CITATION: Gomommy Software.com Inc. v. Blackmont Capital Inc., 2014 ONSC 2478
DIVISIONAL COURT FILE NO.: 298/13
DATE: 20140422
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
GOMOMMY SOFTWARE.COM INC.
Plaintiff
– and –
BLACKMONT CAPITAL INC., PAUL LITMAN and DAVID FOSTER
Defendants
Michael R. Kestenberg, for the Plaintiff (Appellant)
Nigel Campbell and Doug McLeod, for the Defendants (Respondents)
HEARD: April 15, 2014
PERELL, J.
REASONS FOR DECISION
A. INTRODUCTION
[1] Under rule 34.15(1)(b) of the Rules of Civil Procedure, where on an examination for discovery a person examined on behalf of the plaintiff refuses to answer proper questions or to produce documents, the court may dismiss the plaintiff’s action.
[2] It is rare that a dismissal order is made, and typically the plaintiff’s representative is ordered to re-attend the abortive examination. Typically, the court does not apply a zero tolerance approach unless the plaintiff’s non-compliance is contumelious, or where the defendant can demonstrate actual prejudice.[^1]
[3] In the case at bar, Master Graham made the order without providing the Plaintiff, Gomommy Software.com Inc., with an opportunity to remedy its defaults.
[4] Gomommy appeals the dismissal order. For the Reasons that follow, I allow Gomommy’s appeal, but on the following terms:
• Both Alan Benlolo and Sharon Benlolo shall be examined for discovery as representatives of Gomommy upon being served with a Notice of Examination in accordance with the Rules of Civil Procedure and the answers of both shall bind Gomommy.
• In the reckoning of the time limit for Mr. Benlolo’s examination for discovery under rule 31.05.1, the time expended on January 16, 2012 shall not be counted.
• The time limit for Mrs. Benlolo’s examination shall be a total of seven hours of examination except with the consent of the parties or with leave of the court for a longer examination.
• If Mr. Benlolo fails to attend his examination for discovery without reasonable excuse, the Defendants may move without notice to have Gomommy’s action dismissed.
• On his examination for discovery, Mr. Benlolo shall not refuse to answer any questions about his knowledge, information, and belief with respect to the allegations set out in Gomommy’s Statement of Claim and in default of answering such questions or for improperly refusing to answer any other questions on his examination, the Defendants may move on notice to have Gomommy’s action dismissed.
• The Defendants may initiate and continue any motion or form of discovery without leave of the court notwithstanding rule 48.04.
• The costs order of Master Graham is set aside.
• The costs on a substantial indemnity basis of the Defendants’ rule 34.15 motion shall be payable to the Defendants in any event of the cause.
B. FACTUAL AND PROCEDURAL BACKGROUND
[5] On August 21, 2009, Gomommy Software.com Inc. commenced an action against Blackmont Capital Inc., an investment broker and securities dealer.
[6] Gomommy also sued Paul Litman and David Foster. Mr. Litman is an Investment Executive or Advisor at Blackmont. Mr. Foster is Mr. Litman’s Manager at the Markham branch office of Blackmont.
[7] In its Statement of Claim, Gomommy alleged that it is an unsophisticated investor that had an investment account with Blackmont Capital. It says that the account was managed by Mr. Litman, who is a registered investment dealer.
[8] Gomommy alleges that notwithstanding its instruction to make investments in conservative, secure, low risk, long term investments, Blackmont Capital, Mr. Litman, and Mr. Foster placed Gomommy in risky investments. As a consequence, Gomommy suffered losses, and it sues for damages for negligence, breach of fiduciary duty, and breach of the rules governing registered investment dealers. Gommomy’s allegations impugn the professionalism of the Defendants.
[9] In their Statement of Defence, the Defendants deny that Gomommy was an unsophisticated investor. Blackmont and Messrs. Litman and Foster plead that all transactions undertaken in Gomommy’s trading account were made upon instructions by an authorized representative of Gomommy, usually Alan Benlolo. The Defendants say that Mr. Benlolo, who made most of the investment decisions, was an experienced investor. The Defendants deny any wrongdoing or that Gomommy suffered any damages as alleged.
[10] The Defendants’ Statement of Claim manifestly makes Mr. Benlolo’s role and relationship with Gomommy and his role and relationship with the Defendants a justiciable issue in the lawsuit. Indeed, it will be the predominate issue to be tried.
