Court File and Parties

COURT FILE NO.: 5668/11 DATE: 2017-04-18 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: SECURE SOLUTIONS INC, Plaintiffs AND: SMITHS DETECTION TORONTO LTD. ET AL, Defendants

BEFORE: Gray J.

COUNSEL: Andrew Winton, Counsel for the Plaintiff and Defendants by Counterclaim (Moving Parties) Zohaib I. Maladwala, Counsel for the Defendants Smiths Detection Toronto Ltd., Smiths Detection Montreal Inc. and Rene Shink.

HEARD: April 18, 2017

Endorsement

[1] Since the commencement of this action some six years ago, I have been case managing it. The matter was set down for trial by the plaintiff on November 17, 2015. The plaintiff now moves, pursuant to rule 48.04(1), for leave to bring a motion to require the production of new material from the Smiths defendants.

[2] For the reasons that follow, the motion is dismissed.

Background

[3] This action is somewhat complicated, but in essence it is alleged that the defendants have effectively stolen business from the plaintiff. It is alleged that the two Smiths defendants manufacture and sell technology products and services. It is alleged that prior to 2010, the plaintiff was Smiths’ exclusive distributor in the Caribbean. There were some written contracts between the parties, but as of 2010 there was no written agreement.

[4] Maureen Allen was the founder of the plaintiff, and in 2005 she sold the company but remained an employee. It is alleged that in 2009, she, together with the other defendants, misappropriated some of the business of the plaintiff resulting in substantial damages to the plaintiff.

[5] One of the issues in the case is the amount of notice, if any, that would need to be given by a party to the original business relationship, in order to terminate that relationship. The plaintiff alleges that the contract is a perpetual one, or in the alternative that it could be terminated on reasonable notice, which could be one year, two years, or some other number of years. The defendants, for their part, take the position that the relationship could be terminated on sixty days’ notice, which was the notice period specified in the last written contract that governed.

[6] The notice period will have an effect on the quantum of the plaintiff’s damages, assuming liability can be established.

[7] Each party has retained an expert to provide an opinion as to the appropriate level of damages, which will obviously vary depending on what the appropriate notice period would be for the termination of the relationship.

[8] Since the commencement of this action, the parties have been able to cooperate in the discovery process without the necessity of very much judicial involvement.

[9] Ultimately the parties agreed on a discovery plan as of November 15, 2012.

[10] As the parties came closer to the completion of the discovery process, I became more involved in assisting the parties in getting the matter to trial.

[11] It should be noted that at the time of the agreement on the discovery plan, it was agreed that the Smiths defendants would provide sales data for sales in the Caribbean, for a period of one year after the date of termination of the relationship.

[12] During examinations for discovery in 2013, the plaintiff requested that the defendants provide a second year of data. This was agreed to.

[13] In October, 2015, a refusals motion was brought, that was scheduled to be heard by me. The parties settled the refusals motion, and agreed as part of the settlement to answer certain undertakings. It was agreed that the plaintiff would deliver its expert report, and the parties could re-examine each other on answers to undertakings. The plaintiff took the position that it would answer its undertakings through the expert report.

[14] After settlement of the refusals motion in October, 2015, the plaintiff set the action down for trial on November 17, 2015. At that time, one of the outstanding undertakings was to provide the sales data for the two-year period.

[15] The defendants delivered the sales data for the two-year period in March, 2016.

[16] The parties scheduled a pre-trial before me in September, 2016. At that point, there was no request for any sales data beyond the two-year period that had been originally requested, and that had been fulfilled.

[17] On March 23, 2016, counsel for the plaintiff wrote to counsel for the defendants and requested further information relating to the sales data that had been provided. Among other things, the plaintiff requested supporting documents for the sales that had been disclosed, including quotations; purchase orders; order confirmations; invoices; proposals/responses to requests for proposals; presentations; contracts; and correspondence with customers.

[18] By letter dated May 12, 2016, counsel for the defendants responded, with respect to that particular request, that “Smiths is unable to produce the documents requested at the present time.” Counsel for the plaintiff did not pursue that response, or request any further information in connection with it.

[19] A case conference was held by me in August, 2016. At the case conference, it was anticipated that the parties and I would deal with how to use the time that had been scheduled for the pre-trial, which was scheduled for September 28, 2016. At that point, no expert reports had been exchanged, and it did not seem sensible to use the pre-trial for settlement purposes until the expert reports were at hand.

