ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 50057/08
DATE: 2012/08/14

BETWEE N:

LUNDY’S REGENCY ARMS CORP., 1498611 ONTARIO INC. and 1519481 ONTARIO INC.

Peter A. Mahoney, for the Plaintiffs

Plaintiffs

• and -

NIAGARA HOSPITALITY HOTELS INC. and KERRIO CORPORATION

John B. Hopkins, for the Defendants

Defendants

HEARD: August 9, 2012

The Honourable Mr. Justice D.J. Taliano

[ 1 ] The defendant corporations own and operate several hotel properties in the City of Niagara Falls but have a single spokesperson who filed an affidavit on their behalf. For simplicity I will refer to them collectively as the defendant.

[ 2 ] One of the defendant’s hotels is the Lundy’s Lane Hotel in Niagara Falls which it operated for a period of time that is not specified in the materials. In 2002, it sold the hotel to the plaintiff. The defendant then leased the hotel from the plaintiff for a term of five years until September 30, 2007. Although the lease is not produced in the materials, it is not disputed that a term of the lease requires the defendant to maintain the premises during the currency of the lease as a prudent owner would. The plaintiff alleges in its statement of claim that the defendant failed to live up to that requirement and seeks damages in the millions of dollars.

[ 3 ] During examinations held on September 28, 2010, the defendant, through its spokesperson, refused to answer certain questions and to produce certain financial records. Other answers and materials were undertaken to be produced.

[ 4 ] Following the examinations, some materials were produced, other materials were produced in edited form and production of other materials was refused. This led to a motion and a consent order on January 26, 2012 which simply ordered the defendant to “provide the responses to the Refusals and Undertakings Chart attached as Schedule “A” on or before Monday, March 5, 2012.”

[ 5 ] A review of Schedule “A” indicates that the defendant agreed to produce under item 1, whatever financial statements or annual financial statements are available for every year that the defendant was involved in the Lundy’s Lane property. Items 2 through 6 require the production of maintenance records for the subject property, maintenance records for the defendant’s other properties and financial statements for the full period of the defendant’s involvement in the Lundy’s Lane property.

[ 6 ] The undertakings portion of the order required the defendant in items 5 through 8 to produce “all records… relating to the income and expenses of the Lundy’s Lane property while the defendants were in possession of that property during both ownership and tenancy.”

[ 7 ] This order is not qualified nor is it conditional. It is straightforward in its terminology and it was a consent order. However, the defendant has not produced the required information. Its failure to do so prompted this motion to compel compliance.

[ 8 ] On May 31, 2010, Walters J. ordered the defendant to “produce amounts reported on its year end financial statements regarding repairs and maintenance, along with the underlying or supporting documentation if available from 2002 to and including 2007.” The motion was adjourned to July 5, 2012. On that date, the motion was further adjourned to August 9, 2012 “so that Mr. Hopkins can produce the full underlying accounting records to support numbers listed on the financial statements and trial balances, if available.”

[ 9 ] On August 9, counsel for the plaintiff asked the court to compel compliance with the terms of the consent order of Lococo J. or alternatively for an order striking the statement of defence and advised that although some financial statements had been produced, key aspects of the productions were expunged and the majority of the financial records have not been produced.

[ 10 ] Mr. Hopkins advanced a multi-pronged argument in response to the motion to compel compliance. Firstly, he pointed out that the parties were competitors and that production of the requested information to the plaintiff would compromise the defendant’s position in the business community.

[ 11 ] My response to this submission is this. When the parties entered into the lease and exchanged covenants to do certain things, they knew each other’s status in the business community. They also knew that the alleged breach of any contractual commitment could lead to legal consequences. The plaintiff has advanced a claim in the millions of dollars and the defendant cannot play the competition card to frustrate conventional production requirements. Production obligations trump competitive concerns. Although a production order might lend itself to be tailored to meet the unique circumstances of the case, no submissions were made as to how the court might fashion such protection. In any event, the unqualified production order was made on consent and no good reason has been advanced to undermine the ambit of this order.

[ 12 ] Another argument advanced by the defendant was that it owns several hotel properties and the financial records do not individualize the assets nor allocate the income and expenses to any one asset in particular. Although this arrangement will make analysis of the produced material more complex, it is not a ground for refusing production. The records must be produced.

[ 13 ] In addition, it was argued by counsel for the defendant that Walters J. dealt with this matter in her endorsements of May 31 and July 5 and although counsel for the defendant did not specifically say so, I take it that he meant to advance the submission that the matter is now closed. However, I disagree. Walters J. did nothing to vary the order of Lococo J. She merely dealt with specific aspects of the consent order. Other aspects that were not dealt with expressly by the two subsequent orders remain outstanding and must be produced.

[ 14 ] During argument it was pointed out by counsel for the plaintiff that although some financial statements were produced, considerable areas of the productions were expunged allegedly for privacy reasons. I repeat what I alluded to during submissions. Editing is not permitted. The covenants agreed to by the defendant required it to maintain the property as a prudent owner would and accordingly, all aspects of its historical maintenance and repair history in connection with this and its other hotel properties are open to disclosure as is the defendant’s collective income. Only in that way can the plaintiff ascertain what percentage of the defendant’s income was used to service and maintain its properties both before and during the currency of the lease, by comparison to what percentage was spent on the Lundy’s Lane property during the term of the lease.

[ 15 ] A final objection is that some of the requested productions no longer exist. The court has insufficient evidence to properly deal with this submission and I encourage counsel to either resolve this issue themselves or better develop the issue and submit it to the court for resolution, if necessary.

[ 16 ] The defendant will have 30 days to produce the required materials, failing which the plaintiff may move for an order striking the defendants’ statement of defence.

[ 17 ] Counsel did not make any submissions on costs. In the absence of special circumstances, I would think that they would follow the event. However, if submissions become necessary, I will entertain written submissions first from counsel for the plaintiff and 15 days thereafter from the defendant.

Taliano J.

Released: August 14, 2012

COURT FILE NO.: 50057/08
DATE: 2012/08/14

ONTARIO SUPERIOR COURT OF JUSTICE BETWEE N: LUNDY’S REGENCY ARMS CORP., 1498611 ONTARIO INC. and 1519481 ONTARIO INC. Plaintiffs - and - NIAGARA HOSPITALITY HOTELS INC. and KERRIO CORPORATION Defendants REASONS FOR JUDGMENT Taliano J.

Released: August 14, 2012