[11] After the close of pleadings, on January 7, 2010, Gomommy served a sworn Affidavit of Documents and the Defendants delivered an unsworn Affidavit of Documents on or about March 5, 2010.
[12] The parties scheduled examinations for Discovery for March 2010, but the examinations did not proceed because the parties agreed that more time was needed for a more thorough production of documents.
[13] It is to be noted that for the examinations for discovery that did not proceed, the Defendants had served a Notice of Examination in which they had identified Mr. Benlolo as Gomommy’s representative. It is also to be noted that Gomommy has never brought a motion to require the selection of a different representative other than Mr. Benlolo. These circumstances are notable because under rule 31.03 (2) of the Rules of Civil Procedure, the examining party selects the person to be examined subject to the court ordering a substitute.
[14] On August 17, 2011, Mr. Litman’s examination for discovery began, but it was not completed within the seven hour time limit imposed by rule 31.05.1(1). The Defendants submit that Gomommy’s counsel intentionally failed to complete the examination of Mr. Litman with the design of avoiding Mr. Benlolo’s examination which was to follow the next day.
[15] In any event, Gomommy asked for more time to examine Mr. Litman, but when the Defendants refused to consent to additional time, Gomommy’s counsel advised that it would move for additional examination time. Gomommy then refused to produce Mr. Benlolo, whose examination was scheduled for August 18, 2011.
[16] Thus, Mr. Benlolo did not attend his scheduled August 2011 examination, despite having been served with a Notice of Examination.
[17] No motions were brought, but in October 2011, the Defendants’ counsel agreed to permit Gomommy additional time to examine Mr. Litman.
[18] On November 14, 2011, because the action had not been set down for trial within two years from the close of pleadings, the parties attended at a status hearing before Master Haberman, who issued a Scheduling Order.
[19] It will become important to note that Mr. McLeod from the Defendants’ lawyer of record, Blake, Casssels & Graydon, attended the status hearing for the Defendants and Ms. Tina Ricci-Zulli attended for Gomommy.
[20] Master Haberman made a Scheduling Order on the consent of the parties that provided that Examinations for Discovery of all parties be completed by February 1, 2012. The Scheduling Order provides that “the representative of the corporate plaintiff shall be Mr. Alan Benlolo.”
[21] Mr. McLeod later deposed that in light of Gomommy’s consent to the timetable, the Defendants did not complain about Mr. Benlolo’s failure to attend the August 2011 examination or about other difficulties in making arrangements for the examinations.
[22] In any event, after the Scheduling Order, the Defendants served Mr. Benlolo with another Notice of Examination for an examination of “Alan Benlolo, a representative of the Plaintiff” to be held on January 16, 2012. This examination would begin after Mr. Litman’s examination.
[23] Mr. Litman’s examination for discovery continued and was completed on January 16, 2012. The examination of Alan Benlolo followed. It did not go well.
[24] Mr. Benlolo testified that he was not an officer, director, or shareholder of Gomommy but provided consulting services. He denied employee status. He said that he had never drawn a salary. He admitted, however, that he had signed a document indicating that he was a manager with Gomommy.
[25] During the examination, Enzo Di Iorio, Gomommy’s counsel, took the position that Mr. Benlolo’s answers did not bind Gomommy and that Mr. Benlolo had been produced because of the Defendants’ request and notwithstanding Gomommy’s offer to produce Mr. Benlolo’s wife Sharon, who was the president and owner of Gomommy.
[26] The Defendants’ regarded Gomommy’s position as obstructionist. During the examination, the following exchange took place between counsel for the parties:
Q. I would like production of the payroll records for 2008 and 2009 for the Plaintiff.
MR. DI IORIO [for Gomommy]: Why is that?
MR. CAMPBELL [for the Defendants]: To determine who is on salary and who’s receiving payroll.
MR. DI IORIO: Why?
MR. CAMPBELL: Because I’m entitled to know who the plaintiff is.
MR. DIORIO: You know who the Plaintiff is.
MR. CAMPELL: No, I don’t.
MR. DI IORIO: I don’t understand the basis for the question, so I’ll refuse it unless you can tell me why it’s relevant.
MR. CAMPBELL: Highly relevant. We’re trying to find out who purports to operate Gomommy Software, and this witness, in my view, is being obstructive, and so I’d like to find out whether this witness has received payroll.
