Court File and Parties

COURT FILE NO.: CV-13-5764 DATE: 20190322 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

SHEILA BEIKO and GEORGE BEIKO Plaintiffs – and – TOM STONE, MORLAND REAL ESTATE APPRAISALS LTD., THE MORTGAGE GROUP (ONTARIO) INC. operating as TMG THE MORTGAGE GROUP, and LYNN COWDEN Defendants

COUNSEL: Joseph D. Kennedy, for the Plaintiffs. Christopher Afonso, for the Defendants.

HEARD: March 8, 2019

ELLIES, J.

REASONS FOR DECISION

OVERVIEW

[1] The defendants, Tom Stone and Morland Real Estate Appraisals Ltd. (“Morland”), move for an order compelling the plaintiffs to deliver unredacted copies of banking records and to provide additional documentation in order to trace the funds reflected in those records.

[2] The motion arises in the context of an action in which the plaintiffs allege they suffered damages as private lenders after a mortgage went into default.

[3] Although the defendants raised a number of issues, the motion can be decided on two issues alone, namely: whether the plaintiffs have satisfied the high threshold that must be cleared before a court will allow them to redact information from otherwise relevant documents and whether the defendants have satisfied the onus of demonstrating that the additional information they seek is relevant. In my view, neither side has satisfied their onus.

BACKGROUND

[4] The following facts are taken from both the pleadings and the evidence filed on the motion. I wish to make it clear that, where I refer to a fact contained in the pleadings, I am not making a finding of fact. Instead, I am assuming that fact in order to make a determination as to whether certain information is relevant.

[5] The plaintiffs are husband and wife. They reside in southern Ontario. Relying on an appraisal prepared by Tom Stone, they lent the sum of $325,000, which was secured by way of a mortgage registered against a residence located in Callander, Ontario. The appraisal indicated that the property was worth between $425,000 and $430,000. The mortgage was placed through Ms. Cowden, a mortgage broker. After the mortgage went into default, the property was sold under power of sale.

[6] The basis for the plaintiffs' claim is not completely clear to me. In the statement of claim, the plaintiffs allege that, following the sale, "there were insufficient funds to cover the monies advanced by them under the mortgage." It seems, therefore, that part of the plaintiffs’ claim is based on an allegation that the home sold for less than the value at which it was appraised. However, the statement of claim gives no information about the amount for which the property was sold.

[7] The plaintiffs’ claim also seems to be based on the carrying costs they incurred while the home was listed for sale. They allege that, based on the appraisal, they attempted to sell the property for more than it was actually worth, incurring carrying costs over the course of fourteen months before the home was sold.

[8] In total, the plaintiffs claim damages in the approximate amount of $153,000.

[9] Although Sheila Beiko and George Beiko are the named plaintiffs, the mortgage funds came from a bank account that was in the name of George Beiko and his mother (“the lending account”). The plaintiffs allege that the money that went into the lending account came from two other bank accounts, one in which the plaintiffs were joint account holders (“the George and Sheila account”) and one in which Mr. Beiko was the sole account holder (“the George only account”) (collectively, the “Beiko accounts”).

[10] The present action is derived from an earlier one. In 2013, Sheila Beiko began an action as the sole plaintiff. Mr. Stone and his employer, Morland (collectively, the "appraiser defendants") were the only named defendants in that action. Ms. Cowden and her employer, TMG The Mortgage Group (collectively, the "broker defendants"), were added as third parties by the appraiser defendants.

[11] In 2016, the plaintiffs were granted leave to amend their statement of claim to add Mr. Beiko as a plaintiff and the broker defendants as defendants, resulting in the action as it is presently constituted. The order allowing the amendments was made without prejudice to the defendants’ right to raise a limitation defence, in particular against the claim made by Mr. Beiko.

[12] In addition to the limitation defence, the moving parties contend that, because the mortgage funds came from an account of which Sheila Beiko was not an owner (i.e. the lending account), she may have suffered no damages. For this reason, they submit that the bank statements for the lending account, the George and Sheila account, and the George alone account are relevant.

[13] The plaintiffs take no issue with the relevance of the bank statements. They have produced statements for the lending account for the period including January 23, 2012, the date upon which the cheque for the mortgage funds was written, and January 27, 2012, the date upon which the cheque for the mortgage funds was cashed. They have also produced bank statements showing the transfer into the lending account of $280,000 from the George and Sheila account and $45,000 from the George only account on the date the cheque was written.

[14] However, the plaintiffs have redacted virtually all of the other entries in the bank statements, including opening and closing balances, as well as transactions that preceded the transfers the plaintiffs allege comprised the mortgage funds. The plaintiffs contend that the redacted information is not relevant and, therefore, they are not required to produce it.

[15] In response to the motion, the plaintiffs delivered an affidavit sworn by a law clerk at the office of the plaintiffs’ lawyer. Attached to the affidavit filed with the court is a sealed envelope containing unredacted copies of the bank records. The records were not provided to counsel for the defendants.

