresentations as to the

price paid for the Affinor shares, and to the net proceeds that Affinor expected to

accumulate as a result of the placement. The petition judge on the Leave Application

held:

[177] From the Commission Documents, Affinor’s financial statements and

because Affinor engaged some of the Bridgemark consultants, the petitioner

asks the Court to infer that the consultants referred to in Affinor’s financial

statements were paid the same amount as the cost of their subscriptions,

contemporaneously with the private placement. Furthermore, the petitioner

asks the court to find a reasonable possibility that those consultants traded

their shares quickly, because the Commission had evidence of them trading

other shares while contemporaneously subscribing to other issuer shares.

[178] The evidence to support the theory is thin. A concern expressed by a

regulator is not a finding of fact by that regulator. The only fact set out by the

Commission would appear to come from Affinor’s Form 9 which sets out the

consultants and their subscriptions under the private placement. Engaging

the same consultants around the same time as other respondent Issuers

against whom there is evidence of the quid pro quo agreement does not, in

my opinion, overcome the credible evidence standard to support a finding

that there is a reasonable possibility of finding the facts which are the

foundation of the petitioner’s misrepresentation claims.

[Emphasis added.]

[94] In my opinion, the content of the Brusatore Affidavit was probative of the

scheme the petitioners say was the root of the misrepresentation. It is, in fact, the

evidence the judge considered to be missing on the application: some evidence that

the consulting agreements were a condition to the subscriptions to the Affinor private

placement—the quid pro quo.

[95] In the affidavit, Mr. Brusatore deposed to a February 2018 meeting with

Mr. Liu and Mr. Jackson at the offices of BridgeMark, during which they offered to

purchase $4 million of Affinor shares on the condition that consulting fees would be

paid. Mr. Brusatore claimed to have been misled by Mr. Liu and Mr. Jackson with

respect to the acceptability of the plan to regulators, and to have been unaware of

the subscribers’ intentions to re-sell the shares acquired through the placement.

While the amount of the consulting fees was not specified in the affidavit, it was

nonetheless clear evidence of a quid pro quo, and of Mr. Brusatore’s conviction that

he had been embroiled in a scheme by Mr. Lui and Mr. Jackson.

Tietz v. Affinor Growers Inc.

Page 43

[96] In my view, the judge erred in law in concluding that the Brusatore Affidavit

was inadmissible as hearsay that was not probative. I would admit that affidavit, as

an exhibit to the Chan Affidavit #5. Its contents may validly be considered in relation

to the appeal of the dismissal of the application to bring a secondary market claim

against the Affinor Respondents.

Admissibility of the Krasic Affidavit

[97] The judge also excluded the Krasic Affidavit. She did so, in part, because it

contained “no similar fact evidence with respect to the conduct of the … issuers” and

could not “prove or disprove any of the elements of the petitioners’

misrepresentation claims against the … issuers” (Krasic Application at para. 23).

[98] There is some significant evidence in the Krasic Affidavit. For example,

appended as Exhibit A is a copy of an email dated April 25, 2018, that Mr. Krasic

received from Mr. Jackson (with earlier emails from the same and previous days

attached). According to Mr. Krasic, these emails collectively concerned: (1) the

delivery of subscription agreements and drafts for the acquisition of $5 million of

units in Beleave under a private placement to be completed on April 27, 2018, and

(2) cheques for the payment of lump-sum consulting fees pursuant to consulting

agreements entered into with Beleave contemporaneously with, and as a condition

of, the subscriptions for the $5 million in units under the private placement

.

[99] The judge concluded that this was merely evidence of a scheme engaged in

by third party issuers that did not support the claim against any of the other issuers

(including the Affinor Respondents). In my opinion, this fails to give any weight to the

allegation in the notice of civil claim that the Purported Consultants enlisted the

Issuers in a conspiracy. It was alleged that the scheme employed by all Issuers was

conceived and agreed to by Mr. Jackson, Mr. Liu, Mr. Paddock, and Mr. Mawji in

or around January 2018. It was further alleged that the scheme was first

implemented by them with respect to a private placement by Kootenay, and then

replicated when each of the Issuers arranged similar private placements at the

initiative of the same or related subscribers.

Tietz v. Affinor Growers Inc.

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[100] The petitioners specifically pleaded and had adduced evidence that the

following parties purchased shares in both the Beleave private placements and other

impugned private placements: Detona, Northwest, Rockshore, Sway Corp.,

Tollstam & Co., and Mr. MacPherson.

[101] There was evidence before the petition judge that Detona, Northwest and

Rockshore purchased shares in the private placements of Affinor. While the Krasic

Affidavit was evidence of the conduct of a third-party issuer, these three subscribers

to the Beleave private placement were not third parties to Affinor’s part in the alleged

conspiracy.

[102] In my opinion, the Krasic Affidavit should not have been considered to be

“similar fact evidence”. It was not tendered as bad character or propensity evidence

but, rather, as evidence in support of an allegation that the respondents collectively

conspired to effect a fraud on the market through a series of private placements.

Unlike similar fact evidence, its admissibility did not hinge upon a balancing of its

probative value against the prejudice it might cause.

[103] In my view, the Krasic Affidavit ought to have been admitted as evidence with

some probative value in relation to all the statutory misrepresentation claims.

[104] I would not accede to the argument of the Affinor Respondents that the case

management judge correctly determined that the Krasic Affidavit was not probative

because it did not speak to the statutory misrepresentations described in the notice

of civil claim. The alleged conspiracy was pleaded and while, as the judge found,

there was no allegation in the secondary market claims that there were

misrepresentations with respect to the legitimacy of the consulting contracts,

evidence of a scheme to defraud investors is still some evidence that there was a

misrepresentation as to price or the proceeds of the placement. It is also, indirectly,

evidence of the materiality of the representations in the impugned press releases

and Form 9s, demonstrating an intent to release documents or public oral

statements that would affect the market and therefore be material. In short, evidence

of the existence of a scheme or plan to manipulate the market was not irrelevant to

Tietz v. Affinor Growers Inc.