MR. DI IORIO: Sorry, this witness is being obstructive?
MR. CAMPBELL: Yes.
MR. DI IORIO: Now, today?
MR. CAMPBELL: Yes.
MR. DI IORIO: How so?
MR. CAMPBELL: Well, I gather he hasn’t taken any steps to inform himself with regard to the affairs of Gomommy despite the fact he represented he was a manager of Gomommy at the material time.
MR. DI IORIO [for Gomommy]: If we’re going to get into this back and forth for the balance of the examination, then maybe it might be best if you decide who it is that you want to examine, because the normal course here would have been for you to examine the person that is actually the shareholder of the company, which is Sharon Benlolo. So you chose not to do that. You chose instead to examine Mr. Benlolo on the basis that Mr. Litman had dealings with him. We’ve now determined that he has had dealings with both. But you’re going to have to live with the decision that you make. But what I want to avoid is you having to examine Mr. Benlolo, and then suggesting that you weren’t satisfied with his examination and wanted to examine Ms. Benlolo, because that’s not going to happen.
MR. CAMPBELL: Well, I guess we can take that in front of a judge eventually. You’ve had plenty of opportunity here, I would say probably better than a year, for this witness to even take a rudimentary step in being able to answer questions on behalf of Gomommy.
MR. DI IORIO: He is answering. He’s answering questions on his own behalf. If you’re saying that there’re not sufficient and you want a representative of Gomommy, then I’ll provide Ms. Benlolo and you can ask her questions about Mr. Benlolo’s involvement by way of undertaking, I suppose, which would probably be the best way to proceed. But other than that, I’m not -- I want to make sure that you know at the outset that what we’re not going to do is allow you to have two kicks at the proverbial can. You either are satisfied that your examination for discovery will be of Mr. Benlolo or you’re going to want to Ms. Benlolo, but you’re not going to have both.
[27] I pause here to say Mr. Di Iorio was seriously mistaken in asserting Gomommy’s position about the examination of Mr. Benlolo. Rule 31.03(2) provides that where a corporation may be examined for discovery, the examining party may examine any officer, director or employee on behalf of the corporation, but the court on motion of the corporation before the examination may order the examining party to examine another officer, director or employee, and given that Gomommy had never objected to the Defendants’ selection of Mr. Benlolo as the person to be examined and given that Gomommy has never brought a motion under rule 31.03(2), Mr. Di Iorio’s statement was simply wrong.
[28] Further, Gomommy’s position about the Defendants’ questions about Mr. Benlolo’s involvement as expressed by Mr. Di Iorio was also wrong because these questions were undoubtedly relevant because Mr. Benlolo’s role and involvement was the central issue in the litigation.
[29] Returning to the narrative, after the above exchange, the examination continued, and Mr. Benlolo admitted that with his wife’s permission, he had provided investment instructions on behalf of Gomommy. He admitted that he had been present when the trading account was opened and when instructions were given to Mr. Litman.
[30] During his examination for discovery, Mr. Benlolo was not questioned about whether, as alleged in the Statement of Defence, he was an experienced investor or whether he had made inquiries and undertaken research in relation to Gomommy’s investments. The questioning did not get that far.
[31] The Defendants’ counsel questioned Mr. Benlolo about the involvement of Domain Registry Group. Answers were refused on grounds of non-materiality and irrelevance.
[32] On the advice of counsel, Mr. Benlolo refused to answer questions about Gomommy’s damages or about its financial records or about the source of funds allegedly invested by Gomommy. He refused to answer questions about Gomommy’s banking arrangements. He refused to answer questions about Marilyn Benlolo’s [another Benlolo] relationship to Gomommy. He refused to answer any questions about Domain Registry Group notwithstanding that there was evidence that its funds were used for investments. He refused to answer questions about whether Domain Registry Group had experienced investment losses.
[33] After these numerous refusals, the Defendants’ counsel adjourned the examination to seek the instructions of the court.
[34] Nine months then passed before the Defendants brought a motion to dismiss Gomommy’s claim pursuant to Rule 34.15 or in the alternative for order compelling Mr. Benlolo to answer the questions refused.
[35] In support of their motion, the Defendants relied on an affidavit from Mr. McLeod who recounted the events described above. The Defendants also relied on Mr. Litman’s testimony from his examination for discovery. Gomommy relied on an affidavit from Ms. Ricci-Zulli. Neither deponent was cross-examined on their affidavits.
