Court File and Parties

COURT FILE NO.: CV-20-900 DATE: 2023/06/19

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

MARTINO DENTE, RICCARDO DENTE, THE MARTINO PETER DENTE FAMILY TRUST, THE RICCARDO MARTINO DENTE FAMILY TRUST and OVERLOOK CAPITAL INC. Plaintiffs – and – DELTA PLUS GROUP, ONTARIO GLOVE & SAFETY INC. and DEGIL SAFETY PRODUCTS (1989) INC. Defendants

AND BETWEEN:

DELTA PLUS GROUP, ONTARIO GLOVE & SAFETY INC. and DEGIL SAFETY PRODUCTS (1989) INC. Plaintiffs by Counterclaim – and – NOVEMBER RIDGE CAPITAL INC., MPDEN CONSULTING INC. and OVERLOOK HOLDINGS INC. Defendants to the Counterclaim

The Honourable Justice C.D. Braid

Counsel: Jamie Spotswood, Jordan Dunlop and Camille Beaudoin, Counsel for the Plaintiffs/Defendants by Counterclaim Sean Sullivan, Jeramie Gallichan and Erica Johnston, Counsel for the Defendants/Plaintiffs by Counterclaim

HEARD: December 22 and 23, 2022; January 16 and 31, 2023; and written submissions

REASONS ON undertakings and refusals MOTIONs

I. OVERVIEW

[1] Martino Dente and his son, Riccardo Dente (“the Dentes”), are the former directors of Degil Safety Products (1989) Inc. (“Degil”) and Ontario Glove & Safety Inc. (“OGS”). Martino and Riccardo sold their shares in Degil and OGS, which they owned through several companies and trusts, to Delta Plus Group (“Delta”) through a Share Purchase Agreement (“SPA”) that closed on November 2, 2018.

[2] The Dentes entered into consulting agreements to continue working with the businesses after the transaction closed in order to assist with the transition of the new ownership. Before the consulting agreements came to an end, the Dentes were terminated or resigned. There were various disputes regarding their services, how the companies were being run, and the earnout owed to the Dentes under the consulting agreements.

[3] Two years after the sale, the Dentes sued Delta, Degil and OGS. The defendants counterclaimed. The action involves eleven parties in a complex commercial dispute regarding the SPA, the consulting agreements, and events related to those agreements.

[4] The plaintiffs and the defendants have each brought a motion to compel answers to undertakings and refusals. For the reasons set out below, I order some of the requested productions and dismiss others. In addition, I order that the parties may conduct further examinations for discovery.

II. SUMMARY OF THE LAW REGARDING UNDERTAKINGS AND REFUSALS

[5] A party is entitled to know what evidence and positions the other side is relying on for each issue at trial: Green v. Canadian Imperial Bank of Commerce, 2020 ONSC 5342, at para. 44.

[6] Rule 31.06(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 requires a person examined for discovery to answer, to the best of his knowledge, information and belief, any proper question relevant to any matter in issue in the action.

[7] Examinations for discovery advance the examining party’s understanding of the case they must meet. They also permit the parties to obtain admissions, eliminate or narrow issues, and avoid surprise at trial: Ontario v. Rothmans Inc., 2011 ONSC 2504, at para. 120, leave to appeal refused, 2011 ONSC 3685 (Div. Ct.).

[8] Questions asked on discovery must be relevant and material to the issues as defined by the pleadings. A relevant question elicits an answer to resolve a matter in issue. A fact is material when it is an issue between the parties which arises from the pleadings: CIBC v. Deloitte & Touche, 2013 ONSC 917, at paras. 66-69.

[9] Discovery questions may not go beyond the pleadings in an effort to find a claim or defence that has not been pleaded. Even if a question is relevant, the court must consider the principles of proportionality before making any determination with respect to discovery: Ontario v. Rothmans Inc., at para. 155-56.

III. DELTA’S MOTION TO COMPEL ANSWERS TO REFUSALS

[10] The defendants move to compel answers to refusals arising from the examination for discovery of Martino Dente on February 3 and 4, 2022. The refusals pertain to the calculation of additional rent on a premises that OGS leases from Overlook Holdings Inc. (“Overlook”). Martino Dente is the president of Overlook.