[16] The defendants object to the manner in which the plaintiffs have proceeded.

[17] In addition to seeking the redacted information in the bank statements, the defendants seek to compel the plaintiffs to provide further information regarding the source of the funds that went into the lending account, including past account statements, payments from employment, and other information relating to the source of the funds that were transferred from the Beiko accounts. The defendants submit that this information is also relevant to whether either plaintiff actually suffered the damages alleged.

[18] The plaintiffs disagree.

ISSUES

[19] The defendants raise the following issues:

(1) Can the plaintiffs file sealed documents for the court's review without disclosing the documents to the defendants? (2) Is the redacted information relevant? (3) If not, are the plaintiffs permitted to redact the information? (4) Should the plaintiffs be compelled to produce additional documentation relating to the source of the funds allegedly transferred from the Beiko accounts?

ANALYSIS

Issue 1: Can the plaintiffs file sealed documents without disclosing them to the defendants?

[20] The defendants object to the plaintiffs filing unredacted documents with the court in a sealed envelope. They submit that allowing the plaintiffs to keep the unredacted documents from them puts them at an unfair disadvantage in the motion.

[21] I do not believe I need to deal with this part of the defendants' argument, given my conclusion that the redacted portions of the bank statements must be disclosed.

[22] The defendants also submit that, unless a sealing order has been made under s. 137(2) of the Courts of Justice Act, R.S.O. 1990, c. C.43 beforehand, a document filed with the court is a public document that cannot be kept from the defendants. They argue that, unlike the procedure set out in r. 30.04(6), which permits the court to inspect documents for which privilege is claimed, there is no procedure available by virtue by which a party can submit documents to the court, but not to the opposing party, on the basis that contain irrelevant information.

[23] As I understand this part of the defendants' argument, they submit that it is now too late for the plaintiffs to obtain a sealing order. I am unable to agree. I cannot see any principled reason why the failure to obtain a sealing order before filing the sealed documents should be fatal to requesting such an order at any time afterwards. There is certainly nothing in the wording of s. 137(2) to suggest this. That section reads:

(2) A court may order that any document filed in a civil proceeding before it be treated as confidential, sealed and not form part of the public record.

[24] While the section does not explicitly say that the court may "at any time" make the order referred to therein, there is nothing in the section to suggest that it may only be made before a document is filed. Nor have I been provided with any jurisprudence supporting such an interpretation.

[25] From a practical perspective, the procedure adopted by counsel for the plaintiffs in this case may be the only way for a party resisting production on the basis of privacy to satisfy the onus upon it without suffering the very harm it is trying to avoid. Once again, however, I do not feel I need to decide this issue in light of my conclusion that the documents must be disclosed to the defendants.

[26] The question that remains is whether a sealing order should be made after the main issues on the motion have been decided. I will return to that question in the conclusion section of these reasons.

Issues 2 and 3: Is the redacted information relevant and if not, are the plaintiffs permitted to redact it?

[27] These two issues can be dealt with together because I have concluded that, regardless of whether the information is relevant, the plaintiffs have not persuaded me that there is good reason not to disclose it. I reach this conclusion based largely on the decision in McGee v. London Life Insurance Co., 2010 ONSC 1408.

[28] In McGee, the plaintiff commenced a class proceeding claiming that the defendant’s former employees were entitled to the surplus in a staff pension plan after a partial wind-up of the plan. The defendant resisted production of some of the information contained in certain documents on the basis it was not relevant and, for that reason, produced redacted copies of those documents. Strathy J, as he then was, held that it was impermissible for a party to redact portions of a relevant document simply on the basis of its assertion that those portions are not relevant. He adopted the decision of the British Columbia Supreme Court in North American Trust Co. v. Mercer International Inc., 36 C.P.C. (4th) 395 [1999] B.C.J. No. 2107. Quoting from the decision, Strathy J. wrote (para. 9):

The whole of a relevant document must be produced except to the extent it contains information that would cause significant harm to the producing party or would infringe public interests deserving of protection. I respectfully adopt as applicable in Ontario the statement of Lowry J., as he then was, in North American Trust Co. v. Mercer International Inc., at para. 13:

Under the rules of this court, a litigant cannot avoid producing a document in its entirety simply because some parts of it may not be relevant. The whole of a document is producible if a part of it relates to a matter in question. But where what is clearly not relevant is by its nature such that there is good reason why it should not be disclosed, a litigant may be excused from having to make a disclosure that will in no way serve to resolve the issues. In controlling its process, the court will not permit one party to take unfair advantage or to create undo embarrassment by requiring another to disclose part of a document that could cause considerable harm but serve no legitimate purpose in resolving the issues. [Emphasis in original.]

[29] In Jones v. I.F. Propco Holdings (Ontario) 31 Ltd., 2018 ONSC 23, after discussing the decision in McGee, Leach J. summarized the law as follows (para. 52):

Therefore, permissible redaction requires two elements: the information that is sought to be redacted must be irrelevant and there must be a good reason for its redaction.

