NEWMARKET COURT FILE NO.: FC-10-34674-00

DATE: 20120425

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: CHARLES MARC BAILEY, Applicant

AND:

NANCY ANN BAILEY, Respondent

AND:

WHITNEY-BAILEY ASSOCIATES INC., 1564957 ONTARIO INC. and 1474117 ONTARIO INC., Non-Parties

BEFORE: THE HON. MR. JUSTICE G.M. MULLIGAN

COUNSEL:
A. Feldstein, for the Respondent

C. Still, for the Non-Parties

The Applicant attended, but did not make submissions

HEARD: April 19, 2012

ENDORSEMENT

[ 1 ] The respondent Nancy Ann Bailey brings a motion against three non-parties for disclosure. The three non-parties are Whitney-Bailey Associates Inc., 1564957 Ontario Inc. (“156”) and 1474117 Ontario Inc. (“147”) (“the non-parties”). The non-parties were served and represented by counsel at the motion.

[ 2 ] Issues between the respondent Nancy Ann Bailey and the applicant Charles Marc Bailey raised in the Notice of Motion were resolved by way of a consent filed before the motion proceeded. Although Mr. Bailey attended at the motion he did not participate in the hearing.

[ 3 ] The following background with respect to the non-parties will provide context to the decision that follows. Mr. Bailey has an interest in the three non-party corporations. His wholly owned corporation, Bailey Engineering Inc., owns an approximate 25 percent interest in 147. As well as being minority shareholder he is also a vice president.

[ 4 ] 147 is a holding company for Whitney-Bailey Associates Inc., which is the operating company for Mr. Bailey and other shareholders of this privately held corporation. In addition he is a vice president and director of this corporation.

[ 5 ] Mr. Bailey is also a shareholder of 156 which owns the building used by the operating company. He is a minority shareholder with a 33.33 percent interest. Shares are also owned or controlled by other individuals namely Gino Sardaro and Rod Sanchez. These individuals are not blood relatives of Mr. Bailey or his spouse.

[ 6 ] At the motion the parties filed as an exhibit an outstanding disclosure summary outlining approximately 200 line items. Upon the return of the motion counsel indicated that many of the items requested had been received by Mrs. Bailey. In addition there were a number of items that the non-parties had agreed to provide. However there was a significant number of outstanding items that had not been provided; the non-parties resisted supplying these items.

[ 7 ] Both Mr. Bailey and Mrs. Bailey had retained and received reports from business valuators. Mr. Bailey obtained a report from his valuator Mr. Dyson. The purpose of the outstanding requests was to provide more information for Mrs. Bailey’s business valuator, Neil Lawrence Maisel, so that he could complete his report. The parties do not dispute that the items requested are relevant but the non-parties submit that there are privacy concerns with respect to many of these items and they ought not to be produced for that reason. In addition the non-parties submit that if there is a disclosure order they ought to be able to redact certain information before it is provided.

[ 8 ] Mrs. Bailey’s business valuator is Neil Lawrence Maisel. Mr. Maisel provided an affidavit dated October 12, 2011. He provided his curriculum vitae and indicated his retainer was as follows:

I have been retained by the respondent wife in this matter in order to assist her with respect to the value of the applicant’s business interest and his income.

[ 9 ] As Mr. Maisel said at para. 10:

I was retained by the respondent to conduct a review of Mr. Dyson’s reports and to do so effectively I require access to certain information. My initial request for disclosure was made on July 21, 2008 and not everything requested was provided to me. This prompted me to make a further request on October 29, 2008.

11. I have been advised by Andrew Feldstein and I do verily believe, that the applicant has suggested that the documentation and information not produced constitutes confidential information.

12. The Applicant’s refusal to produce the requested information results in my inability to give an effective report on Mr. Dyson’s valuation.

[ 10 ] Mr. Maisel’s affidavit above referred to contains 20 paragraphs of specific information requested to assist him with respect to his retainer. Mr. Maisel provided a further affidavit dated December 1, 2011 in reply to certain affidavits provided by Gino Sardaro, the president of the non-party corporations. Mr. Maisel provided a detailed and comprehensive 25 paragraph affidavit indicating the items he still required to fulfill his retainer notwithstanding the refusals by Mr. Sardaro. As Mr. Maisel says in his affidavit at para. 14:

With respect to the affidavit of Mr. Sardaro, he has commented in paragraphs 16 and 17 that he is concerned that facilitating my requests would result in an exposure of “vital and confidential” information regarding the companies for which he acts as president and he adamantly opposed to having his (and the other shareholders) personal information released. Mr. Sardaro continues to state that he is only prepared to produce information within the corporate records of the companies that relates solely to the applicant and that all other information will be redacted. If the respondent is limited to the receipt of disclosure in the redacted form, as suggested by Mr. Sardaro, then I will be limited in my ability to meet the requirements of my retainer as I cannot properly determine Mr. Bailey’s income or the value of his business interests. The applicant’s income and the value of his business interests are the core of the outstanding issues in this matter and it would be unfair for the respondent to move forward with the disclosure she currently has, or with further disclosure that is redacted.

