COURT FILE NO.: 307/07 and 446/07
DATE: 20071210
SUPERIOR COURT OF JUSTICE - ONTARIO
DIVISIONAL COURT
RE: Frank D’Addario, 1301965 Ontario Inc. and D’Addario Family Trust v. Environmental Management Solutions Inc., Tony Busseri and Roberto Sansone
BEFORE: Kiteley J.
COUNSEL: William A. Chalmers, counsel for the Defendant/Appellant Environmental Management Solutions Inc.
Alistair Crawley, solicitor for the Defendant/Appellant Busseri
Diane L. Evans, counsel for the Plaintiffs/Respondent
HEARD: September 20, 2007
E N D O R S E M E N T
[1] The defendants Environmental Management Solutions Inc. (EMS) and Busseri had brought a motion to dismiss the plaintiffs’ claim. Pursuant to rule 39.03, counsel for the plaintiffs served summonses demanding the attendance of Wilder and Begg and a notice of examination on counsel for Busseri. The defendants EMS and Busseri brought motions to strike the summons to witnesses and the notice of examination. In a decision dated June 8, 2007 Newbould J.[^1] dismissed the motions and ordered the deponents to attend to be examined as witnesses in the pending motion to dismiss the action.
[2] The defendants EMS and Busseri seek leave to appeal that decision. EMS does not resist the order requiring attendance by Wilder and Begg for the examination while Busseri does. Both appellants challenge the order on the basis of the scope of the examinations and of the productions.
Background:
[3] The reasons for decision set out the relationships between the parties and the extensive litigation history. The plaintiff Frank D’Addario was the founder and former president of EMS. The plaintiffs owned shares in EMS. D’Addario left the employ of EMS in 2005 after a dispute with the board of directors. Nine lawsuits ensued. The litigation proceedings relevant to the motion are summarized on pages 2 – 4 of the reasons for decision. In October, 2005, consent orders were made in the Toronto action commenced by Sansone and in the Ottawa action commenced by these plaintiffs. Subsequently an order was made consolidating those actions. In December 2005, the plaintiffs in this action, Busseri and others executed a settlement agreement. In June 2006, a consent order was made in the consolidated action that certain claims were dismissed while the proceedings would continue between Sansone and the D’Addario interests. No release was given by the plaintiffs to EMS or Busseri.
[4] In November, 2006, this action was commenced. The statement of claim alleges a conspiracy amongst Sansone, Busseri and EMS to deprive the plaintiffs of their share ownership in EMS by fraud, deceit and extortion. It alleges that in furtherance of the conspiracy, Busseri and EMS wrongfully solicited and obtained confidential information concerning the plaintiffs’ share certifications from the transfer agent for EMS, through their counsel, Aird & Berlis. It is alleged that the information was wrongfully conveyed to Sansone with the knowledge that it would be used by Sansone to obtain the plaintiffs’ shares in EMS by fraud, deceit and extortion. The claim describes the acts allegedly committed by the defendants in furtherance of the conspiracy.
[5] Before delivering a statement of defence, the defendants EMS and Busseri (then both represented by Mr. Chalmers) served a motion pursuant to rules 21.01(1)(b), 21.01(3)(d), and 25.11 to strike the statement of claim on 4 grounds: the claim is estopped by reason of the Main Release dated December 12, 2005; the claim is res judicata and an abuse of process based on the June 2006 order; the claim is an abuse of process as damages are sought for the deprivation of the use and benefit of the EMS shares yet the plaintiffs caused the loss by consenting to the two orders in October 2005 that prevented any dealing in the shares; the statement of claim discloses no cause of action against Busseri in his personal capacity.
[6] In the notice of motion, Mr. Chalmers asserted that neither Wilder nor Begg would offer evidence relevant to the four issues. First, he asserted that the resolution of the question as to whether the claim is barred by the Main Release requires the Court to review the claim and the Main Release. Those documents will speak for themselves and the parol evidence rule precludes the consideration of external evidence. Even if there was evidence of Wilder’s involvement in the preparation of the Main Release, that evidence would not assist the Court in interpreting the Main Release. Second, he asserted that the res judicata issue would be determined by the Court reviewing the claim that had been disposed of, the order by which it was dismissed, the second claim and the plaintiffs’ evidence as to why the second claim was not made in the previous action. Third, he argued that the question as to whether the plaintiffs consented to the restrictions on their shares as the cause of their alleged losses involves a consideration of the terms of those restrictions and a legal analysis of the consequences. The terms of those restrictions are self-evident. Last, he argued that the question as to whether the claim discloses a reasonable cause of action against Busseri involves a consideration of the self-explanatory language in the statement of claim. No evidence is required. On all 4 points, Mr. Chalmers asserted that neither Wilder nor Begg had relevant evidence.