[36] Mr. McLeod and Mr. Litman provided the following information about Mr. Benlolo’s involvement in the Gomommy investment account:
• In the account opening information, Sharon Benlolo is listed as the President and 100% owner of Gomommy and Mr. Benlolo, her husband, is listed as Manager;
• A Corporate Resolution and Trading Authorization were executed by both Mrs. Benlolo and Mr. Benlolo expressly authorizing Mr. Benlolo to deal with the Account. These documents stated that Mr. Benlolo was employed by Gomommy as its “Manager”;
• Mr. Benlolo was involved in giving instructions in most if not all of Gomommy’s investments as confirmed by Mr. Litman’s contemporaneous notes;
• The Defendants had examples of correspondence, including numerous emails, and records of telephone calls from Mr. Benlolo;
• Affiliates of Gomommy were making large transfers of funds in and out of the account and, in particular, several such transfers, ranging from $130,000 to $285,000, were completed by the Gomommy affiliates “Domain Registry Group” and “Gomommy Email Inc.”;
• Mr. Benlolo has multiple criminal convictions for fraud, including securities fraud, in both Canada and the United States.
[37] I pause here to say that it is apparent that the Defendants had gathered considerable evidence to prove their allegations that Mr. Benlolo was making the investment decisions for Gomommy and that he was no neophyte in the securities marketplace. I make this observation because it is relevant to the matter of prejudice, which I will discuss below.
[38] Returning again to the narrative, on June 10, 2013, Master Graham heard the Defendants’ motion and also a motion by Gomommy with respect to Mr. Litman’s examination.
[39] During the Defendants’ motion, the Defendants submitted that Mr. Benlolo was clearly the appropriate representative to be examined and that Gomommy’s conduct was far more serious than a mere disagreement over the selection of a representative for examination or the propriety of a few questions on examination.
[40] Rather, the Defendants submitted that the conduct described above constituted a cavalier and intentional disregard by Gomommy of its discovery obligations and that Gomommy had engaged a strategy of protracted maneuvering, misdirection, evasiveness and games-playing through the discovery process, and as a result had repeatedly denied the Defendants any meaningful discovery. The Defendants submitted that they would be prejudiced in their ability to defend themselves were the action to continue and that the action ought to be dismissed without a hearing of the merits.
[41] Master Graham was convinced by these arguments. He granted the Defendants’ motion, and in his oral and transcribed reasons for decision, he stated:
My decision is as follows. The issue on this motion under rule 34.15(1) to dismiss the Plaintiff’s action for failure of Mr. Benlolo to answer questions at his Discovery on January 16, 2012, is whether the Plaintiff’s conduct is such an egregious breach of the Plaintiff’s obligation to make full disclosure that the Plaintiff should no longer be able to proceed with this action.
In this regard, I rely on Cardoso v. Cardoso, a decision of Justice Kiteley, reported at 1998 CarswellOnt 896 and also the decision of Master Albert in Madonia v. Mulder reported at 2001 CarswellOnt 1025, in particular at paragraphs 47, 48. I’m also mindful of the words of the Court of Appeal in Maden and Hunter reported at 2004 17834 (ON CA), [2004] O.J. No. 748 cited by Master Haberman in Myotec v. Royal Bank, which is itself reported at [2006] O.J. No. 463 as follows:
The court is always reluctant to dismiss a potentially meritorious claim on grounds that do not address its merits. Unless the defendant can demonstrate prejudice in the sense that to grant the plaintiff the indulgence he or she seeks will prejudice the defendant’s ability to defend the claim, the indulgence will usually be granted on appropriate terms.
There’s no question that Alan Benlolo is an appropriate representative to be examined on behalf of the Plaintiff. …. [T]he plaintiff which has commenced the action made allegations against the defendants and exercised it [sic] rights of discovery against the defendants, is now apparently not prepared to allow the defendants to exercise those same rights on their behalf.