Page 45

the allegation that the Issuers misrepresented the price paid for the shares or the

proceeds of the private placements.

Admissibility of the Costin Affidavits

[105] The petition judge also excluded the Costin Affidavits on the basis that they

constituted inadmissible hearsay. She rejected the petitioners’ submission that there

was a non-hearsay purpose for the Costin Affidavits (Hung Application at paras. 24–

6), finding instead that the Costin Affidavits were “too unreliable to permit a fair

hearing on the application” (at para. 33).

[106] In addressing the relevance of the Costin Affidavits, it is important to restate

the task of the judge on the leave application: to determine whether there was a

reasonable possibility that the action founded upon the secondary market claim

would be resolved at trial in favour of the plaintiff. In support of an application for

leave, the petitioner may adduce evidence in support of its claim—but it may also

show that there is probative evidence that it will be able to obtain.

[107] To that extent, I agree with the petitioners that the Hung Affidavit ought to

have been admitted as evidence of the case they believed they could make out

against the Issuers if leave was granted. They sought to adduce the evidence of

Mr. Costin, not as proof of the facts recorded in the records upon which he relied,

but rather as evidence of the availability of such records. Analogously, they could

have obtained unsworn statements from witnesses and put them before the petition

judge as evidence of the case they would lead, should leave be granted.

[108] Mr. Costin’s first affidavit is evidence that there are public records disclosing

that Affinor distributed, through its private placement, approximately 25 million

shares with a stated value of approximately $4 million to Northwest, Cam Paddock

Enterprises (later known as Rockshore), Detona, and JCN.

[109] It is also evidence that electronic trading records for Affinor may be obtained

using a software program called Market Integrity through Computer Analysis

(“MICA”). MICA ingests and organizes electronic trade records, then generates a

Tietz v. Affinor Growers Inc.

Page 46

report called the New Client Application Form with Trades (“NCAFT”). The NCAFT

shows the buying and selling activity by clients of brokerage firms in the shares of an

issuer over specific time periods. MICA also generates a report called Summary of

Client Trading by Volume (the “Volume Report”). The Volume Report provides

summary totals of buy and sell volume, net volume, summary buy value, summary

sell value, and gross value (sell value minus buy value) for individual accounts that

traded shares in an issuer over specific periods of time.

[110] Mr. Costin appended as exhibits to this affidavit what he described as “[t]rue

copies of the NCAFT and Volume Report for [those who obtained shares of] Affinor's

private placement from March 6, 2018 to April 19, 2018”. These exhibits indicate that

Northwest, Cam Paddock Enterprises, Detona, and JCN collectively sold a total of

24,997,916 Affinor shares from March 6, 2018 to April 19, 2018 for proceeds of

$3,976,360.

[111] Affinor's consolidated financial statements for the years ending May 31, 2018

and 2017 were attached as an exhibit to one of Mr. Costin’s affidavits. Note 11 of

those statements discloses that, on March 1, 2018, Affinor entered into “14

three-month contracts for consulting services totaling $3,500,000 for accounting,

corporate and administrative services, internet marketing, investor relations, merger

and acquisition consulting and cannabis consulting”.

[112] In my view, the availability of at least this information should have been

considered in determining whether there was a reasonable possibility that the

proposed action would be resolved at trial in favour of the plaintiffs. I would admit,

and afford considerable weight to, the evidence that the records to which Mr. Costin

referred exist. It is not disputed that the Costin Affidavits were obtained from the

Commission and pursuant to the Commission’s order, nor is it disputed that

Mr. Costin swore to the truth of his affidavits for the purposes of the Commission

proceedings.

Tietz v. Affinor Growers Inc.

Page 47

Awarding Costs Thrown Away as Special Costs

[113] In Smithies Holdings Inc. v. RCV Holdings Ltd., 2017 BCCA 177, Goepel J.A.

described the standard of review of costs orders as follows:

[51]

An award of costs involves the discretion of the trial judge. This Court

should not interfere with that discretion unless the trial judge made an error in

principle or the costs award is plainly wrong: Hamilton v. Open Window

Bakery Ltd., 2004 SCC 9 at para. 27. ...

[114] On occasion, this Court has set aside a special costs order on the ground that

the judge making the order had not identified reprehensible conduct as the basis for

making the award. In Smithies, the Court noted:

[56]

Special costs are typically awarded when there has been some form

of reprehensible conduct on the part of one of the parties: Young v. Young ,

[1993] 4 S.C.R. 3 at 134–138. Special costs are not compensatory; they are

punitive: Grewal v. Sandhu, 2012 BCCA 26 at para. 106. They are awarded

when a court seeks to disassociate itself from some misconduct: Fullerton v.

Matsqui (District) (1992), 74 B.C.L.R. (2d) 311 (C.A.) at para. 23. There are

circumstances where special costs may be ordered where there has been no

wrongdoing: Gichuru v. Smith, 2014 BCCA 414 at para. 90. These reasons

are not concerned with such types of cases.

[57]

The leading authority on special costs is this Court’s decision in

Garcia v. Crestbrook Forest Industries Ltd. (1994), 9 B.C.L.R. (3d) 242 (C.A.).