[7] Conversely, he asserted that the only evidence that Wilder and Begg might have relates to the specifics of the relationship among Sansone, Busseri and EMS and whether that evidence establishes the tort of conspiracy. He took the position that those particulars are not relevant to the only issue on the motion, namely, were the plaintiffs aware of the conspiracy at the time they consented to the order dismissing the previous action against EMS.
[8] Mr. Chalmers provided a Venn diagram that illustrated his point. The issues in the statement of claim were represented by the entire oval while, in his estimation, the issues relevant to the motion to strike the claim occupied about 30% to 40% of the oval.
[9] Mr. Crawley’s notice of motion asserted that Busseri was not in a position to offer evidence that would be relevant to the 4 issues in the motion.
[10] In support of the motion by the defendants, the affidavit of Book sworn March 2, 2007 was delivered. It consists of 24 paragraphs and attaches 6 pleadings, 4 prior orders and the Settlement Agreement dated December 12, 2005.
[11] In response to the motion, the plaintiffs served a lengthy affidavit of D’Addario sworn April 20, 2007 that consists of 16 pages and 54 paragraphs. In that affidavit, D’Addario asserted that the Sansone action was not included in the December 2005 settlement and that the order made in June 2006 did not determine any of the issues. He explained the role that Wilder and Begg had played on the issue of disclosure of confidential information. D’Addario also deposed that he was forced at gunpoint to sign a document on August 24, 2005 and that the document relied on by Sansone (Consulting and Share Pledge Agreement) is fraudulent. He stated that had he had the information at the time of the order in June 2006 he would not have consented to a dismissal of the action against EMS and would have amended the counterclaim to reflect those circumstances. He attached 31 exhibits including the draft amended statement of claim as against Busseri.
[12] On behalf of EMS, Mr. Chalmers filed a supplementary motion record that consisted of another affidavit of Book sworn May 10, 2007. The affidavit is 10 paragraphs but it attaches 4 exhibits arising from a previous motion: an affidavit of Sansone sworn February 2, 2006 (135 paragraphs); an affidavit of Busseri sworn February 10, 2006 (39 paragraphs); an affidavit of Kane sworn February 14, 2006; and a factum filed on behalf of D’Addario in February 2006.
[13] Counsel for D’Addario served summonses to witness on Wilder and Begg and a notice of examination on Busseri. None of the witnesses attended. Counsel for EMS and for Busseri brought motions to strike the summonses and the notice of examination. Counsel for D’Addario brought a cross-motion to compel them to attend.
The Decision From Which Leave To Appeal is Sought:
[14] The motions judge noted that the plaintiffs took the position that the res judicata/abuse of process issue necessitated the proposed examinations. With respect to the summonses to Wilder and Begg, he referred to the test under rule 39.03 established by the Ontario Court of Appeal in the Ontario Federation of Anglers & Hunters v. The Queen in Right of Ontario[^2].
[15] The motions judge then considered whether Busseri was a “person” under rule 39.03 and he assumed for purposes of the motion that the test for evidence under rule 39 is applicable to the proposed examination of Busseri.
[16] The motions judge considered the submissions of Mr. Chalmers and Mr. Crawley that the evidence was not necessary and that greater detail of the allegations in the statement of claim was not relevant. He concluded that all of Begg, Wilder and Busseri had been involved in the process by which share information regarding the shares of EMS owned by the plaintiffs had been provided to Sansone in 2005. He concluded that “they clearly have information relevant to the issues on the motion to strike the statement of claim”.[^3] He rejected the argument that what was sought by the plaintiffs was merely particulars or specifics of the allegations made by Mr. D’Addario in his affidavit. He observed that the particulars might ultimately be found not to be important but that the position of the defendants “should not dictate the kind of case that the plaintiffs may wish to pursue on the motion”.[^4] He held that the plaintiffs were “entitled to explore with the three proposed witnesses all of their information relevant to the allegations raised against EMS and Busseri in the current action”. [^5] He specifically found that this was not a fishing expedition or wild goose chase. He noted that on a motion to strike the entire claim on the basis of res judicata and abuse of process, the plaintiffs’ “search for truth should not be hamstrung at this stage”.[^6]
[17] The motions judge then considered the assertion by EMS and Busseri that the scope of documents requested to be produced in the summonses indicated that the examinations were “nothing more than a fishing expedition”. Again he held it was not. Rather, the witnesses must produce documents that are “relevant to the claim as pleaded in the statement of claim” because the plaintiffs “are in no position to itemize what the relevant documents may be”. [^7]
Grounds for Seeking Leave to Appeal:
[18] Counsel rely on rule 62.02(4)(a) and (b). Mr. Chalmers and Mr. Crawley argued that the motions judge has required the witnesses to answer questions and produce documents on matters involved in the action while answers and production should have been limited to matters involved in the motion to strike the statement of claim.
