SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: Bob Brown Pontiac Buick GMC Limited, Capital Pontiac Buick Cadillac GMC Limited, Centennial Pontiac Buick GMC Limited, Cowan Pontiac Buick GMC Limited, Davis Pontiac Buick GMC Limited, Davis GMC Buick (Medicine Hat) Limited, Dominion Motors (Thunder Bay – 1984) Limited, Downtown Pontiac Buick (1983) Limited, Forbes Motors Inc., Gus Brown Pontiac Buick GMC Limited, Gus Brown Pontiac Buick GMC (Port Petty) Limited, Jacobsen Pontiac Buick (1993) Limited, Jim Gauthier Cadillac Buick GMC Limited, John Bear Buick GMC Limited, Kipp Scott Pontiac Buick Limited, Lindsay Buick GMC Ltd., MacDonald Buick GMC Cadillac Ltd., MacMaster Pontiac Buick GMC (2007) Inc., McNaught Buick Cadillac GMC Limited, Mills Motors Buick GMC Limited, Niagara Motors Limited, O Leary Buick GMC Limited, Petersen Pontiac Buick GMC (Alta) Inc., Robinson Pontiac Buick Limited, Surgenor Pontiac Buick Limited and Terra Nova Motors Limited, Plaintiffs

AND:

General Motors of Canada Limited, Defendant

BEFORE: D. M. Brown J.

COUNSEL: R. Di Pucchio and J. Renihan, for the Plaintiffs

B. Ledger, G. Scott and G. Hunnisett, for the Defendants

HEARD: May 24, 2012

REASONS FOR DECISION (Corrected)

I. Legal representation and deemed undertaking motions

[1] The plaintiffs, “standalone” Buick GMC dealers, commenced this action against General Motors of Canada Limited (“GMC”) seeking damages, and other relief, for alleged breaches of franchise agreements. This action was commenced in August, 2011. Both parties have brought “early stage” interlocutory motions.

[2] GMC moves for orders concerning the legal representation of the plaintiffs and the use of a certain document by the plaintiffs. Simply put, GMC seeks to remove Jonathan Lisus, a partner at Lax O’Sullivan Scott Lisus, and the Lax Firm, as counsel of record in this action for three plaintiffs in this Action and split off the claims of those three plaintiffs from this Action and, also, seeks to prevent the plaintiffs from using a particular document disclosed in other dealer litigation, the so-called “Disputed Document”. More specifically, GMC requests orders that:

Orders directed towards Mr. Lisus and the Lax Firm

(i) Jonathan Lisus, a partner at Lax O’Sullivan Scott Lisus, and the Lax Firm, solicitors of record for the plaintiffs, are in breach of the deemed undertaking rule and an August 4, 2010 settlement agreement reached in other dealer litigation, the Stoneleigh Litigation;

(ii) The Lax Firm cannot use any documents, or information obtained therefrom, produced by GMC in the Stoneleigh Litigation;

(iii) The Lax Firm surrender or destroy all copies of documents referred to in certain paragraphs of the Fresh as Amended Statement of Claim (the “Claim”);

(iv) Mr. Lisus and the Lax Firm are prohibited from acting on behalf of three (3) of the 26 plaintiffs in this action – Downtown Pontiac Buick (1983) Limited (“Downtown”), Niagara Motors Limited (“Niagara”) and Robinson Pontiac Buick Limited (“Robinson”);

(v) In the event that such an order is granted, but the claims of Downtown, Niagara and Robinson remain joined with those of the 23 other plaintiffs, then an order that Mr. Lisus and the Lax Firm cannot represent any of the plaintiffs; and,

(vi) If Downtown, Niagara and Robinson retain new counsel, then an order that Mr. Lisus and the Lax Firm cannot advise or provide assistance to the new counsel;

Orders directed towards the plaintiffs

(vii) Niagara and Robinson breached the deemed undertaking rule and Settlement Letter;

(viii) Striking out paragraphs 130 to 134 of the Claim;

(ix) Prohibiting the plaintiffs “from pleading any allegations or material facts derived from documents, or information obtained from documents, produced by” GMC in the Stoneleigh Litigation;

(x) The plaintiffs surrender or destroy all copies of documents referred to in certain paragraphs of their Claim;

(xi) The claims of Downtown, Niagara and Robinson be severed from the Action.

[3] The plaintiffs resist the relief sought by GMC and, on their part, seek two orders:

(i) An order setting a timetable for further pleading and discovery steps in the Action; and,

(ii) An order granting leave nunc pro tunc to use the Disputed Document in the defence of GMC’s motion to dismiss the claims of Niagara and Robinson.

[4] For the reasons set out below, I dismiss GMC’s motion, save for the representation relief sought in respect of Downtown, which I defer, and I issue directions for further steps in this proceeding.

II. Key background events

A. GMC’s 2009 restructuring

[5] As is well known, in 2009 GMC underwent a restructuring. In May, 2009 it notified 240 GMC dealers that they would not be retained as part of the dealership network and GMC would not offer them new Dealer Sales and Service Agreements (“Dealer Agreements”) upon the expiry of their current ones. GMC offered the Non-Retained Dealers certain assistance specified in a Wind Down Agreement and gave those dealers less than a week to accept the proposal.

[6] Of the 240 Non-Retained Dealers, 202 signed the Wind Down Agreement. Those dealers now form the class of plaintiffs in a class action, Trillium Motor World Ltd. v. General Motors of Canada Ltd., commenced in this Court in January, 2010.[^1]

[7] Three of the plaintiffs – Downtown, Niagara and Robinson – did not execute the Wind Down Agreement by the deadline.