There, Mr. Justice Lambert, writing for the Court, set out that the threshold for

special costs awards is “reprehensible conduct”. He noted the continuum of

circumstances in which special costs could be awarded, ranging from “milder

forms of misconduct deserving of reproof or rebuke” to “scandalous or

outrageous conduct”:

[17]

Having regard to the terminology adopted by Madam Justice

McLachlin in Young v. Young, to the terminology adopted by

Mr. Justice Cumming in Fullerton v. Matsqui, and to the application of

the standard of “reprehensible conduct” by Chief Justice Esson

in Leung v. Leungin awarding special costs in circumstances where

he had explicitly found that the conduct in question was neither

scandalous nor outrageous, but could only be categorized as one of

the “milder forms of misconduct” which could simply be said to be

“deserving of reproof or rebuke”, it is my opinion that the single

standard for the awarding of special costs is that the conduct in

question properly be categorized as “reprehensible”. As Chief Justice

Esson said in Leung v. Leung, the word reprehensible is a word of

wide meaning. It encompasses scandalous or outrageous conduct but

it also encompasses milder forms of misconduct deserving of reproof

or rebuke. Accordingly, the standard represented by the word

reprehensible, taken in that sense, must represent a general and all

Tietz v. Affinor Growers Inc.

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encompassing expression of the applicable standard for the award of

special costs.

[115] In the exceptional case referred in this passage to where there was said to

have been “no wrongdoing”, Gichuru v. Smith, 2014 BCCA 414, the plaintiff had

made allegations of serious misconduct against another in a civil lawsuit that could

not be substantiated. Given the effect of those allegations on the respondent’s

reputation, some reproof was warranted.

[116] In the case at bar, I can see no basis upon which the petition judge might

have found the appellant’s conduct—seeking to have additional evidence admitted

and withdrawing that application when better evidence became available—to be

deserving of rebuke. There was no description of the basis for the award in the

reasons, and I can see none on the facts of the case. To appreciate the context in

which the award was made, the reasons should be read together with the

submissions with respect to costs—and we have been referred to those

submissions. In my view, even in light of those submissions, no basis is made out for

this award. I would set it aside and substitute the order that would ordinarily have

been made: an order requiring the appellants to pay the costs of the aborted motion.

The Substantive Appeals

The Petitioners’ Appeal

[117] The petitioners accept that the petition judge correctly reviewed the legal

principles governing the statutory cause of action and the leave requirement. They

contend, however, that the petition judge either committed an error of law by

applying the wrong test, or erred in her application of the test. They say the evidence

accepted by the petition judge was sufficient to support a finding that the petitioners

had a reasonable possibility of success against the Affinor Respondents.

[118] The petition judge applied the test described in Theratechnologies Inc. v.

121851 Canada Inc., 2015 SCC 18. Theratechnologies required the applicant to

satisfy the court that there is a “reasonable or realistic chance” the action will

succeed, based upon “both a plausible analysis of the applicable legislative

Tietz v. Affinor Growers Inc.

Page 49

provisions and some credible evidence in support of the claim”. It requires the court

to conduct “a reasoned consideration of the evidence to ensure that the action has

some merit” (at paras. 38–9).

[119] That test was intended to resolve uncertainty with respect to the extent of the

preliminary assessment of the merits required by the legislation. Abella J. wrote:

[37]

I am aware that there has been some discussion in the Ontario and

British Columbia courts about what the threshold is, all seeking to find a

balance between preventing cases without a realistic prospect of success but

encouraging those with a likelihood of success. ...

[38]

In my view, as Belobaba J. suggested in [Ironworkers Ontario Pension

Fund (Trustee of) v. Manulife Financial Corp., 2013 ONSC 4083], the

threshold should be more than a “speed bump” (para. 39), and the courts

must undertake a reasoned consideration of the evidence to ensure that the

action has some merit. In other words, to promote the legislative objective of

a robust deterrent screening mechanism so that cases without merit are

prevented from proceeding, the threshold requires that there be a reasonable

or realistic chance that the action will succeed.

[39]

A case with a reasonable possibility of success requires the claimant

to offer both a plausible analysis of the applicable legislative provisions, and

some credible evidence in support of the claim. This approach, in my view,

best realizes the legislative intent of the screening mechanism: to ensure that

cases with little chance of success — and the time and expense they impose

— are avoided. I agree with the Court of Appeal, however, that the

authorization stage under s. 225.4 [of the Securities Act, C.Q.L.R., c. V-1.1]

should not be treated as a mini-trial. A full analysis of the evidence is

unnecessary. If the goal of the screening mechanism is to prevent costly

strike suits and litigation with little chance of success, it follows that the

evidentiary requirements should not be so onerous as to essentially replicate

the demands of a trial. To impose such a requirement would undermine the

objective of the screening mechanism, which is to protect reporting issuers

from unsubstantiated strike suits and costly unmeritorious litigation.

What is required is sufficient evidence to persuade the court that there is a

reasonable possibility that the action will be resolved in the claimant’s favour.

[Italics original; citations omitted.]

[120] However, there remains some uncertainty with respect to what is required of

an applicant, because the application must be brought before discovery but the

evidence is primarily documentary in nature. There is a very helpful review of the

purpose and application of the leave requirement in the judgment of Strathy J. (as he

was) in Green v. Canadian Imperial Bank of Commerce, 2012 ONSC 3637, rev’d on

other grounds, 2014 ONCA 90. In Green, the defendant suggested that the standard

Tietz v. Affinor Growers Inc.

Page 50

previously described in two other cases was too low. The defendant submitted that a

more appropriate test was described in Round v. MacDonald, Dettwiler and

Associates Ltd., 2011 BCSC 1416, aff’d 2012 BCCA 456.