The question is what sanctions should the court impose in these circumstances. If it were simply a matter of a disagreement over relevant questions then the court could remedy the conduct by ordering re-attendance and costs. However, in this case, the – the defendants after two years of attempting to examine Mr. Benlolo with no suggestion that from plaintiff’s counsel that his answers would not bind the corporation, were in effect deprived of their discovery rights. The plaintiff’s conduct in this regard constitutes an abuse of process, which, as stated in paragraphs 30 through 33 of the defendants’ factum, has resulted in prejudice of the defendants. This conduct is sufficiently egregious to persuade the court to deprive the plaintiff of its right to proceed with its action. This case can be distinguished from Myotec on its facts. In Myotec, at the bottom of page six, Master Haberman, in allowing the action to proceed comments that there was the absence of even a suggestion of prejudice as well as uncertainty as to whether Mr. Boreham was eligible to be examined as the plaintiff Myotec’s witness. In this case, I have referred to the prejudice as outlined in the Plaintiff’s factum … Accordingly, I order that pursuant to rule 34.15(1)(b), the Plaintiff’s action is hereby dismissed.
[42] As may be noted, Master Graham agreed with the Defendants’ submissions of prejudice as set out in their factum. Those submissions were as follows:
As noted, Mr. Benlolo was authorized to act on behalf of Gomommy as its “Manager” in regard to the Account, and he did in fact act on behalf of Gomommy in regard to the events in question. On the crucial - and quite possibly determinative - question of suitability, then, it will be Mr. Benlolo’s conduct, investment sophistication, and investment preferences that dictate what was “suitable” for Gomommy. The Defendants accordingly need to examine Mr. Benlolo on behalf of Gomommy on these points, for both discovery and impeachment purposes.
Furthermore, Mr. Benlolo’s history as it pertains to his experience and sophistication with securities and financial matters is also highly relevant circumstantial evidence that the Defendants would be entitled to explore. Included amongst this history is Mr. Benlolo’s record of engaging in sophisticated securities and other financial fraud. Beyond the obvious bearing that these “offences of dishonesty” have on Mr. Benlolo’s - and by extension, Gomommy’s - credibility, it is clearly plausible that someone who possesses the sophistication to make large sums of money impersonating a broker-dealer investment firm and manipulating stock prices is hardly, as Gomommy alleges in its claim, “virtually inexperienced” in regard to securities, and this is therefore a relevant line of inquiry for the Defendants to explore on discovery. Moreover, the nature of Mr. Benlolo’s financial transactions, including as noted by Madam Justice Molloy, behaviour such as attempting to move funds offshore in the face of criminal charges, may also be relevant in illustrating why he would have wanted Gomommy to invest with a view to aggressive short-term securities and would have directed the Defendants in that regard.
It would have been by examining Mr. Benlolo as Gomommy’s representative - and only with Mr. Benlolo’s good faith adherence to his obligations in answering questions on any such examination - that the Defendants would have been able to explore these highly relevant areas and in turn, be able to fully develop and assert their defences at any trial of this action.
Master Clark of the Ontario Court of Justice [Metropolitan Toronto Condominium Corp. 979. v. Ellis-Don Construction Ltd., 1997 CarswellOnt 377 (Master)] has held where there is one individual alive who is able to respond usefully and efficiently on behalf of a corporation, denying the opposing party the ability to examine that person before trial is “gross and patently unfair”. On the basis of the facts above, Mr. Benlolo is clearly the one person able to respond usefully and efficiently to the Defendants’ questions, and the Defendants have been grossly and patently prejudiced by Gomommy’s inappropriate refusal to cooperate in allowing Mr. Benlolo’s examination.
C. DISCUSSION AND ANALYSIS
1. Standard of Appellate Review
[43] A Master's decision will be interfered with on appeal if the Master made an error of law or exercised his or her discretion on the wrong principles or misapprehended the evidence such that there is a palpable and overriding error. Where the Master has erred in law, the proper standard of review is correctness.[^2]
[44] An Order of a Master striking a pleading is a final discretionary order and the standard of review on appeal is: (a) correctness respecting questions of law; and (b) whether correct principles were applied in reaching the decision or was there a misapprehension of evidence such that there was a palpable and overriding error.[^3]
[45] On an appeal from a Master's Order that is a matter of discretion, the court will only interfere if the Master was clearly wrong or if he or she exercised discretion based on wrong principles or under a misapprehension of the facts.[^4]
2. The Conduct of Examinations for Discovery
[46] Rules 34.14 and 34.15 govern the conduct of examinations, including examinations for discovery, and these rules empower the court to impose sanctions for the improper conduct of an examination. The rules state:
IMPROPER CONDUCT OF EXAMINATION
Adjournment to Seek Directions
34.14(1) An examination may be adjourned by the person being examined or by a party present or represented at the examination, for the purpose of moving for directions with respect to the continuation of the examination or for an order terminating the examination or limiting its scope, where,
(a) the right to examine is being abused by an excess of improper questions or interfered with by an excess of improper interruptions or objections;
(b) the examination is being conducted in bad faith, or in an unreasonable manner so as to annoy, embarrass or oppress the person being examined;
(c) many of the answers to the questions are evasive, unresponsive or unduly lengthy; or
(d) there has been a neglect or improper refusal to produce a relevant document on the examination.
