Oakdale Kitchens Inc. v. Williams & Partners, 2011 ONSC 6417

CITATION: Oakdale Kitchens Inc. v. Williams & Partners, 2011 ONSC 6417

DIVISIONAL COURT FILE NO.: 402/11

DATE: 20111028

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

B E T W E E N :

OAKDALE KITCHENS INC.

Plaintiff/Defendant to the Counterclaim

– and –

WILLIAMS & PARTNERS, CHARTERED ACCOUNTANTS LLP

Defendant/Plaintiff by Counterclaim

• and –

DOMENIC TERSIGNI

Defendant to the Counterclaim

Ian Katchin and Joshua Freeman

for Oakdale Kitchens Inc. and Domenic Tersigni

Chris Hluchan

for Williams & Partners, Chartered Accountants LLP

HEARD: October 25, 2011

DAMBROT J.:

Background

1The plaintiff/defendant to the counterclaim, Oakdale Kitchens, and Dominic Tersigni, also a defendant to the counterclaim, seek leave to appeal to the Divisional Court from an order of Whitaker J. dated July 21, 2011. That order dismissed their appeal from a decision of Master Short which in turn dismissed their motion for a further and better affidavit of documents from Williams & Partners, the defendant/plaintiff by counterclaim.

2Williams & Partners are chartered accountants, retained by Oakdale to provide accounting services. Oakdale seeks damages for negligence, breach of contract and breach of fiduciary duty arising out of the services provided by Williams.

3On February 11, 2011, Williams served its affidavit of documents on Oakdale. Williams served additional documents on March 30, 2011.

4Oakdale was not satisfied with this documentary disclosure, and sought additional documents. Williams refused to provide additional documents. As a result, Oakdale brought its motion before Master Short. In addition to seeking a further and better affidavit of documents, Oakdale sought an order for production of any and all documents created by Williams in the course of its retainer with Oakdale.

5On June 1, 2011, Master Short dismissed the motion. After a brief general discussion of the pertinent rules, he stated:

37. … on this motion, I endeavoured to assist the parties by making a determination … with respect to what documents ought to be produced at this stage, subject to any further future orders.

38. On that basis, I determined that the position of the defendant with respect to what was to be produced at this time was the more appropriate one.

39. Given that relevance is now the test for production, it seems to me that the degree of production sought by the plaintiff was overly broad. While it might in the past fallen [sic] within the "semblance of relevance" test, under the newer more restricted test I do not see how all those documents sought, could be ordered to be produced at this stage.

6He concluded, on this issue:

43. As a consequence I have determined that the appropriate resolution of this motion would be to require the defendant accounting firm to produce all relevant documents falling within the scope identified by the plaintiff's counsel (i.e. all of the documents created by Williams in the course of its retainer with Oakdale, including working papers, notes, internal and external correspondence, reports and memoranda). [Emphasis mine.]

44. However, the documents to be produced which I regard as relevant at this stage are only those relating to the work performed by Williams & Partners in the areas identified in the forensic auditor's report where fraud by the Rogues is alleged to have taken place.

7When the Master referred to a forensic auditor’s report, he meant a report prepared by Rosen Associates Limited (sometimes called the “Rosen report”) for Oakdale, in support of an injunction application. Oakdale had learned that its former Controller and Assistant Controller had perpetrated a fraud on Oakdale from 2004 to 2009, through cash diversions and unauthorized payments. Rosen was retained to examine the related accounting irregularities.

8On appeal before the motion judge, the applicants argued that the Master erred in concluding that the relevant documents at this stage of the proceedings, and that must be produced by Williams, are limited to documents relating to the fraud, as identified in the Rosen report. The motion judge did not agree. In his brief endorsement, he stated:

4. In his reasons at paragraphs 43 to 44, the Master determines that the relevant documents to be produced are those relating to the work of the defendant performed for the plaintiff, in the areas where fraud was to have occurred, and accordingly to a forensic accounting report prepared for the plaintiff and relied on in a separate action against the rogue employees (the “Rosen” report).

5. While not formally referred to in the plaintiff’s claim, parts of the Rosen report are incorporated into the language of the claim. The Rosen report clearly identifies the suspected fraudulent conduct of the rogues.

6. The parties acknowledge that the issue to be determined – which is the scope of production – is an issue of law and is to be reviewed on a standard of correctness.

