Court File and Parties

COURT FILE NO.: CV-11-440637 DATE: 20190724 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: myNEXT CORPORATION, Plaintiff AND: PACIFIC MORTGAGE GROUP INC., PACIFIC NA FINANCIAL GROUP INC., myNEXT LENDING CORPORATION, MORTGAGE ARCHITECTS INC., myNEXT MORTGAGE COMPANY LIMITED and RADIUS FINANCIAL INC., Defendants

BEFORE: Darla A. Wilson J.

COUNSEL: Matthew B. Lerner and Zachary Rosen, Counsel for the Plaintiff Christopher Stanek, Counsel for the Defendant Pacific Mortgage Group Inc.

HEARD: July 18, 2019

Endorsement

[1] This action is a claim on a promissory note in the sum of $600,000 which was signed in March, 2010. The note was issued as a result of the purchase of limited partnership units sold by the Plaintiff (“myNext”) to Pacific Mortgage Group (“Pacific”). Alex Haditaghi (“Haditaghi”) is the principal of Pacific and Gary Cilevitz (“Cilevitz”) is the Chief Financial Officer of the company.

[2] When Pacific failed to pay the note, myNext issued this claim in 2011. After service of the Statement of Claim, Pacific launched a counterclaim alleging undisclosed liabilities and misrepresentations totaling approximately $11 million. The counterclaim resulted in numerous other parties being added as defendants to the counterclaim. Pacific did not dispute that the promissory note was valid, but it claimed a set off of the numerous liabilities such that nothing was owing on the note.

[3] The action proceeded in the usual course through documentary productions, examinations for discovery and mediation. It was set down for trial in October, 2015 and a 3 week trial was fixed on consent for January 28, 2019.

[4] I presided over the pretrial on October 10, 2018. At that time, Pacific was represented by different counsel. Included in the Defendant pretrial memorandum was a “draft” report from Duff and Phelps purporting to quantify the losses allegedly suffered by Pacific. This report was dated October 3, 2018 and it was marked “Without Prejudice: Preliminary report for use ONLY at pre-trial scheduled for October 2018.” The draft report had not been served on the other parties prior to its inclusion in the pretrial memo.

[5] The initial pretrial was adjourned on consent to continue before me on November 27, 2018 to continue discussions concerning the possibility of resolution and failing that, to do the trial management. It was anticipated that counsel with carriage of the file and the parties would be in attendance.

[6] On the continued pretrial, neither Mr. Haditaghi nor the counsel with carriage on behalf of Pacific attended court. Mr. Cilevitz appeared and advised that Mr. Haditaghi had a family commitment. As a result, I did the trial management for the trial fixed for January 28, 2019. The report of Duff and Phelps had not been finalized.

[7] I released an endorsement dated November 27 dealing with various trial management matters pursuant to Rule 50 of the Rules of Civil Procedure, O. Reg. 575/07, s. 6 (1); one of the provisions in my order was that none of the parties could serve expert reports for use at the trial. I noted, “In my view, the cavalier approach to the delivery of the expert report fails to accord with the provisions of the Rules and is unacceptable. Pacific counterclaims and asserts that it sustained damages arising from the transaction as a result of liabilities that were not disclosed by the Plaintiff. …Given that the action was commenced and the counterclaim served almost 8 years ago, there is no reason why the expert report could not have been served in a timely fashion and in compliance with Rule 53.03 time lines. That was not done but more egregious in my opinion is that the draft report was not finalized prior to the continued pre-trial today for no apparent reason…. In my view, fairness dictates an order should be made that none of the parties may serve and file expert reports for use that the trial.” I also noted in my endorsement that I would continue to manage the file to ensure its readiness for trial.

[8] Following the continued pretrial, I was contacted by counsel for Pacific who requested I hear a motion to remove him as counsel of record. I agreed and heard this motion on an urgent basis given the impending trial date; that motion was opposed by Mr. Haditaghi. One of the grounds for the removal of counsel was the failure of Mr. Haditaghi to provide instructions on the preparation for trial, including securing an expert report. Counsel for the other parties advised the Court that they were concerned if counsel were removed from the record, the trial might be adjourned and they wished it to proceed. At the motion, Mr. Haditaghi advised the court that he did not wish to adjourn the trial date.

[9] In written reasons released December 23, 2018, I made an order removing Pacific’s counsel from the record. In my endorsement, I noted, “Mr. Haditaghi has known of the pending trial date for a long time; he has been made aware of the need to retain an expert, and to prepare for trial for more than 6 months and perhaps closer to a year…”

[10] My endorsement included a provision that if any party decided to bring a motion for an adjournment of the trial, such motion was to be made before me on a proper record.