[11] Pursuant to a Net-Commercial Lease dated May 1, 2017, OGS is required to pay a base amount of monthly rent to Overlook plus additional rent that is defined as reimbursement for property taxes, duties, assessments and property insurance premiums paid by Overlook. The additional rent is referred to as the TMI, which stands for taxes, maintenance and insurance.

[12] In 2019, Overlook increased the TMI rate and says that it was entitled to do so, to reflect its actual costs. The defendants deny that Overlook is entitled to unilaterally increase the TMI rate, and take the position that many of the expenses that are being included in the TMI rate is not chargeable under the lease. They also state that the increases are excessive and inconsistent with past practices. The defendants seek reimbursement for overpayment of the TMI in the counterclaim.

[13] I make the following determinations with respect to the refusals:

Ref/UA & Q#	Question	Determination	Compel Answer?
UA 21 & 22 Ref 13 (922, 947)	To provide the leases and year-end reconciliations for On Side Restoration and DB Filtration. To provide a breakdown of rental revenue by tenant as referenced in D942.	These questions have to do with other third-party tenants of Overlook at 5 Washburn Drive, and are not relevant. The pleadings do not raise any issues related to OGS being treated differently than the other tenants. The Dentes say that, prior to the SPA, OGS would sometimes pay expenses directly rather than having Overlook pay and then reimburse because the companies were not at arms length. It is not appropriate to compare the TMI increase of Degil with other tenants.	No
UA 25 (1120)	To provide a detailed breakdown of the expenses in the reconciliation attached to Jordan Dunlop's email of January 6, 2022.	The Dentes state that this was provided on January 6, 2022. However, they still need to provide a breakdown of the maintenance expenses.	Yes
Ref 14 & 15 (1143)	To provide the contract or agreements for Conestoga Contracting Group and all of the other companies that provided maintenance at 5 Washburn.	The defendants are entitled to documentation regarding expenses. However, the contract or agreements of maintenance companies is not relevant.	No
UA 26 & 27 (1192 & 1193)	To provide proof of payment of the Nature’s Outlook invoices and all invoices being sought reimbursement from OGS.	Nature’s Outlook was one of the property service providers. Proof of payment is relevant to the propriety of the actual expenses being claimed as TMI.	Yes
UA 28 (1237)	To provide a list of all MPDEN employees.	MPDEN is controlled by Martino Dente. This question is relevant to the legitimacy of the $28,024 MPDEN invoice to Overlook for property management services, which forms part of the TMI. It is relevant to determining actual expenses and whether OGS was overcharged.	Yes
UA 29 (1255)	To advise what year invoice 15270 should be applied to.	The Dentes state that the answer to UT 39 answers this question, and point out that the invoice should be applied to the year 2020. This has been answered.	No

IV. DENTES’ MOTION TO COMPEL ANSWERS TO UNDERTAKINGS

[14] The plaintiffs move to compel answers to refusals and undertakings arising from the examination for discovery of Thibauld de Chantamele, the managing director at Degil, on February 1 and 2, 2022.

[15] In response to some of the Dentes’ requests, Delta raises the issue of proportionality. The parties have produced more than 10,000 documents, ran e-discovery software, answered almost 900 questions and followed up. This is a complex corporate dispute that, to no one’s surprise, involves a lot of documents. I have taken proportionality considerations into account, but still order the defendants to produce certain answers because they are relevant to the issues in the action.

[16] In the following paragraphs, I shall summarize four issues that are pertinent to some of the outstanding undertakings and refusals:

i. Delta Financial Information and Transition of Business

[17] The SPA contemplated two earnout payments, which were contingent on OGS and Degil meeting specified profit margins. One of the primary issues raised by the pleadings is the quantum of the second earnout owed to the Dentes, if any, under the consulting agreements.

[18] In their pleadings, the Dentes state that financial targets were met and they are entitled to a payout. They say that the defendants did not properly account for sales and/or delayed the release of products into the marketplace and delayed orders to frustrate the plaintiffs’ ability to achieve the target.