[8] The remaining 23 plaintiffs in this action were retained as GMC dealers (“Retained Dealers”).

[9] As part of the May, 2009 restructuring GMC discontinued the Pontiac brand of automobiles.

B. The Stoneleigh Litigation

[10] In late November, 2009, some Non-Retained Dealers, including Niagara and Robinson, sued GMC in what the parties call the “Stoneleigh Litigation”. Ultimately 21 Non-Retained Dealers stood as plaintiffs in the Stoneleigh Litigation.

[11] McCarthy Tétrault LLP acted as counsel for the plaintiffs in the Stoneleigh Litigation. Mr. Lisus, who was a partner at McCarthy’s at that time, acted as lead counsel.

[12] GMC served its productions in the Stoneleigh Litigation around early July, 2010. They amounted to several thousand documents. Some contained confidential and commercially sensitive information.

[13] The following month, August, 2010, saw the parties settle the Stoneleigh Litigation. The settlement was memorialized by two documents: (i) an August 4, 2010 letter (the “Settlement Letter”) sent by Mr. Ledger, GMC’s counsel, to Mr. Lisus,[^2] and (ii) settlement agreements between each of the plaintiffs and GMC (the “Settlement Agreements”). The Settlement Letter set out the terms of the settlement between the Stoneleigh plaintiffs and GMC and specifically contemplated the delivery and execution of the individual Settlement Agreements.

[14] Part of the settlement negotiations concerned the future representation by McCarthys of dealers who pursued other litigation against GMC. Mr. Lisus, in his April 24, 2012 affidavit filed on these motions, described in some detail the various drafts exchanged between counsel on this issue, together with the surrounding correspondence, which ultimately resulted in the signing of the Settlement Letter. Suffice it to say, the correspondence and drafts revealed that McCarthys attempted to narrow the scope of their agreement not to act for other dealers against GMC while Oslers, on behalf of GMC, sought to maintain broader language. The plaintiffs in the Stoneleigh Action were aware of the on-going negotiations concerning the scope of any future dealer representation by McCarthys.

[15] Without delving into the details of the back and forth in the correspondence during the negotiations between counsel, Mr. Lisus, in his affidavit, deposed to his particular understanding of what the parties intended by the language in the Settlement Letter, while Ms. Jennifer Dolman, a lawyer at Oslers, deposed to an opposite understanding of the parties’ intention.

[16] Paragraph 10 of the Settlement Letter, as ultimately signed, read as follows:

10. McCarthy and the experts retained by the Plaintiffs…as well as the Plaintiffs themselves and their respective dealer operators, all agree and covenant, and the Plaintiffs shall cause their dealer owners and any of their employees who have been involved in, assisted with, or obtained knowledge regarding the Stoneleigh Litigation to agree, that they will not act as counsel or advisor, provide information, documents or assistance of any kind to any other dealers who have or may litigation against GMCL or its affiliates as described below at subparagraphs (a), (b) and (c). McCarthy agrees that it will not act as counsel or advisor, provide information, documents or assistance of any kind to any of the following:

(a) any dealer who does not receive a motor vehicle brand as a result of the reinstatement of any of the 38 non-retained dealers not signing a Wind Down Agreement on or about May 26, 2009 (the “Original Non-Retained Dealers”, which include, for greater certainty, the Reinstated Dealers);

(b) any of the Original Non-Retained Dealers in an action against GMCL or its affiliates arising directly out of the May, 2009 restructuring; and,

(c) the prospective class in the Trillium class action…including any member of the Trillium class who is contemplating commencing or who commences an individual or multiparty action against GMCL or its affiliates relating directly to the May, 2009 restructuring. (emphasis added)

The Settlement Letter was on the letterhead of the Oslers firm and was signed by Mr. Ledger. Addressed to Mr. Lisus at McCarthys’, he signed the letter on the signature line under the heading: “McCarthy Tétrault LLP”.

[17] Downtown, Niagara and Robinson are “Original Non-Retained Dealers”; Robinson and Niagara are “Reinstated Dealers”.

[18] In October, 2010, Mr. Lisus resigned from McCarthys and joined the Lax Firm.

C. The Disputed Documents

[19] Following delivery by GMC of its productions in the Stoneleigh Litigation, a dispute arose over whether or not GMC could claim solicitor-client privilege over certain documents (the “Disputed Documents”). That dispute was not settled before the parties entered into the Settlement Letter. Paragraph 11 of the Settlement Letter dealt with that dispute:

11. All copies of the disputed privileged documents in the control of McCarthy or its clients or the Experts shall be immediately destroyed and McCarthy shall provide confirmation of the same. In addition, McCarthy shall ensure that all recipients of the disputed privileged documents provided confirmation to GMCL by August 13, 2010 that they will maintain confidentiality with respect to the contents of the disputed privileged documents.

D. Downtown’s arbitration proceeding

[20] Downtown was not a plaintiff in the Stoneleigh Litigation. Downtown did not sign a Wind Down Agreement. When Downtown’s Dealer Agreement expired on October 31, 2010, GMC did not offer it a new one. Downtown then initiated arbitration against GMC claiming that GMC was required by contract to offer it a new five-year Dealer Agreement. Neither Mr. Lisus nor McCarthys acted for Downtown in that arbitration. The Honourable Patrick Galligan released an arbitration award on January 12, 2011 directing GMC to offer Downtown a new Dealer Agreement.