[20] Ultimately, it was decided at the case conference that the pre-trial on September 28, 2016 would be used to discuss scheduling, and that a further pre-trial for mediation purposes would be held later. As of the date of the case conference in August, 2016, the plaintiff had not requested any sales data beyond the two-year period for which the data had already been produced.

[21] At the pre-trial held on September 28, 2016, counsel for the plaintiff, for the first time, stated that he would be requesting sales data for a third year after termination of the relationship. I expressed concern as to whether this might delay the holding of the trial, and I was assured by all counsel that this issue would not hold up the trial.

[22] I imposed an expedited timetable for the delivery of further material prior to the trial:

a) delivery of the plaintiff’s expert report, by October 12, 2016; b) examination on undertakings relating to damages, by November 30, 2016; c) answers to undertakings arising from that examination, by December 31, 2016; d) delivery of Smiths’ expert report, by February 28, 2017.

[23] I also imposed an expedited timetable relating to the potential request for a third year of sales data:

a) Smiths to advise if it would voluntarily produce the data, by October 10, 2016; b) if refused, the plaintiff to decide whether to bring a motion to seek the data, by October 20, 2016; c) if the motion was to be brought, the plaintiff to deliver its motion record by October 31, 2016.

[24] After the pre-trial on September 28, 2016, a judicial mediation was scheduled for April 28, 2017, and a fixed trial was scheduled by Daley RSJ to commence in May, 2018.

[25] The plaintiff’s expert report was delivered, and is dated October 7, 2016. Mr. Soriano, the plaintiff’s expert, does not actually rely on any of the sales data provided by the defendants, but rather projects the gross profit that the plaintiff allegedly could have realized during the “loss period”, less the actual gross profit that was realized, and less certain operating expenses that the plaintiff saved during the loss period as a result of the actions of the defendants, plus certain mitigation costs that the plaintiff incurred.

[26] While Mr. Soriano, in his calculations, does not expressly rely on the sales data provided by the defendants, he does indicate in an appendix to his report that he took that sales data into account. The sales data itself is listed, but it is not clear from the report how he took it into account.

[27] Counsel for Smiths has recently disclosed that some of the business was transferred to another company, Smiths Detection Inc., who is not a defendant. Smiths has taken the position that to the extent that any data or material is in the possession of Smiths Detection Inc., a motion to require its production must include that non-party as a responding party.

[28] This motion has been brought well beyond the time that was contemplated and fixed at the time of the pre-trial held on September 28, 2016. Counsel for the plaintiff very candidly advises that this was entirely due to his inadvertence, and the delay should not be visited on his client. I accept counsel’s assertion in that regard, and I have not taken the delay into account.

Submissions

[29] Mr. Winton, counsel for the plaintiff, submits that the information requested is clearly relevant, and the plaintiff should be given leave to bring a motion to require its production. Any such motion will, if necessary, include Smiths Detection Inc. as a responding party.

[30] Mr. Winton submits that the information requested is a logical extension of some material that flowed from follow-up questions to undertakings that had been answered. Accordingly, it really falls into the same category as undertakings, and a motion to require answers to undertakings does not require leave.

[31] Mr. Winton points out that the plaintiff was perfectly entitled to require back up documents to explain the sales data that had been produced in response to an undertaking. When Smiths answered the inquiry by stating that it was unable to provide the requested documents, it was perfectly logical for the plaintiff’s expert to request, instead, sales data for a third year. According to the expert, it is quite possible that sales that were booked in the latter part of the second year could have been completed and recorded in the third year. In the absence of documentation to support the sales in the second year, the third year data would be an acceptable substitute.

[32] Mr. Winton submits that if the plaintiff is not entitled to seek the sales data for the third year, at the very least it is entitled to production of the documents that were requested on March 23, 2016, and the plaintiff is entitled to move for that material without leave. If the plaintiff is required to bring such a motion, the plaintiff will serve Smiths Detection Inc. as a responding party.

[33] Mr. Winton notes that there are two lines of cases as to the appropriate test to be applied on a motion for leave under rule 48.04(1). Under one line of cases, the moving party must show that there has been a substantial and unexpected change in circumstances since the action was set down for trial. Another line of cases suggests that the test is not as strict, and that leave to bring a motion will be allowed where it is in the interests of justice to allow it. Mr. Winton urges that I adopt the interests of justice test. However, he submits that even if the substantial and unexpected change in circumstances test is adopted, the plaintiff can meet it.

[34] Mr. Winton notes that it could not have been anticipated by the plaintiff that the defendants would simply be unable to provide the documents that are clearly relevant and that were requested on March 23, 2016. That being the case, the plaintiff should be entitled to pursue the other material that the plaintiff’s expert asserts that he needs as an alternative, namely, the sales data for a third year.