Sanctions for Improper Conduct or Adjournment
(2) Where the court finds that,
(a) a person’s improper conduct necessitated a motion under subrule (1); or
(b) a person improperly adjourned an examination under subrule (1),
the court may order the person to pay personally and forthwith the costs of the motion, any costs thrown away and the costs of any continuation of the examination and the court may fix the costs and make such other order as is just.
SANCTIONS FOR DEFAULT OR MISCONDUCT BY PERSON TO BE EXAMINED
34.15(1) Where a person fails to attend at the time and place fixed for an examination in the notice of examination or summons to witness or at the time and place agreed on by the parties, or refuses to take an oath or make an affirmation, to answer any proper question, to produce a document or thing that he or she is required to produce or to comply with an order under rule 34.14, the court may,
(a) where an objection to a question is held to be improper, order or permit the person being examined to reattend at his or her own expense and answer the question, in which case the person shall also answer any proper questions arising from the answer;
(b) where the person is a party or, on an examination for discovery, a person examined on behalf or in place of a party, dismiss the party’s proceeding or strike out the party’s defence;
(c) strike out all or part of the person’s evidence, including any affidavit made by the person; and
(d) make such other order as is just.
(2) Where a person does not comply with an order under rule 34.14 or subrule (1), a judge may make a contempt order against the person.
[47] In the case at bar, technically, Mr. Benlolo did not attend the August 2011 examination at the time fixed in the notice of examination. However, given the consent order made at the November 2011 status hearing, in my opinion, that default was subsumed by the court’s status hearing scheduling order, which Gomommy complied with, at least to the extent that Mr. Benlolo’s examination got underway in January 2012 and some little progress was made.
[48] Although there was no default for a failure to attend an examination, Master Graham was correct in concluding that Mr. Benlolo had refused to answer proper questions and to produce documents that he as Gomommy’s representative was required to produce for the January 2012 examination for discovery. Thus, the Master made no error in law and certainly no palpable and overriding error of fact in concluding that he was empowered to exercise the court’s jurisdiction under rule 34.15(1) to impose sanctions for misconduct by Gomommy.
[49] The issue then for the Master became what remedial order to make under rule 34.15, and the issue for this appeal is whether the Master made an error in deciding to dismiss Gomommy’s action.
[50] Although rule 34.15(1) provides as a possible sanction for misconduct at an examination, the dismissal of the proceeding, this sanction is regarded as draconian, and it is reserved for the most extreme cases where the delinquent party has been contumacious or has deliberately flouted the law and the other party can demonstrate that their ability to prosecute or defend the claim would be prejudiced by the delinquent party being ordered to reattend to be examined.[^5]
[51] Although under Rule 34.15, the court has the power to dismiss a plaintiff's claim, before doing so the court must balance the prejudice to the plaintiff if his action were dismissed with the prejudice to the defendant if the action were to proceed.[^6] In Mader v. Hunter,[^7] the Court of Appeal stated:
The court is always reluctant to dismiss a potentially meritorious claim on grounds that do not address its merits. Unless the defendant can demonstrate prejudice in the sense that to grant the plaintiff the indulgence he or she seeks will prejudice the defendant's ability to defend the claim, the indulgence will usually be granted on appropriate terms.
[52] In general, courts are disinclined to dismiss an action or strike out a defence for failure to comply with the rules of court, and while courts are empowered to do so and do from time to time dismiss claims or strike defences, judges much prefer to decide actions on their merits. In Starland Contracting Inc. v. 1581518 Ontario Ltd.,[^8] the Divisional Court approved Justice Gray’s observations in Broniek-Harren v. Osborne,[^9] where he describes the competition that sometimes occurs between having a party's case determined on its merits and the need for the orderly procedural progress of litigation. Justice Gray stated:
The policy underlying the Rules of Civil Procedure is twofold: to ensure that cases that are not settled are tried on their merits; and to ensure that cases are processed, and heard, in an orderly way. A civilized society must ensure that a credible system of justice is in place, and the Rules of Civil Procedure, made pursuant to the Courts of Justice Act, reflect the scheme created by the Province for the orderly handling of civil cases.