[19] In addition, Delta’s counterclaim raises the viability of OGS and Degil prior to the SPA, so the Dentes state that they are entitled to financial information about OGS and Degil after the SPA to test those allegations. On the other hand, Delta states that it is entitled to preserve and protect the confidentiality of proprietary information by refusing unnecessary disclosure outside the second earnout period.

ii. Manual Journal Entries

[20] Under advisements 54, 55 and 57 are the Dentes’ requests for manual journal entries for OGS and Degil. Delta provided all general ledger transactions, which are voluminous. The Dentes state that the data is unsearchable to produce the manual journal entries. Delta’s counsel state that the data is searchable, and has offered tutorials on how to search the data.

[21] Production of voluminous documentation in a form that does not provide meaningful access should be avoided. For the disclosure to be meaningful, the receiving party must be provided with electronic techniques to review, search, or otherwise access the documents.

iii. Particulars re Damage Claims

[22] Undertakings 2 and 4 are agreements to provide particulars of Delta’s damage claims, which have not been provided. A party cannot delay the delivery of particulars relating to their claims, which would prevent the other party from properly assessing the damages claimed and from adequately preparing for trial: Patchett v. 1582683 Ontario Limited, 2014 ONSC 2013, at para. 19.

iv. Litigation Privilege

[23] Delta’s refusal number 10 is based on litigation privilege. A party seeking litigation privilege has the onus to establish, on a balance of probabilities, that litigation was contemplated when the document was created and that the documents for which privileges sought were created for the dominant purpose of litigation: Sky Solar (Canada) Ltd. v. Economical Mutual Insurance Company, 2015 ONSC 4714, at para. 80.

[24] The party asserting litigation privilege must provide firsthand evidence of a dominant litigation purpose from the creator of the documents in question: Walsh Construction Company Canada v. Toronto Transit Commission, 2020 ONSC 3688, at para. 23.

v. Conclusions re Delta Refusals

[25] I make the following determinations with respect to the refusals:

Ref/UA & Q#	Question	Determination	Compel Answer?
UT 2 (73)	Reasonable efforts to provide a breakdown of the $4,000,000 damages claim in paragraph 112(a) of Delta’s Amended Defence and Counterclaim.	Delta states that it has provided a breakdown of damages. However, I find that the breakdown is not sufficiently detailed.	Yes
UT 4 (74)	Reasonable efforts to provide particulars of allegations in para. 122(a) of the Delta’s Amended Defence and Counterclaim.	In the counterclaim, Delta alleges that the Dentes misrepresented the company’s financial situation to induce Delta to buy the companies. Delta states that it has provided particulars and will provide more particulars after discovery. However, the bulk of discovery has been completed. I find that the particulars are not sufficiently detailed because Delta has not stated what liabilities were underreported and inventory overreported.	Yes
UA 24 (516)	To advise if a response was sent in response to “I will send you separately explanation about what happened” in the email from Arnaud Danel to Vishal Goswami dated March 27, 2020 and, if unable to determine, to ask Arnaud Danel what his explanation is of this topic.	There was an email exchange regarding destruction of inventory, which is relevant because the pleadings refer to Delta’s intentional efforts to frustrate the Dentes’ ability to achieve the second earnout and to successfully transition the business. Delta stated that there was a privileged email sent to the lawyer. However, the undertaking was to provide an explanation from Mr. Danel about what happened, and this has not been provided.	Yes
UA 26 (580)	To produce communications between Thibauld, Jerome Benoit and Arnaud Gastelu and the finance person at the time regarding the need for review of the accounting from January 2020 forward.	This request is relevant to Delta’s gross margins for the fiscal year 2020, whether the second earnout was achieved and if certain financial targets were met. Delta says that the answer has been provided. I am satisfied that Delta has produced all relevant communications to the extent that it is able to locate them.	No
UA 54, UA 55, UA 57 (816, 816, 898)	To provide the manual journal entries for the period October 2019 to January 2020, allegedly not shared or not accessible in April 2020 by Delta’s legal counsel in the ZIP folder. To provide records of all mapping done with respect to the financial information provided to the Dentes in April 2020. To provide the manual journal entries for 96720-5 allegedly not shared or not accessible in April 2020 by Delta’s legal counsel in the ZIP folder.	The manual journal entries are relevant to Dentes’ ability to prove that the second earnout would have been achieved if Delta had followed proper accounting practices. It is alleged that the inventories and accrual accounts were manipulated. Delta has produced all general ledger transactions for OGS and Degil for 2019, says that the financial records are searchable, and has offered tutorials on how to do it. However, Riccardo Dente provided specific and detailed evidence about how he has followed the instructions and has not been able to search the data in a meaningful way. In the circumstances, Delta must provide the data. If it is as simple as Delta suggests, it should not be an issue for Delta to search for and provide the manual journal entries.	Yes
Ref 1 (38)	To provide the audited Financial Statements for OGS and Degil for 2020 and 2021 when ready.	Delta refused to produce the 2021 financial statement. It states that financial information after the second earnout period is not relevant to matters in issue in the action. Delta has provided the record of orders shipped for the first 4 months after the earnout period. However, the full 2021 Financial Statement is relevant to the Dentes’ allegations of arbitrary ceilings on 2020 orders and intentional manipulation of the 2020 gross margin; and to Delta’s claim for damages of lost profits.	Yes
Ref 2 (104)	After January 31, 2020, to advise how many products were re-branded or co-branded to Delta Plus brand.	The number of re-branded or co-branded products are relevant to Delta’s intentional efforts to frustrate the Dentes’ ability to achieve the second earnout and to successfully transition the business. De Chantamele already answered that there were no re-branded or co-branded products to March 15, 2021, more than one year after end of second earnout. However, the question should be answered up to February 1, 2022 when the examination took place, as the question is relevant.	Yes
Ref 10 (582)	To advise if the financial statements mentioned in the January 30-31, 2020 email exchange were ever provided to MNP.	At discovery, Delta refused to answer this question because of “expert privilege”. In their factum, Delta asserts litigation privilege because MNP was retained by Gowling WLG after the Dentes served their Earnout Dispute Notice and Notice of Indemnity Claim in April 2020. It is Delta’s onus to prove litigation privilege, but no evidence has been provided. Given that a privilege is being asserted, I will permit Delta 15 days to provide firsthand evidence from the creator of the document in question in support of the privilege. Assuming that Delta produces evidence that reflects what is stated in its factum, Delta will not be required to answer this refusal.	No (conditional)