E. This action

E.1 Chronology

[21] On August 5, 2011 the plaintiffs commenced this action. At the time they were represented by the Paliare Roland Rosenberg Rothstein LLP firm. The plaintiffs served their initial claim on November 24, 2011. The Paliare Firm subsequently advised GMC’s counsel that the plaintiffs intended to amend their claim. On February 5, 2012 the plaintiffs delivered a notice of change of solicitors appointing the Lax Firm as their solicitors of record.

[22] Prior to that change in counsel GMC’s lawyers, Oslers, had written to the Paliare Firm on December 19, 2011 querying the tenability of the claims asserted by Downtown, Niagara and Robinson in light of the prior litigation – i.e. the August, 2010 Settlement Letter and Agreements and the January, 2011 Arbitration Award:

I confirm that you will be reviewing the settlement agreements and releases signed by your clients Robinson and Niagara in the context of the Stoneleigh litigation. In addition, I understand that you will be considering the claim of Downtown in light of Arbitrator Galligan’s Award.

As discussed, it is our client’s position that the claims of those three dealers are untenable in light of the outcome of their prior litigation.

[23] On February 14, 2012, the plaintiffs delivered their amended Claim.

E.2 Portions of the Claim about which GM complains

[24] GMC complains that paragraphs 130 to 134 of the Claim plead confidential privileged information in violation of section 11 of the Settlement Letter and in breach of Rule 31.1.01 of the Rules of Civil Procedure, the deemed undertaking rule. The information impugned by GMC is underlined in the following reproduction of those paragraphs:

130. Niagara and Robinson were among the dealers who received Wind Down Agreements from GMCL on May 20, 2009. Neither Niagara nor Robinson agreed to the Wind Down Agreement presented by GMCL and both dealers were part of a lawsuit commenced against GMCL by dealers that had received Wind Down Agreements (the “Stoneleigh Action”). That lawsuit was commenced in the Ontario Superior Court of Justice under Court File No. CV-10-8595-00CL. During the course of that action, documents confirming GMCL’s knowledge of the impact that the unplanned discontinuance of Pontiac would have on the PBG dealers were produced. The documents reflected a ‘secret’ plan to eliminate PBG stores.

131. The Stoneleigh Acton was settled in or around August 2010 (the “Stoneleigh Settlement”). Both Niagara and Robinson were given the option by GMCL of a cash payment or re-instatement as dealers. Niagara and Robinson were concerned about the GMCL documents describing a secret plan to discontinue PBG dealers in the event that they were to elect re-instatement.

132. In response to Robinson and Niagara’s concerns, GMCL warranted and represented that the plan reflected in the documents was not in effect and that all PBG dealers, including Robinson and Niagara, would participate in the dealer network in the same manner and have the same opportunities and advantages as all dealers. It further represented and warranted that it intended to expand the Buick product line to make up for the loss of Pontiac and thereby harmonize the GMCL network, as described above at paragraphs 109-110. GMCL represented that intended to promote Buick as a core brand and did not have a plan to terminate stand-alone Buick dealers. These representations were explicitly and implicitly relied on by both Niagara and Robinson when entering into the Stoneleigh Settlement.

133. GMCL acknowledged that its representations regarding Buick and its future plans for PBG dealers were material representations intended to induce Niagara and Robinson to settle the Stoneleigh Action. As described above at paragraphs 121-123, GMCL did not intend to expand the range of Buick product offerings in order to compensate for the loss of Pontiac. GMCL made these representations falsely or recklessly, aware that there were no such plans and for the wrongful purpose of inducing Robinson and Niagara to settle their lawsuit. Rather, as it was in 2009, GMCL’s plan continued to be to terminate PBG dealers (either actively or through attrition) and to favour the Chevrolet brand.

134. But for the material misrepresentations of GMCL, neither Niagara nor Robinson would have entered into the Stoneleigh Settlement and remained as GMCL dealers. They would have elected to receive a very substantial cash settlement that GMCL had offered. As a result of GMCL’s misrepresentations and notwithstanding any releases provided in the Stoneleigh Settlement, Niagara and Robinson are entitled to the same remedies as the rest of the Plaintiffs. Any releases granted as part of the Stoneleigh Settlement do not apply to prevent Niagara or Robinson from holding GMCL liable for its representations regarding the future of the Buick brand. GMCL’s failure to expand the Buick product offerings as promised has impeded the ability of Niagara and Robinson to remain viable as PBG dealers and they are entitled to a remedy for that failure.

[25] GMC believes that the references in paragraphs 130 and 131 of the Claim to a “secret plan” are to the Disputed Document dealt with in the Settlement Letter.

E.3 Plaintiffs’ position on the impugned portions of the Claim

[26] Mr. Lisus deposed that paragraphs 130 to 134 of the Claim constituted, in effect, an attempt by the plaintiffs to plead in anticipation of the position which they expected GMC to take about the effect of prior litigation on the claims of Downtown, Niagara and Robinson, as had been communicated by GMC’s counsel on December 19, 2011.

[27] As to the pleading of the Disputed Document, Section 3 of the Settlement Agreements dealt with “Opportunities for Reinstatement”. Section 3(b) provided:

GM hereby expressly disclaims the making of, and Dealer and Dealer Operator acknowledge that they have not received, any positive representation, warranty, condition, undertaking, assurance of guarantee, express, implied or collateral, written or oral, from GM, its Affiliates or any of their respective agents, employees or representatives as to the potential volume, sales, income, revenues, profits or success of Dealer’s operation or of any other dealer’s operation as a GM dealer under the Dealer Agreement or the New Dealer Agreement. GM confirms that there is no plan to discontinue the standalone Buick/GMC dealers who remain in the dealer network. Additionally, GM confirms that the plan described in the April, 2009 document produced in GM’s affidavit of documents refers to the plan implemented in the May, 2009 restructuring. GM acknowledges that this confirmation is material to the decision of Hopper Pontiac Buick GMC, Robinson Pontiac Buick Ltd. and Niagara Motors Limited to remain as Reinstated Dealers.