The Rules reflect a balance. The litigant does not have an untrammelled right to have his or her case heard. In order to be heard, a case must be processed in accordance with the Rules. By the same token, adherence to the Rules must not be slavish in all circumstances. They are, after all, designed to ensure that cases are heard. Throughout the Rules, the principle is reflected that strict compliance may be dispensed with where the interests of justice require it: see, for example, Rules 1.04(1), 2.01, 2.03, 3.02, and 26.01. The difficult issue, in any particular case, is to determine when non-compliance reaches the point that it can no longer be excused. The Court, and society as a whole, have an interest in ensuring that the system remains viable. If the Rules can be ignored with impunity, they might as well not exist.
[53] In the case at bar, Master Graham concluded that a dismissal order was warranted. He concluded there had been an egregious breach of Gomommy’s obligation to make full disclosure and that the Defendants’ ability to defend the action had been prejudiced because they were being denied their discovery rights and by Gomommy’s refusal to cooperate in allowing Mr. Benlolo’s examination as the representative of Gomommy.
[54] In my opinion, the Master’s conclusions were based on an overriding and palpable error of fact and an incorrect application of the law about when a dismissal order may be made under rule 34.15.
[55] It is understandable that the Master would be impressed by the Defendants’ justifiable frustration and anger at what occurred at both the August 2011 examination when Gomommy refused to produce Mr. Benlolo and at the January 2012 examination when Gomommy’s counsel instructed Mr. Benlolo not to answer proper questions and took the manifestly wrong position that Mr. Benlolo’s answers did not bind the Plaintiff Gomommy. But justifiable frustration and anger do not equate with prejudice and an egregious breach of Gomommy’s obligations to make full disclosure. The misconduct did not amount to contempt or a deliberate flouting of the law.
[56] In the case at bar, it was an error of fact and in law to conclude that Gomommy’s breaches could not be sanctioned by a corrective order. The Order that was called for in the circumstances of this case is the Order that I have set out in the Introduction to these Reasons for Decision.
[57] The Defendants’ passionately made assertion of prejudice in the case at bar does not establish objective prejudice and certainly there was no prejudice that could not be remedied by ordering a restart of Mr. Benlolo’s examination with the backup of an examination for discovery of Mrs. Benlolo.
[58] In Jack v. Gowling, Strathy & Henderson,[^10] where the plaintiff had failed to comply with undertakings despite two court orders that she do so, the Court of Appeal set aside an order dismissing the action because the defendant could not show any objective prejudice from the plaintiff’s non-compliance with the court orders.[^11]
[59] The Defendants’ complaint that they had been denied the right to an examination binding on Gomommy because of the position taken by Gomommy’s counsel was a phantom complaint because Mr. Di Iorio was just wrong and most if not all of his instructions to Mr. Benlolo to refuse to answer were also wrong, but this error could be addressed by ordering Mr. Benlolo to attend and answer the proper questions. Whatever prejudice the Defendants suffered can be redressed by a remedial order of the sort set out above.
[60] The evidence of Mr. Benlolo’s involvement in other cases seemed to impress the Master about the foolishness of Gomommy’s position, but the evidence also showed that the Defendants were not being fooled or prejudiced by non-disclosure from Mr. Benlolo.
[61] The evidence before the Master revealed that the Defendants already knew and had evidence to establish their defence that Mr. Benlolo was the mastermind of Gomommy’s investment strategy and that Gomommy was no naive or amateur investor dependent upon the guidance, recommendations, and advice of the Defendants. While the Defendants were entitled to obtain admissions and further bolster their answer to Gomommy’s claim, this was not a case where they were in the dark without the evidence of Mr. Benlolo. Further, there was no evidence that the Defendants’ so-called prejudice required a draconian order dismissing the Plaintiff’s action on technical grounds before the merits of the claim and an apparently strong defence could be tested.