V. REQUESTS FOR FOLLOW-UP EXAMINATIONS FOR DISCOVERY

[26] The court may make an order for re-attendance at examination if it appears necessary in order to fulfill the purposes of discovery. There may be situations in which the answers appear cursory or incomplete, where they give rise to relevant follow-up questions that have not been asked, or if newly produced documents require explanation: Senechal v. Muskoka (District Municipality), at para. 7.

[27] In this case, both sides request that they be entitled to conduct further examinations of the other party once the follow-up questions have been answered. Both parties state that the answers will give rise to additional questions and require clarification to fully understand the other parties’ position on issues.

[28] The initial cross examinations were extremely thorough and took place over two days for each party. Since both parties seek further examination once questions have been answered, I direct that each party may further examine the other party for discovery to a maximum of 5 hours. The plaintiffs may examine Mr. De Chantamele for 5 hours and may examine Martino and Riccardo Dente for 5 hours total between the two of them. The parties may agree to extend this time limit on consent, without seeking further leave of the court.

VI. COSTS

[29] There have been mixed results on these motions, so each party shall bear their own costs.

VII. CONCLUSION

[30] For all of these reasons, the court makes the following orders:

1. The parties shall comply with the following orders by August 20, 2023: a. Martino Dente, personally and on behalf of the plaintiffs in the main action, shall answer the following from his Examination for Discovery on February 3 and 4, 2022: Under Advisements 25, 26, 27 and 28. b. Thibauld de Chantamele, personally and on behalf of the defendants in the main action, shall answer the following from his Examination for Discovery on February 1 and 2, 2022: i. Undertakings 2 and 4; ii. Under Advisements 24, 54, 55 and 57; and iii. Refusals 1 and 2.
2. Leave is granted to Delta to serve and file further affidavit evidence in support of the litigation privilege being claimed for Refusal 10, to be filed no later than July 4, 2023. If nothing is filed within that time frame, Delta must answer Refusal 10 by August 20, 2023.
3. Each party shall bear their own costs of the undertakings and refusals motions.

Braid, J. Released: June 19, 2023