The language in italics in section 3(b) of the Settlement Agreements also was included as paragraph 15 in the Settlement Letter.

[28] Mr. Lisus deposed that the “plan described in the April, 2009 document” referred to in the third sentence of section 3(b) was the Disputed Document. He continued:

46. It is the position of Robinson and Niagara in this proceeding that the representations provide by GMCL in s. 3(b) of the Settlement Agreement and s. 15 of the Settlement Letter were misrepresentations. As a result, GMCL is not entitled to enforce the release against Robinson and Niagara. Robinson and Niagara are unable to address the releases that GMCL intends to rely on without referring to the Confidential Document.

47. I verily believe that it is necessary for the Plaintiffs to refer to the Confidential Document in the Statement of Claim in order to enable the Court to fully and fairly adjudicate GMCL’s intended motion and related matters in this action.

48. Neither I nor anybody else at LOSL, nor any of the Plaintiffs, reviewed the Confidential Document when drafting the Fresh as Amended Statement of Claim. The pleading was prepared from the Settlement Agreement and Robinson’s and Niagara’s memory as to the contents of the Confidential Document.

III. First Issue: The representation of the plaintiffs by Mr. Lisus and the Lax Firm

A. Positions of the parties

[29] GMC submitted that the claims asserted by Downtown, Niagara and Robinson in this Action arose “directly out of the May, 2009 restructuring” and, as a result, section 10(b) of the Settlement Letter prohibited Mr. Lisus and the Lax Firm from representing or advising them.

[30] The plaintiffs contended that the Settlement Letter is not an enforceable contract, does not bind Mr. Lisus in his personal capacity, is not enforceable on public policy grounds and, in any event, does not apply to this action.

B. Analysis

B.1 The preliminary arguments made by the parties

[31] Before turning to the real issue on the representation question, let me deal with the preliminary arguments advanced by the plaintiffs to the effect that the representation conditions found in section 10(b) of the Settlement Letter are unenforceable.

[32] First, the plaintiffs argued that the Settlement Letter was not an enforceable contract as against McCarthys because that law firm received no consideration under the letter. I reject that submission. McCarthys was and is a sophisticated law firm. No doubt its lawyers fully understand the principles governing the formation of contracts and would not enter into a contract gratuitously.

[33] GMC paid big bucks under the Settlement Letter. McCarthys knew that. McCarthys must have concluded that their agreement to the representation condition in section 10(b) of the Settlement Letter provided value both to their clients and to themselves, in the context of their relationship with their clients. GMC performed the financial terms of the Settlement Letter. Ample consideration therefore existed.

[34] Second, the plaintiffs submitted that section 10(b) of the Settlement Letter was unenforceable as a matter of public policy constituting an improper restraint on the ability of a client to retain the counsel of its choice.

[35] I think it open to me to assume, for purposes of this argument, that neither Mr. Lisus nor McCarthys would knowingly enter into a contract which was against public policy. Although the email correspondence involved in the negotiation of the Settlement Letter contained protests by Mr. Lisus about the harshness of the representation condition sought by GMC, ultimately he negotiated and agreed to a condition which he found satisfactory in all the circumstances.

[36] As the plaintiffs candidly acknowledged in their Factum, neither Ontario courts nor the Law Society of Upper Canada have prohibited or regulated such restrictions on representation by counsel. In the absence of any such prohibition, I see no reason to interfere with a bargain freely struck by a sophisticated lawyer at a sophisticated law firm, especially when the concerns about enforceability of the term are being raised several years after GMC performed its obligations under the Settlement Letter. That said, courts view restrictive covenants, such as that found in section 10 of the Settlement Letter, with a critical eye and interpret them strictly in accordance with their terms.

[37] Which brings me to the plaintiffs’ third preliminary argument – the Settlement Letter did not bind Mr. Lisus in his personal capacity. The plaintiffs contended that only McCarthys, “the entity that signed the Settlement Letter”, was bound and, further, since McCarthys was a limited liability partnership, any obligation entered into by that partnership did not attach to an individual partner, such as Mr. Lisus, by virtue of section 10(2) of the Partnerships Act, R.S.O. 1990, c. P.5, which provides:

10. (2) Subject to subsections (3) and (3.1), a partner in a limited liability partnership is not liable, by means of indemnification, contribution or otherwise, for,

(a) the debts, liabilities or obligations of the partnership or any partner arising from the negligent or wrongful acts or omissions that another partner or an employee, agent or representative of the partnership commits in the course of the partnership business while the partnership is a limited liability partnership; or

(b) any other debts or obligations of the partnership that are incurred while the partnership is a limited liability partnership.

[38] The cases placed before me concerning the meaning of section 10(2) of the Partnerships Act concerned the financial liability of a partner where a limited partnership existed. At issue on this motion is not a question of the financial liability of Mr. Lisus, but his obligations under the Settlement Letter about how he might use certain information obtained during the course of his professional representation of a client in a proceeding before this Court. The evidence about the negotiations which led up to the Settlement Letter clearly revealed that GMC was concerned about what information Mr. Lisus personally possessed about GMC restructuring-related matters. It did not want other disgruntled dealers to take advantage of what Mr. Lisus knew.