[ 11 ] As to the confidential nature of the information, Mr. Maisel said at paragraph 22:

As with all confidential information that is of a private nature in the files I work on, this information will remain confidential within our offices. The reasons that we will require information relating to other shareholders, families, and customers is that in order to normalize earnings, and thus to be in a position to determine if there is commercial goodwill in an entity, it is necessary to understand various expense accounts, to ensure that payments were not non-recurring, where not to a person who do not deal at arm’s length with the company, who are not personal/discretionary, were at fair market value inc. Accordingly I continue to request the outstanding items (as noted in the Notice of Motion). To satisfy Mr. Sardaro’s concerns I am prepared to sign a standard confidentiality agreement as to be agreed upon by counsel in this matter.

[ 12 ] Gino Sardaro, president of the non-party corporations, provided an affidavit opposing the disclosure requested. The grounds for opposing the requested disclosure are set out in Mr. Sardaro’s affidavit at paragraphs 16 – 18 as follows:

16. I am very concerned that vital and confidential information is contained in much of the material which Nancy Bailey is seeking. I am prepared to produce any and all information in the corporate records as such released to Marc Bailey, but I insist that all other information be redacted.

17. Likewise, I recognize that Nancy Bailey is entitled to see any company information and financial disclosure as such relates to Marc Bailey; however myself and the other shareholder are adamantly opposed to having our personal information released.

18. On or about June 2008 we experienced a major flood in our building. Water was three feet deep throughout the entire main level, where all our accounting records and computer systems are located. In the past, we have experienced problems accessing records from prior to June 2008. Our accountants rely upon our records and do not duplicate same.

ANALYSIS

[ 13 ] The non-party relies on the Federal Child Support Guidelines . Those guidelines provide specific guidance as to documents to produce when a spouse controls a corporation. Mr. Bailey does not have control of the corporation, he is a minority shareholder. The majority shareholders resist disclosure. Therefore I am satisfied that Rule 19(11) of the Family Law Rules provides guidance as to when a court “may” make an order against non-parties for disclosure.

[ 14 ] Rule 19(11) of the Family Law Rules provides as follows:

(11) If a document is in a non-party’s control, or is available only to the non-party, and is not protected by a legal privilege, and it would be unfair to a party to go on with the case without the document, the court may, on motion with notice served on every party and served on the non-party by special service,

(a) order the non-party to let the party examine the document and to supply the party with a copy at the legal aid rate; and

(b) order that a copy be prepared and used for all purposes of the case instead of the original.

[ 15 ] Mrs. Bailey submits that Rule 19(11) can be broken down into a six part test with respect to the issues on this motion as follows:

• The documents are in a non-party’s control (Mr. Bailey as a minority shareholder does not have access to these documents).

• The documents are available only to the non-party (it is clear that these documents, subject to availability with respect to flood related items, are available to the non-party).

• That the documents are not protected by legal privilege.

• It would be unfair to require Mrs. Bailey to proceed without this information (her business valuator cannot complete his retainer without these documents).

• All of the documents requested ought to be provided as relevant and necessary (the parties agree that the documents are relevant).

• The application has to be on notice to the non-party (that is not an issue in this case).

[ 16 ] In Marcoccia v. Marcoccia 2009 ONCA 162 the Ontario Court of Appeal reviewed Rule 19(11). As the Court said at para. 8:

Rule 19(11) of the Family Law Rules provides for the making of an order requiring a non-party to let the party seeking the records examine the documents and to supply the party with a copy of the legal aid rate. The judge may make the order where the document is not protected by legal privilege and “it would be unfair to a party to go on with the case without the document”.

[ 17 ] In Himel v. Greenberg 2010 ONSC 2325 Spies J. reviewed the principles in Rule 19(11) and the guidance of the Court of Appeal in Marcoccia in a case where documents were required in order to produce a business valuation. As Spies J. said at para. 30:

In my view the requested documents are very important to Dr. Himel’s case. The documents requested by Dr. Himel’s advisors are central to a material issue in this case, namely, the value of Mr. Greenberg’s net family property and Dr. Himel’s entitlement to a portion thereof. Without them she will have no alternative but to accept the KPMG valuation for the purpose of valuing Mr. Greenberg’s shareholdings.