[11] On January 15, 2019 I received a letter from Mr. Stanek who indicated that Mr. Haditaghi wished to retain him in this action. Mr. Stanek advised that he was unavailable to proceed with the trial on the January 28 trial date and his representation was conditional on an adjournment of the trial being secured. The request for an adjournment of the trial date was opposed by all counsel. I agreed to hear the adjournment request motion on an urgent basis.

[12] On January 18, 2019, Mr. Haditaghi attended before me and requested an adjournment of the trial. Mr. Stanek was in attendance as well. Mr. Haditaghi advised the Court that he had attempted to find new counsel but had been unsuccessful and he wished Mr. Stanek to act on his behalf and to conduct the trial, however, Mr. Stanek could not attend at trial in January, 2019. There was no discussion about Pacific intending to formalize the Duff & Phelps report for use at the trial.

[13] The adjournment request was opposed by the Plaintiff and the Defendants to the Counterclaim who wished the trial to proceed. In written reasons released January 21, “with great reluctance” I adjourned the fixed trial date of January 28, 2019. In my decision, I noted that the validity of the promissory note had been admitted the trial would deal with the Counterclaim only. In addition, given there were no experts testifying at trial, in my view, which I communicated to counsel, the case could be tried in 2 weeks. The trial was therefore fixed for November 25, 2019 for 2 weeks, peremptory to the Defendant. I awarded costs thrown away as a result of the adjournment of the trial, which I subsequently fixed.

[14] After I released my decision and adjourned the trial, Mr. Stanek became counsel of record for Pacific.

[15] I heard nothing further on the matter until early June when Plaintiff’s counsel for the contacted the court and requested a case conference, which was convened on June 7, 2019. I was advised that on May 24, 2019, the Defendant had served a final version of the Duff & Phelps report dated April 26, 2019, which included 3 volumes of documents reviewed and relied on by the experts.

[16] It is not disputed that the majority of the documents had been produced previously in the litigation, but there were additional documents that had never been disclosed. Counsel for the other parties objected to delivery and use of this expert report at the trial. As a result, I agreed to hear a motion for a determination of whether the Defendant could introduce expert evidence from Duff & Phelps in the circumstances. Each side served motion records, factums and briefs of authorities. Counsel appeared before me July 18 and made oral submissions.

Positions of the Parties

Defendant Pacific

[17] Mr. Stanek submits that my “no further reports order” of November 27, 2018 only applied to the trial date of January 28, 2019, which was adjourned. He argues that it is in the discretion of the presiding judge to admit the expert evidence. Here, the report is necessary to assist the trial judge with the quantification of the losses alleged by Pacific. Furthermore, it is a report by a properly qualified expert which is being served 6 months in advance of the trial date so there is ample time for the Plaintiff to secure a responding expert report if they choose to do so. Finally, there is no prejudice to the Plaintiff so leave ought to be granted to admit the report as evidence at trial.

Plaintiff myNext and the other parties

[18] The Plaintiff and the other parties submit that the test for admission of late expert reports is set out in Gardner v Hann, 2011 ONSC 3350 and it is a three-part test: what is the reason for non-compliance; what the effects of the no-compliance are; and what is fair in all of the circumstances. Mr. Lerner submits that no explanation has been provided for the failure of Pacific to serve an expert report within the time limits of the Rules. If the expert report is admitted, myNext must try to find a responding expert and in all probability will be forced to ask for an adjournment of the trial fixed for November 25, 2019. Further, it is noted that my order of November 27, 2018 prohibited delivery of expert reports and reduced the trial time from 3 weeks to 2 weeks, which was predicated on no expert evidence being called at trial. It would be unfair in the circumstances to allow Pacific to benefit from its conduct, which has shown a flagrant disregard for the Rules and the various orders of the Court. Finally, Mr. Lerner submitted that the actions of Pacific are tactical, designed to further delay this matter, which conduct should not be countenanced by the Court.

Analysis

[19] Rule 53.03 provides that a party who intends to call an expert witness at trial shall, not less than 90 days before the pre-trial conference, serve a report signed by the expert… (Emphasis mine).

[20] Rule 53.08 stipulates that failure to serve an expert report within these time lines requires leave of the trial judge which shall be granted on such terms as are just and with an adjournment if necessary, unless to do so will cause prejudice to the opposite party or will cause undue delay in the conduct of the trial.

[21] It is unfortunate and unnecessary in my view that judges are asked with alarming regularity to rule on the admissibility of expert reports that have not been served in accordance with the provisions of the Rules. The Rules provide that the trial judge has the ultimate discretion as to whether or not to allow a party to call the authors of expert reports to provide expert evidence at trial when the reports were not served in compliance with Rule 53.03. However, increasingly, counsel are asking prior to trial, usually at the pretrial, for orders excluding expert reports served late because of the obvious problems presented when reports are served late when a case is fixed for trial.