[39] GMC tried to impose representation conditions. Mr. Lisus pushed back. They were hard and pointed negotiations. In some emails Mr. Lisus adverted to the impact which the restrictions GMC sought would have on his personal portfolio of work, especially in light of a referral relationship which he enjoyed with another law firm which specialized in franchise disputes.[^3] Notwithstanding those concerns, a deal was struck.

[40] When that deal was struck in August, 2010, it was not contemplated by the parties that some two months later Mr. Lisus would leave McCarthys to join the Lax Firm. No evidence was filed that when a partner leaves McCarthys a Men In Black neuralyzer is waved in front of his or her face thereby erasing the memory of any information gained while working at the firm. I think I can safely assume that Mr. Lisus entered the portals of the Lax Firm possessing in his memory the same information he had when he left McCarthys.

[41] The change in his legal status from a partner at McCarthys to a partner at the Lax Firm did not alter the professional or contractual obligations owed by Mr. Lisus as a result of his possession of confidential information, and section 11 of the Settlement Letter certainly had identified some confidential information of concern to GMC. The principles emanating from the line of cases starting with MacDonald Estate v. Martin[^4] are predicated on the reality that knowledge is portable and lawyers change firms. Although those cases usually concern acting against former clients, the reality underpinning those principles applies equally in the present circumstance where a party, as part of a settlement bargain, sought to restrict the ability of a knowledge-infused opposing counsel from using that information against the settling party somewhere down the road. The factual matrix surrounding the negotiation of section 10 of the Settlement Letter showed that Mr. Lisus was the primary object of the restriction sought by GMC, and his own emails revealed that he fully understood that to be the case.

[42] Mr. Lisus is personally bound by the obligations contained in section 10 of the Settlement Letter. To hold otherwise would stand the negotiation process and the resulting Settlement Letter on its head and lead to a commercially absurd result.

B.2 The substantive issue

[43] The only real issue for determination is whether this Action, in some material aspect, falls within the restrictions contained in section 10 of the Settlement Letter, specifically the condition found in section 10(b) prohibiting Mr. Lisus from representing “any of the Original Non-Retained Dealers in an action against GMCL or its affiliates arising directly out of the May, 2009 restructuring”.

[44] No dispute exists that all but three of the plaintiffs – Downtown, Niagara and Robinson - were Retained Dealers. GMC does not challenge the ability of Mr. Lisus and the Lax Firm to act as counsel for those 23 of the 26 plaintiffs in this Action, provided the claims of the three other plaintiffs are severed from this Action.

[45] As described in the Claim all the plaintiffs seek (i) compensatory damages for an alleged loss of market share, goodwill, reputation and profitability caused by GMC’s failure to re-structure the market areas in which they operate and to facilitate their brand transition away from the discontinued Pontiac line to an enhanced Buick line,[^5] and (ii) a form of mandatory order, at the election of each plaintiff, requiring GMC to add the Chevrolet brand of vehicles to their Dealer Agreements.[^6]

[46] The material facts upon which the 23 Retained Dealer plaintiffs rely in support of their claim differ to some degree from those relied on by Downtown, Niagara and Robinson. The 23 Retained Dealer plaintiffs rest their complaint against GMC on the validity of Transition Assistance Agreements they entered into with GMC sometime after August 7, 2009 - the Claim did not specify the precise dates – and Dealer Agreements executed in October, 2010. The Retained Dealer plaintiffs allege that the Transition Assistance Agreements were franchise agreements which did not comply with the requirements of the Arthur Wishart Act and, as a result, those agreements and the associated releases signed by the Retained Dealer plaintiffs are of no force and effect. They also plead that GMC failed to live up to it warranties, representations and duties under the October, 2010 Dealer Agreements.[^7]

[47] As to Downtown, Niagara and Robinson, no dispute exists that they are “Original Non-Retained Dealers” within the meaning of section 10(b) of the Settlement Letter, although neither Mr. Lisus nor McCarthys previously had acted for Downtown. Nor is there any dispute that this Action is “an action against GMCL”. The only issue is whether this Action, in some material aspect, concerns claims asserted by Downtown, Niagara and Robinson “arising directly out of the May, 2009 restructuring”.

[48] Although both parties referred to the email exchanges which passed between counsel during the negotiation of the Settlement Letter, as a general rule the interpretation of a commercial contract does not take into account evidence of the subjective intention of the parties, such as expressions of intent contained in the back-and-forth of negotiation correspondence.[^8] The focus, instead, is on the context and the objective evidence of the surrounding circumstances underlying the negotiations.[^9]

[49] The starting point of the analysis must be the Claim: what causes of action are Downtown, Niagara and Robinson asserting against GMC in relation to what events? Paragraphs 130 to 134 of the Claim set out the claims advanced by Niagara and Robinson; I reproduced above those portions of the Claim. Their claims sound in misrepresentations surrounding the settlement of the Stoneleigh Litigation. Niagara and Robinson identify the representations made by GMC which they allege induced them to enter into the Settlement Agreements, plead that the representations were made falsely or recklessly, assert that but for the material misrepresentations by GMC neither plaintiff would have entered into the Stoneleigh Settlement and, instead, would have elected to receive a cash settlement offered by GMC. As a result, Niagara and Robinson plead, the releases they signed as part of the Stoneleigh Settlement do not prevent them from seeking “the same remedies as the rest of the Plaintiffs”. Although it is not clear from the Claim what the measure of those damages may be – the amount of the cash settlement foregone by Niagara and Robinson in the Stoneleigh Settlement or some other measure – the Claim asserts that Niagara and Robinson suffered damages as a result of misrepresentations made which induced them to enter into the August, 2010 Stoneleigh Settlement.