[121] The cases the defendant sought to distinguish in Green were Silver v. Imax

Corp. (2009), 66 B.L.R. (4th) 222, 2009 72342 (Ont. S.C.J.), aff’d 2014

ONCA 90, and Dobbie v. Arctic Glacier Income Fund, 2011 ONSC 25, leave to

appeal ref’d, 2012 ONSC 773. In Silver, van Rensburg J. (as she then was) had

noted that the context of the inquiry, based on documents rather than live evidence,

shapes the analysis. She wrote:

[326] In undertaking this evaluation the court must keep in mind that there

are limitations on the ability of the parties to fully address the merits because

of the motion procedure. There is no exchange of affidavits of documents, no

discovery (although affiants may be cross-examined) and witnesses cannot

be summoned.…

[327] As a result, the court must evaluate and weigh the evidence at hand,

keeping in mind the restrictions of the motions process and what may be

available to the parties in a trial. This does not mean that the court should

speculate about what better evidence a party may advance when the matter

reaches trial, or fill obvious gaps in a party's case; it does however require the

court to assess the evidence realistically, having regard to which party has

the burden of proof and access to evidence that may be brought forward at

the preliminary stage, and paying attention to conflicts in the evidence that

may not be capable of being determined in a motion, without a full

assessment of a witness' testimonial credibility.

[Emphasis added.]

[122] In Round, Harris J. (as he was) dismissed an application for leave on the

ground that the facts giving rise to the cause of action took place before the

legislation came into force. For that reason, what he wrote about the test for leave

was obiter, and expressly subject to the caveat that a definitive decision on the

nature of the test for granting of leave would await the case that called for it (at

para. 13). He was clearly of the view, however, that the test involves “an assessment

of the merits of the proposed action on the evidence” (at para. 73). He added:

[73]

… The court must analyze the evidence to decide whether it is

satisfied that the “reasonable possibility” test is satisfied.… [W]eighing and

testing the evidence to determine whether there is a reasonable possibility

that the action will be resolved at trial in favour of the plaintiff is different from

Tietz v. Affinor Growers Inc.

Page 51

the test involved in certification of class actions or the test for summary

judgment....

...

[76]

Establishing a reasonable possibility of success at trial involves more

than merely raising a triable issue or articulating a cause of action. Equally, it

does not require a plaintiff to demonstrate that it is more likely than not that

he or she will succeed trial. But it is clear, in my view, that the test is intended

to do more than screen out clearly frivolous, scandalous or vexatious actions.

An action may have some merit, and not be frivolous, scandalous or

vexatious, without rising to the level of demonstrating that the plaintiff has a

reasonable possibility of success.

[77]

Beyond this I do not intend to venture. There are difficult questions

embedded in the test and little existing guidance in the few cases in other

jurisdictions that have considered the leave test in their equivalent statutes. In

particular, although it is clear that the analysis involves a reasoned and

significant assessment on the existing evidentiary record of both the plaintiff

and defendants of the merits of the case and its prospects of succeeding at

trial, this analysis necessarily occurs before any discovery. Although

provision is made for cross-examination on affidavits, the application remains

an initial hurdle and not a substitute for the trial. How one ought to weigh the

potential of discovery to alter the prospects of success at trial or reshape the

evidentiary landscape in the context of a leave application is a difficult

question that does not need to be resolved here.

[123] After considering these cases and Justice v. Cairnie Estate (1993), 105

D.L.R. (4th) 501, 1993 4408 (Man. C.A.), leave to appeal and cross appeal to

SCC dism’d, [1994] 1 S.C.R. v., Strathy J. concluded in Green that he did “not

disagree at all with the proposition that the ‘reasonable possibility of success’ test

sets a higher bar than ‘frivolous, scandalous or vexatious’”. Nor did he disagree with

“the proposition that a preliminary merits-based assessment must be tempered by a

recognition that there has been no discovery and that the analysis is conducted on a

paper record with all its attendant limitations” (at para. 369). He held:

[373] I respectfully agree with van Rensburg J. [in Silver]… that the leave

requirement is a relatively low threshold. It is meant to screen out cases that,

even though possibly brought in good faith, are so weak that they cannot

possibly succeed. This is consistent with the purpose of the legislation – to

screen out strike suits that are plainly unmeritorious. It is not meant to

deprive bona fide litigants, with a difficult but not impossible case, from

having their day in court. This interpretation is also consistent with the

philosophy of our legal system that contentious issues of fact and law are

generally decided after a full hearing on the merits.

Tietz v. Affinor Growers Inc.

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[124] On appeal, the most contentious issue was whether a claim described in

pleadings filed before leave is granted has the effect of tolling the running of a

limitation period. However, the Supreme Court of Canada was also asked to reject

the approach described by Strathy J. and to require instead a more rigorous analysis

of the evidence. The Court refused to do so, suggesting that Strathy J.’s approach

was consistent with the established test: Canadian Imperial Bank of Commerce v.

Green, 2015 SCC 60. Côté J. wrote:

[118] In CIBC, the defendants challenged the threshold that must be met by

a plaintiff applying for leave under s. 138.8 OSA [Securities Act, R.S.O. 1990,

c. S.5]. One of the conditions that must be met to obtain leave is that the

court must be satisfied that “there is a reasonable possibility that the action

will be resolved at trial in favour of the plaintiff”: s. 138.8(1)(b) OSA. Strathy J.

interpreted this statutory language as establishing a relatively low threshold

according to which leave will be denied only if, “having considered all the

evidence adduced by the parties and having regard to the limitations of the

motions process, the plaintiffs’ case is so weak or has been so successfully

rebutted by the defendant, that it has no reasonable possibility of success”:

para. 374. The Court of Appeal upheld this interpretation of s. 138.8(1)(b).