[22] In the instant case, Pacific was sued for failing to pay the promissory note it signed to the Plaintiff relating to the purchase of a business. Pacific admits the validity of the note; however, it has not paid it because it alleges there were post-closing adjustments that were incurred, which Pacific was not apprised of, which exceed the value of the promissory note.

[23] As I noted in an earlier decision, Mr. Haditaghi is a sophisticated businessman and while he is not a lawyer, he is familiar with the civil justice system and has been engaged in numerous pieces of litigation; and he was represented by experienced counsel throughout this case. This matter involves the 2010 purchase by Pacific of the Newshore companies for a price in excess of $3 million. Clearly, the onus is on Pacific to prove the alleged undisclosed liabilities pleaded in its counterclaim. Whether expert evidence is necessary at trial is a judgment call to be made by counsel in consultation with the client.

[24] While the usual steps in the litigation process were completed, included documentary production, examinations for discovery and mediation, no expert report was served by Pacific in compliance with Rule 53. The draft report of October 3, 2018 included in the pretrial memorandum did not comply with the provisions of the Rule. At the continued pretrial in November 2018 the draft report was not provided in a final form and I described this failure to comply with the Rule as “egregious.” I noted the conduct of Pacific concerning the expert report as “cavalier and unacceptable”. My endorsement of November 27, 2018 was clear that “none of the parties may serve and file expert reports for use at the trial.”

[25] Pacific then obtained an adjournment of the January 2019 trial date over the strenuous objections of the opposing parties. Mr. Stanek was aware of my various orders when he assumed carriage of this matter in January 2019, and in particular, my order precluding the parties from delivering expert reports for use at trial. Mr. Stanek was also aware that the November 25 trial date was peremptory on his client.

[26] According to the affidavit of Mr. Cilevitz sworn in support of this motion, Duff and Phelps was retained by Pacific’s former counsel in August 2018. Mr. Cilevitz seems to have been the person dealing with the expert report issue, as opposed to counsel, which is unusual. Mr. Cilevitz was aware of my order of November 2018. Notwithstanding the peremptory trial date of November 25, 2019, it appears there was no effort to have the preliminary report of Duff & Phelps finalized until April 23, 2019 when Mr. Cilevitz met with the accountants again. Subsequent to that date, Mr. Cilevitz deposes that he was “unable to meet with Duff & Phelps to review the report until May 16, 2019.” It was after that time that the report was delivered to Pacific’s counsel, who immediately served it on opposing counsel.

[27] Both counsel relied on, Gardner v Hann, supra, a decision of mine concerning late delivery of expert reports by the Plaintiff. In that decision, I dealt with a motion by the defence at the opening of trial to preclude the Plaintiffs from relying on expert reports that had not been delivered in a timely fashion. In that case, I observed that the amendments to the Rules governing expert evidence had been amended in 2010 and consequently, counsel were often serving expert reports that did not comply with the new provisions of Rule 53.03. I went on to state, “However, when there is non-compliance, the court must consider the reason for the non-compliance, the effects of it and what is fair in all of the circumstances. This will necessarily be a determination based on the facts of each particular case.”

What is the reason offered for the non-compliance of Pacific with Rule 53?

[28] In the instant case, there is no explanation in the affidavit of Mr. Cilevitz as to why the Duff & Phelps report was not obtained and served 90 days prior to the October 2018 pretrial. For reasons which are not explained, Pacific chose not to retain an expert after discoveries to provide expert opinion the issues asserted in the counterclaim. Pacific’s former counsel did not meet with the expert until August 2018. Mr. Cilevitz was the individual interacting with the expert so he could have offered an explanation for the non-compliance in his affidavit but he fails to do so.

[29] In the same vein, there is no explanation for the failure to finalize the draft report between the first and second pre-trials, at a time when Mr. Haditaghi and Mr. Cilevitz knew the case was set for trial in January 2019. Mr. Cilevitz states “…by the time of the November 27, 2018 pretrial conference, which I attended, the final Duff & Phelps report was not complete and had not been served on the parties.” Indeed, Mr. Cilevitz in his affidavit confirms that counsel was not involved in the finalization of the Duff & Phelps report, he was. There is no explanation set out for the delay of more than 3 months between my order adjourning the trial and Mr. Cilevitz meeting with Duff & Phelps to finalize the report. There is no explanation for the delay of another month between the final report being done and it being served.