[62] In Cardoso v. Cardoso,[^12] one of the cases relied on by the Master in the case at bar, Justice Kiteley stated:
Rule 34.15(1) gives the Court wide discretion to require re-attendance, to dismiss the action, to strike out evidence or to "make such other order as is just". In motions such as this, the plaintiff is often given a further opportunity to comply with its obligations. In this case, it is pointless. It is clear from the answers to date on critical questions arising from the pleadings, that the plaintiff will not fulfil her disclosure obligations. The defendants have rights to full disclosure. Those rights have been undermined and resisted by the plaintiff. There is no prospect that the rights of the defendants will be respected. In these circumstances, there is no alternative but to dismiss the plaintiff's claim.
[63] In the case at bar, it cannot be said that it would be pointless to order Mr. Benlolo to restart his examination for discovery and that there is no prospect that the rights of the Defendants will be respected. There were alternatives to dismissing Gomommy’s claim that would permit the case to be fairly tried on its merits while maintaining the integrity of the civil litigation procedure. In these circumstances, the Master made an error in dismissing the Plaintiff’s action.
D. CONCLUSION
[64] For the above reasons, I allow the appeal on the terms set out in the Introduction to these Reasons for Decision.
[65] If the parties cannot agree about the matter of costs of this appeal, they may make submissions in writing beginning with the submissions of the Defendants, who although technically the unsuccessful party on this appeal, succeeded in obtaining the Order and the sanctions that the Master ought to have ordered.
[66] The Defendants may make their submissions within twenty days from the release of these Reasons for Discovery followed by Gomommy’s submissions within a further twenty days.
Perell, J.
Released: April 22, 2014
CITATION: Gomommy Software.com Inc. v. Blackmont Capital Inc., 2014 ONSC 2478
DIVISIONAL COURT FILE NO.: 298/13
DATE: 20140422
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
GOMOMMY SOFTWARE.COM INC.
Plaintiff
‑ and ‑
BLACKMONT CAPITAL INC., PAUL LITMAN and DAVID FOSTER
Defendants
REASONS FOR DECISION
Perell, J.
Released: April 22, 2014
[^1]: Starland Contracting Inc. v. 1581518 Ontario Ltd., [2009] O.J. No. 2480 at paragraphs 23-24 (Div. Ct.).
[^2]: See Zeitoun v. Economical Insurance Group (2008), 91 O.R. (3d) 131 (Div. Ct.) at paras. 40-41, aff'd, (2009), 2009 ONCA 415, 96 O.R. (3d) 639 (C.A.).
[^3]: Starland Contracting Inc. v. 1581518 Ontario Ltd., [2009] O.J. No. 2480 at paragraphs 6 - 7 and 26 (Div. Ct.).
[^4]: Bank of Nova Scotia v. Liberty Mutual Insurance Co. (2003), 67 O.R. (3d) 699 (Div. Ct.); Marleen Investments Ltd. v. McBride (1979), 23 O.R. (2d) 125 (H.C.J.); Woodheath Developments Ltd. v. Goldman (2003), 66 O.R. (3d) 731 (Div. Ct.); Fotwe v. Citadel General Assurance Co., [2005] O.J. No. 827 (Div. Ct.).
[^5]: Anlagen Und Treuhand Conto Gmbh v. International Chemalloy Corp., [1982] O.J. No. 86 (C.A.); Chatterjee v. Westinghouse Canada Inc., [1994] O.J. No. 532 (Gen. Div.); Myotec v. Royal Bank of Canada, [2006] O. J. No. 463 at paras. 28-33 (Master); Interhaven Development Corp. v. Slovak Village Non-Profit Housing Inc., [1997] O.J. No. 3313 (Master).
[^6]: Mader v. Hunter, [2004] O.J. No. 748 (C.A.); Gurrieri v. Perkins, 2010 ONSC 2174 at para. 5 (Master); Myotec v. Royal Bank of Canada (2006), 79 O.R. (3d) 335 (Master).
[^7]: 2004 17834 (ON CA), [2004] O.J. No. 748 at para. 4 (C.A.)
[^8]: [2009] O.J. No. 2480 at paragraph 25 (Div. Ct.).
[^9]: [2008] O.J. No. 1690 at paragraphs 28-31 (S.C.J.).
[^10]: 2011 ONCA 5272.
[^11]: See also Gurrieri v. Perkins, 2010 ONSC 2174 at para. 5 (Master); Myotec v. Royal Bank of Canada (2006), 79 O.R. (3d) 335 (Master).
[^12]: [1998] O.J. No. 841 at para. 19 (Gen. Div.).