Conflicting Decisions:
[19] Mr. Chalmers took the position that there are five decisions in conflict with that of the motions judge. In Hamilton Harbour Commissioners v. J.P. Porter Co. Ltd. Et al[^8] the plaintiff brought an action for damages for conspiracy to defraud, naming three corporate defendants and three individual defendants. One of the corporate defendants brought a motion to stay the action and, in aid of that motion, issued subpoenas to examine two co-defendants. The motion for stay was based on the assertions that the proliferation of civil and criminal proceedings constituted harassment; that the defendant had no documents because they had been seized by the police; that there was a possibility of self-incrimination; and that, in light of the publicity, there ought to be a stay in the interest of justice and fairness for that defendant.
[20] Cory J. heard an appeal from an order of a Master requiring the two individual defendants to answer questions pursuant to then rule 230. He relied on Re Canada Metal Co Ltd. Et al. and Heap et al.[^9] for the proposition that the evidence must be relevant to the issue on the motion. Cory J. pointed out that the case before him was a very different situation since the examination was sought prior to pleading. He noted that particular care must be exercised in a situation where the action in based on conspiracy and the defendants are alleged to be co-conspirators. Cory J. then considered the questions for which answers had been refused at the examination. He disagreed with the Master on all questions and held that none were relevant to the issues raised on the motion.
[21] In Horvat et al. v. Feldman et al.[^10], the defendants had brought a motion for security for costs. The plaintiffs served notices to examine one of the defendants and a non-party on the merits of the action. The Master dismissed a motion by the defendants to set aside the notice of examination. McKinlay J. (as she then was) dismissed the appeal by the defendants. She noted that in making such order for security for costs “as is just”, the court may consider the merits of the action. Since the Master had in a preliminary way, defined the limits of the subject-matter to be covered on the examinations, she did not consider that the examinations amounted to an abuse of process. She concluded that the objective in rule 1.04(1) that the rules be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits, would be advanced by a consideration of the merits at that early stage.
[22] In Elfe Juvenile Products Inc. v. Bern[^11] proceedings were pending in Quebec and in Ontario, both of which involved disputes among shareholders in a closely-held corporation. The respondent brought a motion to stay the Ontario application. That respondent obtained an order permitting the examination of SB, a non-party witness, on the pending motion to stay. SB attended but refused to answer certain questions. The applicant obtained an order from the Master compelling SB to re-attend and answer the questions. SB appealed. The issue was the scope of allowable questions to a non-party.
[23] White J. allowed the appeal in part. He too relied on Canada Metal and Hamilton Harbour. He restricted the questioning to matters in issue in the motion which was based on forum non conveniens. However, he noted at paragraph 50 that the “disposition of the appeal has been much guided by the excerpts from the reasons for decision” by the judge who had ordered that the examination take place. He concluded by noting that “drawing the line in any particular instance when one is considering the scope of relevance of the examination of a non-party under rule 39.03 is not easy. It is, in a sense, a sensitive exercise of discretion.”
[24] Transamerica Life Insurance Company of Canada v. The Canada Life Assurance Company et al[^12] has evolved as a seminal case on the examination of a witness for use on a pending motion. After suffering significant losses on mortgage investments, the plaintiff brought an action against CLAC and it’s wholly owned subsidiary CLMS. CLAC brought a motion for summary judgment to have the action against it dismissed. The plaintiff served a summons to witness pursuant to rule 39.03(1) on a member of the Office of the Superintendent of Financial Institutions (OSFI) to examine him in connection with the pending motion. The summons required the production of virtually every communication between the defendants and the OSFI relating to CLMS from the time of its incorporation. The defendants moved to set aside the summons on the ground that the information sought was not relevant to the issues to be decided on the motion and that the documents and information sought were subject to common law and statutory confidentiality.