[30] During argument, in response to a question from the Court, counsel for Pacific confirmed that he was not aware of the plan to update the draft expert report and when he received the report in its final form, he served it on counsel the following day.

What is the effect of the non-compliance?

[31] Counsel for the Plaintiff submits that if the expert opinions set out in the report of Duff & Phelps are allowed into evidence at trial, myNext will have to conduct further discovery and obtain a responding expert report, which it may not be able to do given the pending trial date. Mr. Rosen’s affidavit sworn in response to this motion deposes that Pacific served a supplementary affidavit of documents which contained some 20 new documents. The further discovery can be completed quickly but obtaining a responding expert report in a timely fashion could be problematic. If so, I accept that the other parties might be forced to request an adjournment of a peremptory trial date, through no fault of their own.

[32] In addition, when the new trial date was set, I reduced the trial time from 3 weeks to 2 weeks on the basis that the promissory note did not have to be proven and there would be no expert testimony. If the authors of the Duff & Phelps report give evidence at trial, along with an expert retained by the other parties, the trial time set aside of 2 weeks will be insufficient to complete the trial.

What is fair in all of the circumstances?

[33] This claim and the counterclaim involve payment on a promissory note emanating from the purchase of businesses in 2010. All of the parties certified they were ready to proceed to trial more than a year ago and they agreed on a trial date in January 2019. Mr. Cilevitz in his affidavit states at paragraph 15, “On April 23, 2019, I met with Duff & Phelps about completing their report. Pacific and Duff & Phelps both understood that because the trial had been adjourned to November 25, 2019, that an expert report could be served.” There is no explanation set out for this belief; furthermore, the understanding of Duff & Phelps concerning the admission of expert evidence at trial is of no moment to my determination of whether leave should be granted to Pacific.

[34] Mr. Stanek has had carriage of this action since January 2019. He was aware that I had made an order precluding the parties from relying on expert evidence at trial. If there was any ambiguity about the terms of that order, the preferable course of action would have been for him to have sought a chambers appointment or a case conference immediately to obtain clarification of my previous order and/or to request leave to call expert evidence from Duff & Phelps at trial.

[35] In my view, the proper procedure that ought to have been followed after the trial date in January 2019 was adjourned was for counsel for Pacific to have immediately advised opposing counsel that Pacific intended to have the Duff & Phelps report finalized to comply with Rule 53 and that leave was being sought for a ruling in advance of trial on the issue of its admission at trial. Instead, the report was finalized and served without any prior notice, in the face of my earlier order precluding the use of expert evidence at trial. I am not being critical of Mr. Stanek, who was not aware the Mr. Cilevitz was meeting with Duff & Phelps to obtain a final report.

[36] The current situation has been caused by the actions of Pacific, not its counsel. While Mr. Stanek submits leave should be granted because the Plaintiff cannot demonstrate any prejudice, I do not agree. The agreement giving rise to the claims was signed in 2010, more than 9 years ago. The passage of time and delay create prejudice, as memories fade and witnesses are unavailable. Pacific caused a number of parties to be added by way of third party claims so there are numerous parties and associated lawyers involved at the present time.

[37] At first blush, it appears that Pacific has served a report that is Rule 53 compliant, since the trial is now 4 months away. However, the history of the matter from the time of the pretrial must be taken into consideration in determining whether fairness dictates leave should be granted to Pacific to call expert evidence at trial.

[38] There was no request at the time of the adjournment request for an order allowing Pacific to finalize and rely on the Duff & Phelps report, even though I was dealing with case and trial management and had made an order precluding the use of expert evidence at trial. Instead, the expert report was dropped on the opposing counsel without prior notice or any attempt to work out timelines or terms in advance. It is Pacific who is seeking another indulgence of this court yet the attitude evinced is again cavalier. Court orders, including trial management orders, are to be complied with; trial dates are to be respected and peremptory trial dates should be taken very seriously by the parties and their counsel.

[39] Pacific breached Rule 53.03, which is an important rule governing the receipt of expert evidence. Late service of expert reports is responsible for the vast majority of adjournments of fixed trial dates. No explanation has been offered for the breach; litigants cannot play fast and loose with the Rules of Civil Procedure and ignore court orders. Nothing has changed in the counterclaim since it was delivered; the onus has always rested with Pacific to prove the quantification of the post-closing adjustments that Pacific alleges were not disclosed by the Plaintiff. The adjournment of the original trial date was granted in order to allow Pacific to have counsel of choice at trial; it was not granted to enable Pacific to have additional time to finalize an expert report that could have been obtained years ago. I am not persuaded that leave should be granted to Pacific in these circumstances to call and rely on the expert report of Duff & Phelps at trial.

D.A. Wilson J. Date: July 24, 2019