[30] I would add to Leach J.’s comments the requirement that the redacted information must be clearly irrelevant. Those were the words of Lowry J. in North American Trust, quoted with approval by Strathy J. in McGee. They have since been included in statements of the law in cases subsequent to both McGee and Jones: see, for example, King v. Picard, 2017 ONSC 1647, at para. 12. As these courts have held, the onus is on the party resisting production to demonstrate that the redacted information is clearly not relevant and that there is good reason why it should not be disclosed.

[31] In the case at bar, I am not satisfied that the opening account balances and information regarding transactions that occurred before the cheque was cashed are clearly irrelevant. This information may be relevant to ownership of the funds that were later loaned.

[32] On the other hand, I am satisfied that information relating to transfers out of the Beiko and the lending accounts after the $325,000 cheque was cashed on January 27, 2012 is clearly not relevant. It can reveal nothing about the ownership of the funds that were loaned.

[33] However, the test is conjunctive: the party seeking to avoid disclosure must establish that the information it seeks to withhold is both clearly irrelevant and that there is good reason not to disclose it. With respect to transactions occurring after the date the cheque was cashed, I am not satisfied that there is good reason not to disclose the information. As Strathy J. pointed out in McGee, a good reason for non-disclosure must rise to the level of causing significant harm to the producing party or infringing public interests deserving of protection. It would be an unusual case, in my view, where the information contained in a bank statement could rise to this level. Based on the unredacted copies of the documents filed in this case, that threshold has not been met.

Issue 4: Should the plaintiffs be compelled to produce additional documentation?

[34] The defendants seek production of documents that “trace the source of the funds” in the Beiko accounts from which funds were transferred to the lending account and other funds deposited into the lending account. The specific question the plaintiffs refused to answer indicated that these documents could include "past account statements and could include records of collection of dividends, payment from employment, etc." [1]

[35] In my view, the defendants have failed to demonstrate that this information is relevant.

[36] Contrary to the high threshold of clear irrelevance that a party resisting production must meet, a party seeking production must meet a very low threshold of relevance. A document or question is relevant where it “might reasonably be supposed to contain information which may directly or indirectly…advance [a party’s] case or damage the case of his adversary”: Benatta v. Canada (Attorney General), at para. 20.

[37] Notwithstanding that low threshold, it has not been met here. In order to meet it, the party seeking production must show that there is some reason to believe that the information sought may be helpful to its case or harmful to that of its opponent. That is the dividing line between an improper fishing expedition and a proper investigation of the facts. It has not been crossed in this case. Nothing has been pleaded and no evidence has been introduced on the motion to justify looking into the sources of the funds in the Beiko accounts.

CONCLUSION

[38] The defendants' motion for production of unredacted copies of the bank account statements is allowed. There is no good reason not to disclose the redacted information. The plaintiffs shall provide copies of those documents within 10 days of the date of these reasons.

[39] The defendants' motion for production of documents related to the source of the funds in the Beiko accounts is denied. There is no basis in the pleadings or the evidence filed on the motion to justify such an order.

[40] I turn now to the question of what should be done with the unredacted copies of the banking statements that were filed by the plaintiffs. The defendants submit that, regardless of when a sealing order is made, the plaintiffs have not met the requirements necessary to obtain one in this case. As counsel for the plaintiffs pointed out, however, the defendants raised the issue of sealing orders only at the hearing of the motion, notwithstanding the fact that they had received the affidavit referring to the sealed documents shortly after it was sworn on February 4, 2019. As a result, the plaintiffs were not prepared to address the defendants' submission that they had failed to meet the high threshold that must be met before a sealing order will be granted: Sierra Club v. Canada (Minister of Finance), 2002 SCC 41, [2002] 2 S.C.R. 522.

[41] In order to provide the plaintiffs with an opportunity to meet the threshold, the documents will be sealed for a period of 30 days. If the plaintiffs wish to apply for a sealing order, they must serve a notice of motion and supporting affidavit materials on the defendants within that time. They must also serve those materials and a copy of these reasons on the media in accordance with this court's protocol regarding publication bans, found in Part V, Section F of the Consolidated Provincial Practice Direction, failing which the documents shall form part of the public record.

COSTS

[42] If the parties are unable to agree on costs, written submissions may be made, limited to five typewritten pages, excluding attachments, as follows:

(a) By the defendants, within 20 days of the release of these reasons; and (b) By the plaintiffs, within 10 days of the receipt of the defendants’ submissions.

[43] Submissions received by the court after these dates will not be considered.

Ellies, J.

Released: March 22, 2019

Footnote:

[1] Ordinarily, this would have been a refusal to give an undertaking, as there was no question asked. However, the undertaking was requested as part of a written interrogatory. Hence, the defendants have framed this as a refusal to answer a question.