[35] Mr. Maladwala, counsel for the Smiths defendants, submits that this motion should be dismissed.

[36] Mr. Maladwala points out that the plaintiff made a deliberate decision to set the action down for trial in November, 2015, knowing that there were issues outstanding that had to be complied with before trial.

[37] Mr. Maladwala points out that it was in March, 2016, that the plaintiff became aware that the documents requested could not be produced. The plaintiff was entitled to re-examine a representative of the Smiths defendants in order to pursue that information, if the plaintiff thought it was essential. The plaintiff did not do so.

[38] A pre-trial was arranged for September 28, 2016, and there was no mention of any need to get a third year of sales data. Indeed, when the parties went to a case conference in August, 2016, there was no mention of any need for a third year of sales data. It was only on September 28, 2016, almost a year after the plaintiff set the action down for trial, that there was any mention of a third year of sales data.

[39] Mr. Maladwala submits that the appropriate test under rule 48.04(1) is whether there has been a substantial and unexpected change in circumstances since the matter was set down for trial. Mr. Maladwala submits that the plaintiff clearly cannot satisfy that test.

[40] Mr. Maladwala submits that the request for the third year of sales data is nothing more than a late-breaking request that should have been made much earlier if the plaintiff thought it was helpful or relevant.

[41] Mr. Maladwala also submits that even if the more generous test, the interests of justice test, applies, the plaintiff cannot meet it. When a party takes the deliberate step of setting an action down for trial, it is a representation to the other parties and the court that all pre-trial steps have been taken and the matter is truly ready for trial. The orderly processing of litigation will be seriously compromised if the parties and the court cannot rely on such a representation.

Analysis

[42] There is a significant divergence in the jurisprudence as to the appropriate test to be applied under rule 48.04(1). This has been comprehensively discussed and analysed by Justice Cornell in Denis v. Lalonde, 2016 ONSC 5960. One line of cases suggests that leave should be granted only where the moving party can show a substantial or unexpected change in circumstances since the action was set down for trial. The other suggests that leave should be granted where it is in the interests of justice to do so.

[43] Justice Cornell noted that the main case on the “interests of justice” side of the argument is BNL Entertainment Inc. v. Ricketts, 2015 ONSC 1737 (Master).

[44] Justice Cornell notes that the adoption of the more generous test seemed to flow from a misinterpretation of something said by Perell J. in Ginkel v. East Asia Minerals Corp., 2010 ONSC 905.

[45] At para. 23 of Denis, Cornell J. stated:

I have reached the conclusion that BNL was wrongly decided and that the test to be followed in order for leave to be granted under rule 48.04(1) is whether the moving party can show a substantial or unexpected change in circumstances such that a refusal to grant leave would be manifestly unjust.

[46] I agree with Cornell J.’s conclusion, and I adopt the test as he stated it.

[47] In my view, the plaintiff has not shown that there has been a substantial or unexpected change in circumstances since the plaintiff set the action down for trial.

[48] At the time the plaintiff set the action down for trial, it had only requested sales data for a two-year period. In March, 2016, it requested supporting documents for the two years of sales data that had been provided. When it was met with the response that the defendants were unable to provide the requested documents, the plaintiff had remedies which it chose not to pursue. The fact that the plaintiff has now elected to pursue some other material, that it had never requested in the first place, cannot amount to a substantial or unexpected change in circumstances.

[49] For these reasons, the motion for leave is dismissed.

[50] The plaintiff is entitled, if so advised, to move to require the production of the original material requested in counsel’s letter dated March 23, 2016. As noted, in addition to the named defendants, the plaintiff must also serve Smiths Detection Inc. In the circumstances, I will permit substitutional service on Smiths Detection Inc. by serving any motion material on the solicitors for the current Smiths defendants.

[51] Of course, any such motion will be made unnecessary if the defendants, and Smiths Detection Inc., voluntarily produce the documents requested. Alternatively, they may voluntarily produce the third year of sales data, which would be a satisfactory alternative.

[52] Any such motion can be brought at 9:00 a.m. on a day that I am sitting in Milton, by arrangement through the trial coordinator in Milton.

[53] I will entertain brief written submissions with respect to costs, not to exceed three pages together with a costs outline. Mr. Winton will have five days, and Mr. Maladwala will have five days to respond. Mr. Winton will have three days to reply.

Gray J. Date: April 18, 2017