7. It is also the case that the Master’s determinations deserve deference and to be successful the plaintiff appellants must demonstrate that the matter of law is vital to the disposition of the lawsuit.

8. The narrow assertion by the appellants is that the Master erred by referring to the Rosen report in determining the scope of relevance. The respondents assert that the Master relied only on the pleadings to delimit the scope of production and referred only to the Rosen report as a useful and practical device as it identifies the alleged scope of the fraud.

9. In my view, the Master correctly identified the scope of production to be relevance as governed by the pleadings. His reference to the Rosen report makes practical sense as it is agreed that this report identifies the particular areas where fraud is alleged. It would make no sense to oblige the respondent to produce material which did not in some way relate to the fraudulent activity. Given the long standing professional relationship between the parties (over the course of some 9 years), there is likely to be a fair bit of material that indeed does not relate to, deal with or is relevant to the allegations of fraud.

10. Keeping in mind that what is sought at this point are files which do not deal with circumstances of the underlying fraudulent behaviour, I find the appellant has failed to persuade me that the additional productions requested are vital to the disposition of the claim.

9Before me, the applicants argued that there is good reason to doubt the correctness of the motion judge’s order, a prerequisite for leave to appeal pursuant to rule 62.02(4)(b) of the Rules of Civil Procedure, because of:

(1) the motion judge’s conclusion that the Master did not err in limiting the relevant documents to those relating to the fraud, and determining what they were by reference to the Rosen report; and

(2) the motion judge’s reliance on an overly restrictive standard of review, namely, that he should only intervene if the Master has made an error in law “that is vital to the disposition of the claim.”

10The applicants further said that there are conflicting decisions on both issues, a prerequisite for leave pursuant to rule 62.02(4)(a) of the Rules of Civil Procedure.

11I will deal with each of these issues in turn.

Relevance

Relevance

12The applicant is correct that the Master limited the scope of relevance to those documents relating to the allegation that the respondent was negligent because it did not detect the fraud that was perpetrated on the applicant. The applicant says that the Master erred in law in approaching relevance in this fashion. The negligence alleged in the pleadings is broader than mere failure to detect the fraud, and the determination should have been accomplished by reference to the pleadings, not the Rosen report.

13The motion judge rejected this argument. In his view, the only relevant documents were those that related to the fraud. He was further of the view that in reality, the Master did determine relevance by reference to the pleadings. Some of the allegations in the Rosen report, which clearly identify the suspected fraudulent conduct, were incorporated into the language of the claim. Thus in his view the Rosen report was a practical tool for considering relevance.

14I see no reason to doubt the correctness of the motion judge’s order in this respect. Upon a fair view of the pleadings, it is plain that the allegation of negligence is based solely on the failure to detect the fraud. While the pleadings contain assertions that could be understood to allege negligence on a broader footing, these are nothing more than bald assertions that cannot be the basis for a broader scope of relevance as they currently stand.

15With respect to the use of the Rosen report, I am of the view that the motion judge was entirely correct, and I can add nothing more to what he said.

16The applicant’s remaining argument on this issue is that by narrowing the scope of relevance to one issue, and by endorsing the Master’s determination of relevance by reference to the Rosen report, the motion judge’s decision was in conflict with cases that establish that relevance must be established by reference to the pleadings. However, in light of the motion judge’s conclusion that the Master determined relevance, in effect, by reference to the pleadings, and reached the correct conclusions, the motion judge’s decision cannot be viewed as being in conflict with other decisions.

The Standard of Review

The Standard of Review

17There can be no doubt that the standard of review of a decision of a Master on a question of law is correctness. The additional requirement imposed by the motion judge that the moving party must also demonstrate that the matter of law is vital to the disposition of the lawsuit is in conflict with the recent decision of the Divisional Court in Zeitoun v. Economical Insurance Group (2008), 91 O.R. (3d) 131 (Div. Ct.) at para. 41, and must now be considered to be in error.

18However, in my view, this error had no impact on the decision made by the motion judge. Since he found no error of law in the decision of the Master, this extra hurdle for success on an appeal from a Master was without significance. As a result, in my opinion, it is not desirable that leave be granted as a result of this error (the second prerequisite in rule 62.02(4)(a)), and the proposed appeal does not involve a matter of such importance that leave should be granted (the second prerequisite in rule 62.02(4)(b)).

Disposition

Disposition

19Leave to appeal is denied. Costs to the respondent fixed at $5,000, payable forthwith.