[25] Sharpe J. (as he then was) restricted the scope of documentary production, and imposed conditions to assess the confidentiality concerns, but directed that the examination would proceed. In arriving at those conclusions, he held as follows:
The defendants contend that the undertaking and the terms of regulatory approval are irrelevant to the issue on the summary judgment motion. In my view, in light of the pleadings and the stage these proceedings have reached, it would be wrong for me to accept this argument and, in effect, decide now that the undertaking has no bearing on the liability of C.L.A.C. In making this argument the defendants are, in effect, anticipating the summary judgment motion and asking me now to decide the substantive issue of what the undertaking means and whether it provides any basis for attaching liability to C.L.A.C. The issue of the nature and meaning of the undertaking is put squarely in issue by the pleadings and the plaintiff clearly asserts the undertaking as one element in its claim against C.L.A.C. The summons is intended to permit the plaintiff to obtain evidence relevant to that issue. The time to decide the legal and factual issues pertaining to the undertaking and liability of C.L.A.C. is the motion for summary judgment proper, not this preliminary procedural motion. I hardly need add that in reaching the conclusion that on the pleadings as they stand, the inquiry proposed by the plaintiff is permissible on grounds of relevance, I express absolutely no view as to the ultimate issue of whether the undertaking provides a basis in fact or law to attach liability to C.L.A.C. That is a matter to be dealt with on the summary judgment motion proper.
The defendants further submit that the plaintiff has failed to establish a reasonable factual basis for the proposed examination. They say that on the evidence before me, it is clear that the undertaking does not have the meaning the plaintiff attributes to it, nor is there any reason to suspect that the regulatory authority required or imposed any prohibition upon activities of C.L.M.S. which could assist the plaintiff in fixing liability on C.L.A.C. They contend that the proposed examination of Mr. H is nothing more than an attempt to obtain discovery of a third party and a “fishing expedition” not permitted by the rules.
While I accept the proposition that rule 39.03 cannot be used to conduct third party discovery or “fishing expeditions”, I do not accept the argument that that is what is involved here. In effect, the defendants are saying that a party seeking to conduct a rule 39.03 examination must show some likelihood that the examination will yield evidence helpful to that party. In my view, this places too heavy an onus on the party seeking to examine a witness. A party resorting to a rule 39.03 examination is required to show that the proposed examination will be on an issue relevant to the pending motion and that the party to be examined is in a position to offer relevant evidence. I am aware of no authority which requires the party to go one step further and show that the proposed examination will yield evidence helpful to that party’s cause. . . .
[26] Sharpe J. then noted that the summons required production of all information provided by the defendants to OSFI from approximately 1974 to the present, approximately 20 years. He observed that that would almost certainly include matters not relevant to the summary judgment motion and he read those paragraphs in the summons to restrict disclosure.
[27] In Teranet Inc. v. Canarab Marketing Corp.[^13] the plaintiff brought an application pursuant to s. 185(18) of the Ontario Business Corporations Act for a determination of the fair value of the shares of the defendant. The defendant brought a motion for an order compelling examination of the president of the plaintiff as a witness or requiring the plaintiff to produce certain information. Pepall J. granted the motion in part. She referred to the context imposed by the OBCA in such applications and the requirement to serve an affidavit of documents. She noted that rule 39.03 should not be used to conduct a general discovery in an application but that there were occasions where a limited examination is appropriate. She considered the matter before her to fall into that category of appropriateness. She concluded that permitting a limited examination would be in keeping with rule 1.04(1). She directed the plaintiff to produce most of the requested information in the expectation that examination might not then be necessary.
[28] I do not see that those decisions are conflicting with the decision of the motions judge. In each decision, the court has noted that the examination or the production of documents must be relevant to the issues in the motion or in the application. In Hamilton Harbour, the circumstances were unique and were made complicated by the implications of criminal prosecution. In Horvat, the court allowed examination on the merits in the context of the motion for security for costs. In Elfe, the court allowed the examination but restricted it to the readily identifiable issues in forum non conveniens, having been guided by the parameters set by the judge who ordered the examination to occur. In Transamerica, the scope of examination was restricted from the too broad period of 20 years. But the court rejected the notion that simply because the moving party sought to restrict the scope did not mean that that could be forced on the respondent. Furthermore, the party seeking the examination need not establish that the examination will yield evidence helpful to that party’s cause. And in Teranet, disclosure was ordered that might foreclose the necessity of examinations. Those cases illustrate that when the principle of “relevance to the motion” is applied, different circumstances yield different results.
[29] The motions judge applied the principle of relevance to the motion. In this case, relevance is established by the record on the motion to strike the statement of claim. As indicated above, it was extensive. As the Venn diagram illustrated, the very issues raised in the statement of claim were engaged in the motion to strike out the entire claim. But as the motions judge noted, just because the moving parties seek to confine the areas to be explored does not mean that they can dictate those parameters to the plaintiffs. Simply because, in the “sensitive exercise of discretion”, the motions judge concluded that relevance included issues in the action does not mean that his decision is in conflict with those cases.