[50] GMC submitted that Downtown, Niagara and Robinson would not be asserting claims in this Action had they not lost the ability to market the Pontiac brand in the course of the May, 2009 restructuring: “But for the discontinuance of Pontiac, the Action would not have been brought…Given that the discontinuance of the Pontiac brand was central to the May, 2009 restructuring of GMCL, these claims arise directly from that restructuring.” I do not accept that interpretation of section 10(b) of the Settlement Letter. The restriction on the future representation of Non-Retained Dealers was limited to actions against GMC “arising directly out of the May, 2009 restructuring”. The use of the word “directly” is significant, indicating that actions indirectly arising from or connected to the May, 2009 restructuring are not caught by the proscription.

[51] What actions arose “directly” out of the May, 2009 restructuring? GMC’s announcement on May 20, 2009 that 240 dealers would not be retained as part of its dealership network and offering those dealers a Wind Down Agreement had several immediate, or direct, consequences:

(i) approximately 202 Non-Retained Dealers signed the Wind Down Agreements;

(ii) thirty-eight Non-Retained Dealers did not sign the Wind Down Agreements, including Downtown, Niagara and Robinson. Of those 38 dealers, 21 became plaintiffs in the Stoneleigh Litigation, including Niagara and Robinson;

(iii) Downtown initiated individual arbitration proceedings against GMC upon the expiration of its Dealer Agreement, as did one other; and,

(iv) GMC told the Retained Dealers they would continue as GMC dealers, including 23 of the 26 plaintiffs in this Action.

Those, then, were the immediate consequences on dealers of GMC’s May, 2009 restructuring announcement.

[52] How did each of these immediate consequences of the restructuring announcement conclude? Well, the 202 Non-Retained Dealers who signed the Wind Down Agreements received what they bargained for under those agreements and ended their relationship with GMC (subject to the claims asserted in the Trillium class action). The Stoneleigh Litigation settled in August, 2010, and Niagara and Robinson were re-instated as GMC dealers pursuant to the terms of their Settlement Agreements. The Downtown arbitration resulted in a January, 2011 award which re-instated Downtown as a dealer. Finally, the continuing dealers, including 23 of the plaintiffs in this Action, signed Transition Assistance Agreements and new Motor Vehicle Addendums to their Dealer Agreements.

[53] As I read the Claim, Niagara and Robinson now are calling into question the enforceability of the Settlement Agreements they entered into with GMC in August, 2009 and GMC’s performance of those Settlement Agreements and the later October, 2010 Dealer Agreements. Their claims have moved one step beyond the restructuring events of May, 2009, and raise legal claims in respect of agreements which they concluded with GMC in 2010. As a result, the claims of Niagara and Robinson in this Action do not arise “directly” from the May, 2009 restructuring; they arise directly from the Settlement Agreement concluded in the Stoneleigh Litigation and the performance of the October, 2010 Dealer Agreements. Accordingly, they do not fall within the language of section 10(b) of the Settlement Letter.

[54] The claim asserted by Downtown was not clearly pleaded in the Claim. At the hearing plaintiffs’ counsel submitted that there was a drafting oversight in the Claim and Downtown should have been included as part of the reference to Niagara and Robinson in paragraph 113 of the Claim. In any event, Downtown did not obtain an arbitration award until January, 2011 which re-instated it as a dealer. I assume that Downtown’s cause of action somehow relates to the performance of that award, but the matter is not clear from the pleading, and a motion cannot be decided based on assumptions. Consequently, I cannot reach a definitive view as to whether Downtown’s claim arises directly from the May, 2009 restructuring. The Claim must be further amended to include a proper pleading of Downtown’s cause of action against GMC.

B.3 Summary

[55] By way of summary, I conclude that the action by Niagara and Robinson against GMC does not arise directly out of the May, 2009 restructuring and therefore does not fall within the proscriptive language of section 10(b) of the Settlement Letter. Accordingly, that term of the Settlement Letter does not prohibit Mr. Lisus or the Lax Firm from acting as solicitors of record for Niagara and Robinson in this Action, and I dismiss that part of GMC’s motion.

[56] In light of the deficient pleading of material facts for the claim asserted by Downtown, I am unable to reach a definitive conclusion about the applicability of section 10(b) of the Settlement Letter to Downtown’s claim. The plaintiffs will have to deliver a further amended Statement of Claim which sets out the specifics of the claim advanced by Downtown. If, after receipt of that amended statement of claim, GMC has any remaining concerns about the applicability of section 10(b) of the Settlement Letter, it can raise those concerns at a case management conference.

IV. Second Issue: The impugned portions of the Claim and the Disputed Document

A. Positions of the parties

[57] GMC submitted that the plaintiffs expressly referred to the Disputed Document, which was part of its productions in the Stoneleigh Litigation, in paragraphs 130 to 134 of the Claim and, by so doing, Niagara and Robinson breached the deemed undertaking contained in Rule 30.1.01 of the Rules of Civil Procedure, as well as section 11 of the Settlement Letter and, as a result, most of those five paragraphs should be struck out of the Claim.

[58] On their part the plaintiffs argued that the reference to the Disputed Document in the Claim did not offend the deemed undertaking rule or the Settlement Letter because the document was expressly incorporated into the Settlement Agreements and related releases upon which GMC intends to rely to dismiss the claims of Niagara and Robinson.