[119] The defendants in CIBC argued in this Court that the threshold

articulated by Strathy J. is too low.

[120] I will address the point briefly, given the Court’s recent decision

in Theratechnologies inc. v. 121851 Canada inc., 2015 SCC 18, [2015] 2

S.C.R. 106.

[121] In Theratechnologies, the Court was asked to interpret s. 225.4 of

the Securities Act, CQLR, c. V-1.1 (“QSA”), the Quebec counterpart to

s. 138.8 OSA. That section, which introduces a leave requirement for a

statutory claim based on a secondary market misrepresentation in Quebec,

provides that there must be a “reasonable possibility that [the action] will be

resolved in favour of the plaintiff” for leave to be granted. The Court stated

that for an action to have a “reasonable possibility” of success under s. 225.4,

there must be a “reasonable or realistic chance that [it] will succeed”:

Theratechnologies, at para. 38. Claimants must “offer both a plausible

analysis of the applicable legislative provisions, and some credible evidence

in support of the claim”: Theratechnologies, at para. 39.

[122] There is no difference between the language of s. 138.8 OSA and that

of s. 225.4 QSA. Moreover, both provisions relate to leave applications for

statutory claims based on secondary market misrepresentation, albeit in

different jurisdictions. Accordingly, the threshold test under s. 225.4 QSA

articulated in Theratechnologies applies in the context of s. 138.8 OSA.

Tietz v. Affinor Growers Inc.

Page 53

[125] Although Côté J. dissented in the result of two of the three appeals, her

analysis of the applicable threshold was adopted by the Court (at paras. 130, 147

per Cromwell J., para. 212 per Karakatsanis J.).

[126] I am of the view that this test was met in this case. The petitioners have

discharged the onus of offering “some credible evidence in support of the claim”, as

required by Theratechnologies, against the Affinor Respondents. They established

that there was evidence that they will adduce at trial that establishes the essential

elements of the misrepresentation claim pleaded. The evidence that was

erroneously excluded as hearsay or as immaterial to success, when considered with

the affidavits filed with the petition, fills the gaps in the case against the Affinor

Respondents described by the petition judge, and puts the case against Affinor on

the same footing as that made out against the other Issuers.

[127] As noted in Godfrey v. Sony Corporation, 2017 BCCA 302 at para. 49, aff’d

2019 SCC 42, this Court will not interfere with the exercise of the judge’s discretion

absent an error of law, an error in principle, or a clearly wrong exercise of discretion.

However, as outlined above, the judge erred in law in refusing to admit the evidence

of Mr. Brusatore, Mr. Krasic, and Mr. Costin. Accordingly, this Court may substitute

an order granting leave to bring the action: see e.g., Hldyk v. Adolph, 2012

BCCA 37; Hoggan v. Silvey, 2022 BCCA 176.

[128] As the petitioners note, there was evidence that Affinor:

a) only had working capital of $549,841 as of February 28, 2018, no revenue or

near term prospects of revenue, and no disclosed credit facilities;

b) entered into 14 three-month contracts for consulting services totalling

$3.5 million on March 1, 2018;

c) announced that it had arranged private placement financing for $4 million on

March 5, 2018; and

Tietz v. Affinor Growers Inc.

Page 54

d) announced that it had closed that financing for total proceeds of $3,999,667

on March 8, 2018.

[129] Excluding the evidence of Mr. Brusatore, Mr. Krasic and Mr. Costin, there was

before the petition judge only evidence that Affinor and the consultants entered into

agreements with a value of $3.5 million, days before the $4 million private

placement. The petition judge concluded that she was unable to infer “that the

consultants referred to in Affinor’s financial statements were paid the same amount

as the cost of their subscriptions, contemporaneously with the private placement”,

and they “traded their shares quickly, because the Commission had evidence of

them trading other shares while contemporaneously subscribing to other issuer

shares” (Leave Application at para. 177). Her conclusion at para. 178, which I have

noted above and reproduced here for convenience, was that:

… Engaging the same consultants around the same time as other respondent

Issuers against whom there is evidence of the quid pro quo agreement does

not, in my opinion, overcome the credible evidence standard to support a

finding that there is a reasonable possibility of finding the facts which are the

foundation of the petitioner’s misrepresentation claims.

[130] The petitioners submit (and I agree) that this significantly understates the

probative force of the evidence of the participation by the four Affinor Subscribers in

the other private placements. Rockshore, Detona, Northwest, and JCN (collectively

or individually) subscribed to:

a) $3 million worth of shares in the Green private placement;

b) $2 million worth of shares in the first Beleave private placement;

c) $3 million worth of shares in the second Beleave private placement;

d) roughly $1.74 million worth of shares in the Cryptobloc private placement;

e) $3.5 million worth of shares in the PreveCeutical private placement;

f) approximately $1.3 million worth in shares in the Speakeasy private

placement; and

Tietz v. Affinor Growers Inc.

Page 55

g) $625,000 worth in shares in the New Point private placement.

[131] In each case, there was evidence that the subscribers entered into consulting

agreements with the Issuer, received significant cash payments from the Issuer, and

then sold all or nearly all of the Issuer’s shares at prices below the subscription

price. There were admissions to this effect by Beleave. According to Mr. Gardener-

Evans, the CEO of New Point, New Point’s subscription was conditional upon it

entering into consulting agreements with a group of consultants, including both

Northwest and Detona.

[132] The petitioners say these facts alone are strong evidence that the consulting

agreements and the financing agreements were tied to each other. They contend

Affinor knew that the financing which funded the consulting agreements was either in

place or could be arranged when Affinor entered into the consulting agreements on

March 1, 2018. They say this evidence is sufficient to conclude there is a reasonable

possibility of proving, at trial, that the Affinor Subscribers required Affinor to (1) enter

into the 14 consulting agreements concluded on March 1, 2018, with them and/or

their designated associates, and (2) pay $3.5 million in consulting fees pursuant to

those agreements, as a condition of their participation in the Affinor private

placement.