[30] Mr. Crawley argued that the order was in conflict with Transamerica because the issue on which Busseri could give evidence had not been specified. It is the case that in Transamerica and in Elfe, there was an indication as to the areas to be covered in the examination. The motions judge did not carve out any specified areas on which counsel for the plaintiffs could examine Busseri. But the fact that the motions judge did not include that detail does not mean that the order is in conflict with Transamerica because the record speaks to that point.
Good Reason to Doubt the Correctness of the Order:
[31] Counsel for the moving parties observed that they need not establish that the order was wrong or probably wrong; they need only demonstrate that there is good reason to doubt its correctness. [^14] They argued that there is good reason to doubt the correctness of the order based on the following implications: it significantly expands the scope of rule 39.03 examinations; it orders production and discovery from non-parties without having considered the test for such production and discovery; it grants discovery before the close of pleadings; it grants multiple discoveries; and it results in a discovery which is not subject to the deemed undertaking rule.
[32] Mr. Crawley also argued that, with respect to Busseri, there were two additional reasons to doubt the correctness of the order: the failure of the motions judge to identify the issue on which he could give evidence relevant to the motion; and the failure of the motions judge to direct himself to whether this new proceeding is the same as the prior proceeding as it relates to conspiracy.
[33] I do not agree that any of those implications necessarily follows. Rule 39.03 will continue to be applied to specific fact situations. It goes without saying that a very serious motion to strike a pleading will attract a diligent response by the plaintiffs. That does not necessarily constitute discovery before the close of pleadings or multiple discoveries. The fact that the deemed undertaking rule applies to discovery but not to examinations is not a matter that can be addressed on an appeal from an order such as this. The alleged failures on the part of the motions judge asserted by Mr. Crawley give me no reason to doubt the correctness of his order.
[34] Furthermore, I agree with Ms. Evans that the motions judge correctly determined that the scope of the motion to strike the statement of claim encompassed the entire action in this case where the motion to strike goes to the heart of the claim.
Desirable that Leave be Granted/The Appeal Involves Matters of Importance
[35] I turn now to the second criterion in each of rule 62.02(4)(a) and (b). Counsel for the moving parties relied on the implications referred to in paragraphs 31 and 32 above to advance the submission that not only would the order have a significant impact on the conduct of this litigation, it also concerns matters of public importance and general application and that on either of rule 62.02(4)(a) or (b), leave should be granted.
[36] In addition, Mr. Crawley argued that it was a matter of importance to all litigants that a party would be subjected to examination on a motion without identifying the issues on which the deponent would be questioned. Furthermore, he took the position that it was a matter of general importance that the functionality of a motion under rule 21 for an early determination will be undermined if the moving party is then confronted with full discovery.
[37] Without distinguishing between the second criterion in each of (4)(a) and (b), the moving parties have not satisfied me that either exists in this case. I agree with Ms. Evans that the implications identified by counsel for the moving parties are speculative. The decision by the motions judge was based on the unique facts before him. The decision affects these parties.
Costs:
[38] If counsel are unable to agree by December 14, 2007 as to the costs of the motion for leave to appeal, they will make written submissions as follows: Ms. Evans by December 21; Mr. Chalmers and Mr. Crawley by January 4; and reply if any by January 11, 2008.
ORDER TO GO:
[39] Motions for leave to appeal are dismissed.
Postcript:
[40] A person identifying himself as Mr. D’Addario has telephoned three times inquiring about these reasons for decision. He has not reached me on any of those occasions. I am confident that Ms. Evans will advise her client about the inappropriateness of trying to communicate with a judge while a matter is under reserve.
Kiteley J.
DATE: paragraph 40 amended December 10, 2007
[^1]: [2007] O.J. No. 2307; 2007 21598 (On S.C.) [^2]: (2002) 2002 41606 (ON CA), 211 D.L.R. (4th) 741 [^3]: Para 12 [^4]: Para 15 [^5]: Para 16 [^6]: Para 16 [^7]: Para 17 [^8]: (1976) 1976 665 (ON SC), 13 O.R. (2d) 199 [^9]: (1975) 1975 675 (ON CA), 7 O.R. (2d) 185 [^10]: (1986) 15 C.P.C. (2d) 220 [^11]: (1994) 35 C.P.C. (3d) 117 [^12]: (1995) 1995 7258 (ON SC), 27 O.R. (3d) 291 [^13]: 2007 CarswellOnt 1234; 44 C.P.C. (6th) 51 [^14]: Brownhall et al. v. Her Majesty the Queen in Right of Canada (2006) 2006 7505 (ON SC), 80 O.R. (3d) 91