B. Analysis

[59] Rule 30.1.01(3), the deemed undertaking rule, applies only to evidence, or information obtained from evidence, secured through discovery mechanisms.[^10] It does not apply to evidence or information otherwise obtained. What evidence did GMC file on its motion to establish that Niagara and Robinson had breached their deemed undertaking? The so-called Disputed Document was not put in evidence before me, nor were any other documents allegedly covered by section 11 of the Settlement Letter. GMC’s counsel, Ms. Dolman, deposed in her affidavit:

My review of the fresh as amended statement of claim leads me to believe that Mr. Lisus and/or Niagara and Robinson are in breach of that commitment to keep confidential the contents of the disputed privileged documents. For example, I believe that the references in paragraphs 130 and 131 of the fresh as amended statement of claim to an alleged “secret plan” are references to the “disputed privileged document” referred to in the Settlement Letter.

On the basis of that evidence GMC seeks to strike out parts of paragraphs 130 and 131 and all of paragraphs 132, 133 and 134 of the Claim.

[60] GMC has not demonstrated, on the evidence, a breach of the deemed undertaking rule by Niagara or Robinson. Many of the facts pleaded in paragraphs 132, 133 and 134 of the Claim flow from information contained in section 3(b) of the Settlement Agreements. The Settlement Agreements were not documents obtained through a discovery mechanism and do not fall within Rule 30.1.01(1). Simply put, the deemed undertaking rule does not apply to the fact of or the information contained in the Settlement Agreements, which were the products of negotiations, not the products of discoveries.

[61] While it is true that paragraphs 130 and 131 refer to documents reflecting some “secret plan”, section 3(b) of the Settlement Agreement expressly referenced what I understand from the parties’ submission to be the Disputed Document: “Additionally, GM confirms that the plan described in the April, 2009 document produced in GM’s affidavit of documents refers to the plan implemented in the May, 2009 restructuring.” Referring to a document expressly identified and described in a document which is not subject to Rule 30.1.01(1) does not constitute a breach of the deemed undertaking rule.

[62] To the extent that GMC complains that Niagara and Robinson were bound to keep the terms of the Settlement Agreement confidential, covenants of confidentiality cannot operate to prevent a party from suing for a breach of the very agreement containing the confidentiality clause, which is what Niagara and Robinson are doing in this Action. The references made to the Settlement Agreement in the Claim were focused and went no further than was necessary for Niagara and Robinson to assert their causes of action against GMC.

[63] For these reasons I dismiss that part of GMC’s motion seeking relief for alleged breaches of the deemed undertaking rule and the confidentiality provisions of the Settlement Letter and/or Agreement.

V. Third Issue: The plaintiffs’ request for a timetable

A. Positions of the parties

[64] Turning to the plaintiffs’ cross-motion, they seek an order setting a schedule for the delivery of GMC’s statement of defence, production of documents and examinations for discovery.

[65] GMC submitted that the court should not impose a timetable for the delivery of the defence or discovery “prior to the determination of preliminary motions”. In its factum GMC submitted: “It is GMCL’s position that there is no reason to depart from the ordinary rule that pre-pleadings motions operate to ‘stay’ the Action until their resolution.”

B. Analysis

[66] Based on my initial exposure to the issues and parties in this Action, a timetable for the management of this action is required. The relief sought on these motions indicates that this will be hard-fought litigation with parties attempting to resort to multiple interlocutory motions. The Court only has so much time it can devote to this Action.[^11] The parties therefore must use court time efficiently in order to secure the just, most expeditious and least expensive determination of this action on its merits. Case management will be necessary to ensure that that fundamental principle is achieved in this Action.

[67] Case management also is required in light of GMC’s assertion that some “ordinary rule” exists to the effect that pre-pleadings motions operate to stay an action until the motions are resolved. In support of its position GMC pointed to a decision of a Master of this Court, rendered some 110 years ago, in Confederation Life Assn. v. Moore. That decision concerned a motion to set aside a default judgment. The plaintiff had engaged in what today we would call “sharp practice” – noting a defendant in default in the face of a clear expression by defendant’s counsel of an intention to defend. More specifically, the defendant had moved to set aside service of the writ; the Master dismissed the motion, but on condition that the plaintiff file a better affidavit of service; the plaintiff did so and the same day, without notice to the defendant, noted the defendant in default. In that context the Master stated:

I have always understood that a notice of motion operated as a stay (in a case such as the present) until finally disposed of. I have consulted several members of the profession who are most conversant with these matters. They all agree with that opinion. To the same effect are the authorities cited by Mr. Middleton-Archbold's Common Law Practice, 14th ed., p. 1406; Wood v. Nichols (1867), 4 P.R. 111; and Dean v. Thompsom, (1868), 4 P.R. 301; also Farden v. Richter (1889), 23 Q.B.D. 124, [6 OLR Page605] where the facts relied on are just the reverse of what took place here.[^12]

[68] All Confederation Life stands for is the proposition that a default judgment will be set aside where a plaintiff has failed to give the defendant a reasonable time to file its defence following the dismissal of the defendant’s motion to challenge service of the originating process. The case does not stand for the much broader “ordinary rule” asserted by GMC that pre-pleadings motions operate to stay an action until the motions are resolved.

[69] The Rules of Civil Procedure contain no such “ordinary rule”. At most the jurisprudence recognizes a principle that after service of a notice of motion, the court will ignore any act done by a party to the motion that prejudicially affects the rights of the other parties to the motion.[^13] I am acutely aware, however, that the Toronto Region motions culture acts as if such an “ordinary rule” exists. Such a cultural mindset only invites undue delays in a proceeding and stands as a major reason why civil actions in Toronto quickly bog down in the quagmire of process-related motions, making the expeditious determination of a dispute on the merits an elusive goal.