[133] In addition, there was evidence before the petition judge that the Affinor

Subscribers immediately sold most of their shares acquired in the private

placements. The appellants say that the quick sale of the private placement shares

is some evidence that the shares were acquired at an effective price below the

publicly reported price. It follows, they argue, that the $3.5 million worth of prepaid

consulting agreements entered into one week before the $4 million private

placement were a condition of the Affinor Subscribers’ participation in that private

placement. They say the petition judge misstated the nature of the evidence

concerning the quick sale of shares by the Affinor Subscribers, and the inferences

they asked the court to draw from that evidence. The judge said, “the petitioner asks

the court to find a reasonable possibility that those consultants traded their shares

Tietz v. Affinor Growers Inc.

Page 56

quickly because the Commission had evidence of them trading other shares while

contemporaneously subscribing to other issuers’ shares” (at para. 177). The

appellants say this was a misconception. Their argument was that the Commission

was right to conclude that the quick sale by the subscribers reflected their desire to

take immediate advantage of the discounted price they had paid for the shares, as a

result of the “cash swap” (Commission Decision at paras. 31, 36).

[134] In my view, that mischaracterization of the petitioners’ argument may be a

consequence of the judge’s narrow view of the evidence that could be considered in

support of the claim against the Affinor Respondents. The claim was that the Affinor

Subscribers conspired with a series of Issuers, including the Affinor Respondents, to

effect a fraud on the market. The secondary market claims were founded upon

misrepresentations that were said to be a key to the success of the scheme, which

entailed misstatement of the price paid for the shares in the private placement,

misstatement of the capital raised by the Issuers, and the sale of the subscribers’

shares while the misrepresentations affected the market.

[135] The petition judge found that the evidence established or strongly supported

the inference that the consulting agreements concluded contemporaneously with the

other private placements were a condition of the subscribers’ participation in the

placements. The petitioners contend that it follows from this that it is at least

reasonably possible that the same condition common to these eight private

placements—Cryptobloc, PreveCeutical, New Point, Green, BLOK, the first and

second Beleave placements, and Speakeasy—in which the Affinor Subscribers

participated as either subscribers or consultants, was also a condition of the Affinor

Subscribers’ participation in the Affinor private placement. This is particularly so

given that the Affinor Subscribers quickly sold the shares they acquired under the

private placement, at or below the disclosed subscription price for those shares, in

the same way that occurred with those other private placements.

Tietz v. Affinor Growers Inc.

Page 57

[136] There is, in my view, substantial merit to this argument. But, it need not be

relied upon by the petitioners, given my conclusion with respect to the admissible

evidence that was not weighed by the petition judge.

[137] As the petitioners submit, the excluded evidence most material to the claims

against Affinor is the sworn but unfiled affidavit of Mr. Brusatore, Affinor’s CEO. The

Brusatore Affidavit described the circumstances of the March 2018 private

placement. Mr. Brusatore specifically acknowledged that BridgeMark’s principals

offered to purchase $4 million of Affinor shares, conditional upon the payment of

consulting fees, and he and Affinor believed they were misled by BridgeMark.

[138] In my view, the appellants are correct to say that there is a reasonable

chance they will be able to prove at trial that the Affinor Subscribers’ purchase of the

shares in the private placement was conditional upon Affinor agreeing to return, and

then returning, most of the $4 million in private placement proceeds to the Affinor

Subscribers and their designated associates as consulting fees.

[139] Further, the Krasic Affidavit provided direct evidence of the facts set out in the

Beleave settlement agreement. This lends some weight to the argument that the

Affinor Subscribers engaged in a scheme to manipulate the market for the Issuers’

shares by misrepresenting the substance of the private placement transactions. In

light of the pleadings to that effect and the evidence supporting the allegation, the

evidence of Mr. Krasic was not too remote to have some probative weight in support

of the claims against the Affinor Respondents.

[140] Last, the trading records gathered by Mr. Costin were evidence the petitioners

would likely be able to tender at trial to establish that all of the Affinor Subscribers

quickly sold all the Affinor shares they purchased. I agree with the petitioners that

this evidence may be used to support the inference that the Affinor Subscribers had

acquired the shares at a very low price, and were thus motivated to quickly sell the

shares for a substantial profit.

Tietz v. Affinor Growers Inc.

Page 58

[141] For those reasons, I would allow the appeal and grant leave to Mr. Tietz,

Mr. Loewen, and Mr. Dotto to bring the secondary market claim described in the

pleadings against the Affinor Respondents.

The Kootenay Appeal

[142] The Kootenay Respondents argue that the judge erred in finding that

Kootenay failed to disclose that funds raised from the private placement would pay

for consulting fees, thus diminishing the net proceeds available to the company.

They argue that Kootenay’s earlier public disclosure provided notice to investors that

it did not have any revenue, had previously raised millions of dollars by way of

private placements and spent most of those funds within months, and relied heavily

on consultants.

[143] The petition judge expressly considered that submission in the Leave

Application, noting:

[113] Kootenay submits in its response to the petition that from the totality

of Kootenay’s financial disclosures at the time of the private placement,

Kootenay had disclosed to investors that Kootenay would be using the

proceeds from the private placement to pay consultants who participated in

the Private Placement. However, it does not admit to a quid pro

quo arrangement.