[ 18 ] In Ludmer v. Ludmer 2011 ONSC 6116 Perkins J. dealt with the issue of confidentiality regarding documents for a matrimonial property issue. In commenting on the non-party’s affidavit resisting disclosure Perkins J. stated at para. 19:

The father contended that there were sensitive and private business or estate matters at issue, but other than broad and conclusory statements in his affidavit, there was no indication of what the matters might be or why they might be sensitive.

[ 19 ] In Matthys v. Foody 2009 Carswell Ont. 3791 Mackinnon J. reviewed the purpose of Family Law Rule 19 and stated:

In my view the words also encompass the ability of a party to make a formal request for documents from a non-party with the expectation that the request, reasonably made, will be granted. A non-party should be expected to entertain a reasonable request with knowledge of the law, including the courts ability on proper notice to order production from the non-party pursuant to Family Law Rule 19(11).

Legal Privilege

[ 20 ] Rule 19(11) indicates the documents ought not to be produced if they are covered by legal privilege. Mr. Bailey and the non-parties have apparently begun discussions to have a parting of the ways. An agreement has not yet been formulated. Mrs. Bailey submits that there is evidence that Mr. Bailey and the non-party are using the same law firm and therefore there ought to be no litigation privilege. As evidence she points to the consent filed by Mr. Bailey. However I note that that consent was not signed by the non-party. I accept the submissions of counsel for Mr. Bailey that Mr. Bailey and the non-parties are separately represented with respect to that matter. I am satisfied that such documents are covered by litigation privilege and are not to be disclosed at this time. However Mrs. Bailey ought to be afforded the opportunity to request this documentation in the future absent any legal privilege issues when an agreement has been formulated between the parties. If such documents are not provided on consent Mrs. Bailey has leave to bring that aspect of this motion back on for consideration. I remained seized of the matter to that extent.

[ 21 ] However I am satisfied that the balance of documents ought to be provided so that Mr. Maisel can complete his retainer. I am satisfied that it would be unfair to Mrs. Bailey to proceed without this information, information which her business valuator requires to complete his retainer.

[ 22 ] The non-party indicates that some information prior to the 2008 flood may not be readily available. I am satisfied that the non-party should use its bests efforts to provide this information. Although paper copies may be unavailable electronic records may be available to assist, at least in part in providing this information. If this information cannot be obtained then the non-party should provide a more fulsome affidavit as to what is or is not available to be produced.

[ 23 ] Rule 19(11) provides compensation to the non-party at the legal aid rate for copies made. The non-party requests additional compensation for the time and effort to be spent by the non-party staff or law clerks in assisting in compiling this information. In my view these expenses are expenses related to the non-party and its obligations pursuant to this order. However I note that Mr. Bailey is a minority shareholder of the non-parties and the records produced to date indicate that these corporations have a high net worth. I see no reason why the expenses incurred by the non-party cannot be attributable to its minority shareholder Mr. Bailey.

[ 24 ] I am also satisfied that the documents requested should not be redacted. Mr. Maisel has indicated that the redaction of documents will hinder him and his ability to fulfill his retainer. I am satisfied with his affidavit evidence in this regard which has not been challenged in cross-examination.

[ 25 ] However before any documents are provided I am satisfied that a confidentiality agreement ought to be executed by Mr. Maisel, Ms. Bailey and her counsel in form satisfactory to counsel for the non-party. I am satisfied that Mr. Maisel, as a chartered accountant and business valuator, fully understands the significance and importance of the confidentiality agreement. The purpose of his retainer is to determine the income and assets of Mr. Bailey and I am satisfied that he understands the limited use that can be made of this confidential information.

[ 26 ] Subject to those items covered by litigation privilege it is ordered that a confidentiality agreement be prepared and executed by Ms. Bailey and her counsel and business valuator in form satisfactory to counsel for the non-party whose approval shall not be unreasonably withheld. It is further ordered that upon receipt of the confidentiality agreement the non-party shall provide all items of outstanding disclosure as per exhibit 1 by June 30, 2012. The non-party shall be reimbursed for photocopies in accordance with the legal aid rate for photocopying of the documents.

Costs

[ 27 ] The moving party, Mrs. Bailey, has been substantially successful upon the motion. If the parties cannot agree as to costs then counsel may make an appointment through the trial co-ordinator at Barrie for a costs hearing before me either in Barrie or Newmarket as arranged through the trial co-ordinator. Counsel shall prepare a bill of costs and a costs outline and serve and file same on the non-party. The non-party will then have ten days after service to respond.

MULLIGAN J.

Date: April 25, 2012