[70] The risk that a party will attempt to “stay” an action for a long period of time by bringing successive interlocutory motions is precisely one of the litigation evils which case management seeks to eliminate by imposing a more transparent, structured plan for the use of court resources in an action.

[71] Perhaps I have misread the situation in this case. In paragraph 11 of its Factum GMC complained about the “relaxed pace” with which the plaintiffs have litigated this action. That may well signal that in this proceeding the defendant is eager to move this action along to a reasonably quick final adjudication on the merits.

[72] To ensure such a result, I conclude that this action requires case management of the heavy-handed kind. Although I am unable to assess the merits, if any, of the plaintiffs’ case from simply reading their Claim, I do know that every merit exists in moving this action along to a final determination on the merits because that is one of the fundamental principles underlying the Rules of Civil Procedure.

[73] I therefore grant the plaintiffs’ motion to set a timetable, in part, and I order as follows:

(i) I am seizing myself of all pre-trial motions in this action and will act as the case management judge. No motion may be booked without first securing my approval through attendance on a 9:30 appointment;

(ii) Although at this point of time I will not set a detailed timetable for the delivery of productions and the conduct of examinations for discovery, my working premise is that the parties will complete such steps by May 31, 2013;

(iii) The parties shall book a one-hour case conference before me for either of the weeks of October 9 or 15, 2012. The case conference may be held either during the court day or at 4:30 p.m. Prior to that case conference the parties shall consult in an effort to prepare a detailed timetable, including a discovery plan, for all contemplated steps in this action through to the end of examinations for discovery. The timetable shall identify all interlocutory motions which the parties contemplate bringing prior to the end of discoveries and explain the factual and legal basis for each contemplated motion, together with estimates of the preparation and hearing time for each motion. The parties shall submit their joint plan (or respective plans if agreement cannot be reached) to me in advance of the case conference, and I will issue further directions following the case conference. I repeat, however, that it is my expectation that discoveries can be completed in this action by May 31, 2013.

[74] Notwithstanding these orders, I am realistic enough to appreciate that the ability to move this action forward in a reasonably quick way will depend in large part upon the attitude of the parties towards case management of the proceeding. A party may seek to appeal the case management orders and directions made in the months ahead. A party possesses appeal rights under the Rules of Civil Procedure with which I cannot interfere. However, I think a clear understanding should exist from the get-go amongst judge, counsel and the parties about the basic ground-rules for case management in this action, including the impact of any notice of appeal on deadlines set by my order. Absent an automatic stay of an order, or absent an order from an appellate court staying the operation of a case management order, I expect the parties to comply with the deadlines I order. If unforeseen matters arise in the future, of course the reasonableness of the timetable can be revisited through a 9:30 attendance. But it is my intention to take some time at the initial case conference in October to discuss with counsel the steps they anticipate will occur in this action so that a more detailed timetable which is reasonable in the circumstances can be formulated.

VI. Summary and Costs

[75] By way of summary, I dismiss the motion of GMC in respect of the relief sought in paragraphs (a) – (g) of its Notice of Motion. I also dismiss the relief claimed regarding the representation of Niagara and Robinson in paragraphs (h) – (j) of the GMC’s notice of motion. As to the relief sought in respect of the representation of Downtown in paragraphs (h) – (j) of GMC’s notice of motion, I am unable to reach a final conclusion in light of deficiencies in the Fresh as Amended Statement of Claim. The plaintiffs will have to serve a further statement of claim on that issue. Finally, the parties shall comply with the timetable set out in paragraph 73 above.

[76] I would encourage the parties to try to settle the costs of this motion. If they cannot, the plaintiffs may serve and file with my office written cost submissions, together with a Bill of Costs, by Friday, October 12, 2012. GMC may serve and file with my office responding written cost submissions by Friday, October 26, 2012. The costs submissions shall not exceed three pages in length, excluding the Bill of Costs.

[77] Finally, I apologize to the parties for the delay in releasing these Reasons; other cases intervened to prevent their more timely release. With the adoption of case management for this action, such delays should not occur again.

D. M. Brown J.

Date: September 27, 2012

[^1]: See the certification decision of Strathy J. reported at 2011 ONSC 1300. [^2]: The Settlement Letter was filed as an exhibit to the affidavit of Mr. Lisus. To accommodate concerns about the confidentiality of certain exhibits to his affidavit, including the Settlement Letter, Mr. Lisus referred to the exhibits in accordance with Rule 4.06(3)(b) of the Rules of Civil Procedure. Consequently, upon the release of these Reasons the copy of the affidavit containing the exhibits will be returned to plaintiffs’ counsel. [^3]: Lisus Affidavit, Ex. E. [^4]: 1990 CanLII 32 (SCC), [1990] 3 S.C.R. 1235. [^5]: Fresh as Amended Statement of Claim, paras. 1(a) and 157. [^6]: Ibid., para. 1(b). [^7]: Claim, paras. 135, 136 and 156. [^8]: Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 24, 2007 ONCA, para. 24. [^9]: 3869130 Canada Inc. (c.o.b. I.C.B. Distribution 2001) v. I.C.B. Distribution Inc., 2008 ONCA 32, 2008 ONCA, para. 32. [^10]: Rules 30.1.01(1) and (2). [^11]: See generally my discussion of this point in George Weston Limited v. Domtar Inc., 2012 ONSC 5001. [^12]: (1903), 6 O.L.R. 603 (H.C.J., Master), para. 14 [^13]: Morden & Perell, The Law of Civil Procedure in Ontario, First Edition (Toronto: LexisNexis, 2010), p. 559.