[144] She addressed it as follows:

[120] There is evidence that Kootenay agreed to return at least $459,001 of

the private placement proceeds to the Kootenay Subscribers and related

purported consultants in lump sum payments within four months after the

private placement. As a result, in the private placement, Kootenay sold nearly

half of its outstanding shares at a considerable discount. This says the

petitioner, created a clear risk that the Kootenay Subscribers would seek to

capitalize on the obvious profit to be made by quickly selling the shares at

prices above what they had effectively paid, but well below the market price.

...

[123] I agree with the petitioner that there is a reasonable possibility that

Mr. Lee will be able to establish, at trial, that Kootenay knew that the

increased trading volume in Kootenay shares following the private placement

was, in reality, caused in significant part by the Kootenay Consulting

Agreements under which most of the supposed proceeds from the private

placement would be used to pay the Kootenay Consulting Fees to the

Kootenay Subscribers. This allowed the Kootenay Subscribers to acquire 4.5

Tietz v. Affinor Growers Inc.

Page 59

million Kootenay shares at an even greater discounted price, which they

could then quickly sell for a substantial profit. As well, the timing of the

subscription at the disclosed discounted price was within Kootenay’s

knowledge and there is a reasonable possibility that the petitioner will

establish that Kootenay was aware those circumstances which materially

contributed to the trading increase.

[145] Turning to the issue of materiality, she held:

[134] The petitioner submits that given Kootenay’s financial circumstances

as of January 2018 and having regard to these remaining obligations in

relation to the Sully Property [the mining property the development of which

was Kootenay’s primary focus] at that time, the consulting fee obligation

assumed by Kootenay, be it $459,001 or $733,958, was undeniably material.

...

[138] Kootenay submits that in the context of Kootenay, disclosing the

Kootenay Consulting Fees was unnecessary, or immaterial, because its Form

9 had already disclosed that the private placement was occurring pursuant to

the s. 2. 24 Exemption. The petitioner submits the most a reasonable investor

could have understood from the Form 9 was that the Kootenay Subscribers

were, or had been consultants, nothing more. A reasonable investor would

not have known that, in effect, 38% of the private placement proceeds had

been committed to the Kootenay Consulting Fees. Nor could such an investor

have known that the consulting fees were to be paid in cash as a lump sum,

in advance and in conjunction with a commitment to also pay additional

consulting fees to related purported consultants, which would further reduce

the private placement proceeds available to Kootenay by 60%.

[139] In addition to failing to disclose the basic existence of the consulting

fee commitments, Kootenay also failed to inform investors that its receipt of

the private placement funds was contingent upon it paying at least $459,001

or $733,958, to the Kootenay Subscribers and related consultants. The

petitioner submits this information would reasonably be expected to

significantly affect the market price or value of Kootenay’s securities.

[140] Based upon what Kootenay disclosed in the Kootenay News

Releases, its Form 9, and later the audited annual financial statements,

investors were given the impression that Kootenay had secured $1.215

million in financing, which it intended to use for advancing its business and for

general corporate purposes. However, at least when the private placement

was announced, Kootenay had to spend $800,000 to pursue what the market

understood to be the focus of Kootenay’s business operations, the Sully

Property. The petitioner submits that in reality, Kootenay had sold the shares

for, at best, $755,999 in cash and agreements to receive consulting services

which Kootenay valued at $459,001.

[141] I agree that there is a reasonable possibility that the petitioner will

prove at trial that the Kootenay Consulting Agreements were material at the

time of the January 30, 2018 private placement news release. I agree with

the petitioner that this, along with others below where leave is granted, is one

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Page 60

of those cases where common sense, without expert evidence of the

reasonable investor, comes into play.

[142] The agreements represented an extant liability that required, at the

very least, 50% of Kootenay’s cash, was the equivalent of 25% of the total

value of its assets as of November 30, 2017. Further, this liability was

incurred in circumstances where, as of January 30, 2018, Kootenay had only

“arranged” the private placement, but had not yet received the subscription

fees, and the market understood the Sully Property was Kootenay’s primary

focus for which there remained important, near term obligations to be settled.

[143] I find that there is a reasonable possibility that the court will find at trial

that the Kootenay Consulting Agreements were material for the purposes of

the Kootenay News Releases, its Form 9 and its audited annual financial

statements. Without disclosing the relationship between concluding the

consulting agreements and the private placement subscriptions there is a

reasonable possibility of proving that it was impossible for investors to

understand that, in effect, much of the money was already spent when the

private placement closed.

[144] Kootenay knew that the increased trading volume may have been

caused by the Kootenay Subscribers quickly selling their shares to make a

profit. There is a reasonable possibility that failing to mention this and

ascribing cause elsewhere would be reasonably expected to have a

significant effect on the value of Kootenay’s securities.

[Emphasis added.]

[146] The Kootenay Respondents say the petition judge failed to apply the objective

test for materiality described by the Supreme Court of the United States in TSC

Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976), and adopted by the Supreme

Court of Canada in Sharbern Holding Inc. v. Vancouver Airport Centre Ltd., 2011

SCC 23, as follows:

[48]

The U.S. Supreme Court indicated that it was “universally agreed” that

the question of materiality is objective (TSC Industries, at p. 445). Materiality

is based on an examination of how the information would have been viewed

by a “reasonable investor”. The U.S. Supreme Court concluded that the

objective standard formulated in TSC Industries “best comports with the

policies” (p. 449) of the proxy disclosure rules — the purposes of which were

“not merely to ensure by judicial means that the transaction, when judged by

its real terms, is fair and otherwise adequate, but to ensure disclosures by

corporate management in order to enable the shareholders to make an

informed choice” (p. 448).

...

