RBC ordered to produce Norshield documents

Date: Tuesday, September 25, 2007
Author: Paul Waldie, Globe and Mail

Ontario court's ruling is the latest twist in battles involving animation firm Cinar Corp.

An Ontario judge has ordered Royal Bank of Canada to produce all documents relating to its dealings with scandal-plagued hedge fund Norshield Asset Management (Canada) Ltd., which filed for receivership in 2005.

The ruling is the latest twist in a series of legal battles involving RBC, Norshield and Cinar Corp., a prize-winning Montreal animation company that was sold to a group of Toronto investors in 2003 after being mired in controversy.

Mr. Justice James Spence of the Ontario Superior Court ruled yesterday that the documents, which include bank records in Canada and offshore, were relevant to a lawsuit filed against RBC and others.

"While we didn't get everything we wanted we are pleased with what we got and we will deal with the other issues as appropriate," said Wes Voorheis, who manages a litigation committee representing former Cinar shareholders.

The litigation committee has launched a series of a lawsuits aimed at recovering $121-million (U.S.) Cinar allegedly invested eight years ago in Caribbean firms connected to Norshield. That money has allegedly gone missing.

Norshield has insisted it did nothing wrong. The firm collapsed after heavy redemptions which the company blamed on growing client concern about the Cinar allegations.

Earlier this year, Norshield's receiver alleged in a report filed in court that company managers inflated asset values and diverted $215-million (Canadian) to entities connected to founder John Xanthoudakis. Mr. Xanthoudakis has denied the allegations and filed several countersuits.

RBC has been caught up in the fray because it was Cinar's principal banker and it provided some financial services to the Caribbean firms and Norshield.

The Cinar litigation committee has sued the bank for $121-million (U.S.) alleging it handled the transfer and is responsible for the loss. The bank has denied the allegations and suggested that if money has gone missing, it is the fault of Cinar managers or the offshore companies.

This summer, as part of the lawsuit, the committee filed a motion seeking a long list of documents from the bank. The committee alleged the documents were critical to the suit but the bank said the motion went too far.

"With respect, it is submitted that Cinar is attempting to engage in a fishing expedition for documents that might be relevant to possible issues in dispute," RBC's lawyers said in a court filing. The bank said it had turned over 2,100 documents and the additional information requested was either irrelevant or not available.

Judge Spence dismissed most of the items on the committee's list, but he upheld the request relating to Norshield.

Lawyers for the litigation committee filed hundreds of pages in court to back up their request. The documents included an internal RBC memo which showed the close relationship between the bank's senior executives and Cinar's co-founders, Ronald Weinberg and his late wife Micheline Charest.

One document indicated that RBC's chief executive officer at the time, John Cleghorn, was "well known to Mrs. Charest." The documents also included an internal RBC memo dated March 27, 2000, when allegations of misconduct relating to misuse of tax credits first surfaced at Cinar.

"Difficult relationship to manage since its inception: high number of RBC executive interventions required," said the memo, which was written by a senior market manager at the bank.