[52]

Finally, the U.S. Supreme Court indicated that the importance of an

omitted fact must be considered in the light of whether it would be viewed by

a reasonable investor as having “significantly altered the ‘total mix’ of

information made available”. In certain situations, evidence of the information

Tietz v. Affinor Growers Inc.

Page 61

made available may be such that common sense inferences will be sufficient

to establish materiality. In other cases, where there is evidence that supports

competing inferences, a court may be required to carry out a more complex

analysis to determine what the reasonable investor would have considered

important. For the majority of cases, materiality is a contextual matter,

involving the application of a legal standard to specific facts, that must be

determined in light of all of the information that was made available to an

investor. Canadian and American authorities and commentary on materiality

indicate that assessing materiality is a “fact-specific inquiry” (Basic Inc. v.

Levinson, 485 U.S. 224 (1988), at p. 240). Materiality is “to be determined on

a case-by-case basis” (p. 250) in light of all of the relevant circumstances.

[Emphasis added.]

[147] They submit that in the case at bar a common-sense inference was

insufficient to establish materiality. Instead, the petition judge should have engaged

in the more complex analysis referred to in this passage. They submit that there are

regulated disclosure obligations, and the statutory regime must be borne in mind in

determining what omissions from disclosure are important. They say investors in

Kootenay were aware of the extent to which the company employed consultants,

and that the consulting agreements with subscribers in this case were not material.

[148] I would not accede to that argument. At the leave stage, the petition judge is

not required to make a finding that the impugned representations are material, but

rather that there is a reasonable possibility that the statement will be found to have

been material at trial. That question was fully and carefully addressed, and in my

view, no error in law has been made out.

[149] It was not necessary for the petition judge to have evidence that the

disclosure made by Kootenay fell below a regulatory or industry standard. The

question was whether she was satisfied that there was a reasonable chance of

success at the eventual trial. In addressing that question, she was entitled to bear in

mind the following direction in Sharbern (at para. 57):

[T]he question of materiality involves the application of a legal standard to a

given set of facts. Judges are not less expert than business managers when

it comes to the application of a legal standard to a given set of facts; neither

do managers’ assessments of risk have anything to do with meeting their

disclosure obligations. As Binnie J. observed, “[i]t is for the legislature and the

courts, not business management, to set the legal disclosure requirements”

([Kerr v. Danier Leather Inc., 2007 SCC 44], at para. 55).

Tietz v. Affinor Growers Inc.

Page 62

[150] That approach to assessing materiality in the securities context is reflected in

the judgment of Ducharme J. in Cornish v. Ontario Securities Commission, 2013

ONSC 1310, cited by the petitioners, with which I agree:

[99]

… [W]hile shareholder evidence or expert evidence may be relevant

or useful, it is not necessary. This is not changed by the statement

in Sharbern that, “except in those cases where common sense inferences are

sufficient, the party alleging materiality must provide evidence in support of

that contention.”… First, Sharbern does not deal with specialized tribunals.

Second, it calls for evidence, not a particular kind of evidence. Third, and

most important in this case, such evidence need not be called where one can

conclude on the basis of common sense inferences that a change is material.

[Emphasis added.]

[151] In my view, the conclusion that there was a reasonable prospect the

petitioners would be able to establish materiality at trial was open to the petition

judge, and I can see no error in her analysis.

The New Point Appeal

[152] The petition judge made the following findings in the Leave Application:

[338] I find there is a reasonable possibility that the petitioner will be able to

prove at trial that the consulting agreements with the New Point Subscribers

were a condition of their subscriptions under the New Point private

placement. Furthermore, since there is evidence that the consulting

agreements were presented to New Point as a package, it is reasonably

possible that the petitioner will be able to prove that the agreement to execute

of all the consulting agreements was a condition of the subscriptions of the

New Point Subscribers under the private placement.

[339] If the consulting agreements and lump sum consulting fees paid

pursuant to those agreements were conditions of the New Point Subscribers’

subscriptions for $4,651,000 worth of shares in the New Point private

placement, it is reasonably possible for the petitioner to prove that the price

paid and the proceeds received by New Point for those shares have been

misrepresented by New Point. This transaction was in fact a cash swap as

like with the other respondents in the statutory claims.

[153] The New Point Respondents contend that the case pleaded against New

Point was that the consulting agreements, which were entered into on July 31, 2018,

should have been disclosed in the July 25 News Release. They say there was no

claim that New Point was committed to paying consulting fees prior to the execution

Tietz v. Affinor Growers Inc.

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of the July 31 consulting agreements. They argue that leave ought not to have been

granted to advance a claim not pleaded.

[154] The petitioners submit that the notice of civil claim clearly alleges that the

substance of the transaction was in place, and known by New Point, prior to July 25,

2018.

[155] In my view, and on the evidence, it was open to the petition judge to find that

there was a reasonable prospect the petitioner could establish that the consulting

agreements and lump-sum consulting fees paid pursuant to those agreements were

conditions of the New Point subscribers’ subscriptions for $4,651,000 worth of

shares in the New Point private placement. It was also open to her to read the

pleadings as encompassing that claim.

Disposition

[156] I would allow the appeal of the evidentiary orders to the extent that I would

admit into evidence the Brusatore Affidavit, the Krasic Affidavit, and the portions of

the Costin Affidavits to which I have referred.

[157] I would allow the appeal of the order dismissing the application for leave to

advance a secondary market claim against the Affinor Respondents, and substitute

for that order an order granting leave to advance the claim for secondary market

misrepresentation under s. 140.3 of the Securities Act that is described in the notice

of civil claim, as amended.

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[158] I would dismiss all other appeals and cross appeals.

“The Honourable Mr. Justice Willcock”

I agree:

“The Honourable Mr. Justice Abrioux”

I agree:

“The Honourable Mr. Justice Marchand”