COURT FILE NO. CV-12-9660-00CL
HEARD: 20130320
RELEASED: 20131108
ONTARIO
SUPERIOR COURT OF JUSTICE
(Commercial Court)
TARIQ KHURSHEED and 2155844 ONTARIO INC.
operating as LEGACY MANAGEMENT
Plaintiffs
and
SALIM KHOJA, POWER WITHIN CORP., POWER WITHIN INC., POWER OF WOMEN INC., FRANK SALVATI, THE POWER WITHIN LEADERSHIP INC., POWER WITHIN SPEAKERS CORP., SALIDA CAPITAL and COURTENEY WOLFE
Defendants
APPEARANCES:
Milton A. Davis Fax: (416) 869-0369
Brendan Hughes
For Plaintiffs
Markus Koehnen Fax: (647) 722-6721
Adrienne Boudreau Fax: (416) 865-7048
For Defendants, Salida Capital LP
and Courtenay Wolfe
BEFORE: MASTER D. E. SHORT, Registrar in Bankruptcy
HEARD: March 20, 2013
REASONS FOR DECISION
I. Overview
1Both sides bring motions arising out of a dispute as to whether a party is entitled to attend the examinations for discovery of the opposite party; the order in which the examinations are to be conducted; and on what terms.
2The plaintiffs, Tariq Khursheed (“Khursheed”) and his company 2155844 Ontario Inc. o/a Legacy Management (“Legacy”), originally brought this action against the various defendants seeking a variety of relief.
3In the action, the plaintiffs sought and obtained the appointment of a Court appointed Monitor over an Oprah Winfrey show to be held in Toronto, as well as over the promoter companies, and their principals.
4The defendant Salim Khoja (“Khoja”), the principal behind the defendant Power Within companies, is alleged to have defrauded the Plaintiffs in respect of his investment in several speaking engagement shows, including the Oprah Winfrey show.
5Khursheed, after being introduced to Wolfe, invested $1 million in a fund operated by the defendant, Salida Capital (“Salida”). Khoja further obtained $400,000.00 from the plaintiffs to be invested in shares, allegedly being marketed by Salida as an IPO.
6Apparently there was no IPO, and Khursheed’s $400,000.00 is unaccounted for. The $1 million investment in the Salida fund also resulted in substantial losses.
7The action has been settled against all of the defendants other than Courtenay Wolfe and Salida (of which Wolfe is the president). Salida is an investment management firm and the basis for the claim against Wolfe and Salida is that they held out Khoja as the agent of Salida, and made material misrepresentations with respect to the plaintiffs’ purchase of the investments referred to above.
II. The Pleadings
8In essence the plaintiffs say they would never have given Khoja the funds, but for the representations of Wolfe and Salida that Khoja was their agent.
9The Statement of Claim contains these assertions:
(a) “In reliance on Wolfe and Salida’s representations, both in words and actions, Khursheed was lulled into a false sense of security, the result of which was the advance of funds to [Khoja]”;
(b) “At all material times, Wolfe and Salida had acted and held out as if Khoja had apparent or ostensible authority to represent Salida;” and
(c) “Because of his connection with Khoja, Wolfe advised Khursheed that Salida would offer Khursheed the opportunity to invest in Sunshine Oilsands Ltd. (“Sunshine Oil”). Khursheed had several telephone calls and meeting with Khoja and Wolfe wherein Sunshine Oil was discussed and wherein Khoja was held out by Wolfe as an agent of Salida.”
10Based simply on the above extracts it would seem clear that if this case is going to ultimately be resolved at trial, the result will probably turn on findings of credibility.
11The skilful advocacy of both sides on this motion did nothing to dissuade me from that view. In light of that view of the underlying substance of this case, what are the appropriate directions to be made with respect to the conduct of the examinations for discovery in this case?
III. Order?
12In substance this is simply a motion for directions concerning the examinations for discovery in this action. The fundamental issue is whether the plaintiffs are entitled to examine Wolfe for discovery and have the plaintiffs’ representative Khursheed attend Wolfe’s examination before Khursheed is examined.
13Wolfe is content to be examined before or after Khursheed. As well she has no desire to attend Khursheed’s examination.
14However, it is her position that if Wolfe is examined before Khursheed, she does not want Khursheed to attend her examination.
15Her position is that since this case turns on the respective credibility of Khursheed and Wolfe. Neither witnesses’ evidence should be influenced by having heard the other prior to their own examination
IV. The Aborted Discoveries
16The plaintiffs’ Affidavit of Documents on November 30, 2012. At that time, plaintiffs’ counsel requested Wolfe’s and Salida’s affidavit of documents as well as examination dates.
17Wolfe’s counsel advised that she was available to be examined on February 21, 2013. The examinations of Wolfe and Khursheed were scheduled for February 21 & 22 respectively.
18It was explicitly agreed between counsel that Wolfe’s examination would take place first.
19Prior to the examination of Wolfe, her counsel essentially presented Khursheed with two options:
(a) Proceed with Wolfe’s discovery in his absence; or
(b) Examine Khursheed before Wolfe and reschedule Wolfe’s examination. Her counsel provided Khursheed with three days in the following week that Wolfe was available for discovery.
20Khursheed refused both options, refused to attend at his own examination for discovery the next day and his counsel brought this motion.
21Counsel asserted their respective positions on the record at the examination. A portion of the exchange conveys the atmosphere between the parties over the credibility element:
“MR. DAVIS: Let me ask this question. Is there any suggestion that Mr. Khursheed will fabricate evidence as a result of having heard Ms. Wolfe's evidence? Is there any such suggestion?
MR. KOEHNEN: Yes.
MR. DAVIS: Okay. Then I am telling you right now that my office will be contacting yours later today to seek the earliest date possible for the motion to strike the Statement of Defence for refusing to proceed with this examination, because what you are suggesting is entirely inappropriate. As well, because of the unsubstantiated allegation or suggestion that my client would fabricate evidence in the circumstances of this case, we will be seeking substantial indemnity costs. Okay?
MR. KOEHNEN: As I have told you three times now, I don't intend to argue the motion here on the record --
MR. DAVIS: No, I'm just creating a record, sir. I'm sorry for interrupting your last sentence. It's quite troubling and upsetting, after the many, many hours of preparing for this examination. What I find uniquely troubling is that the issues that give rise to the claim do not involve any direct conversations between our respectful -- between our clients. They happened between other people. So the fact that you suggest that my client would fabricate something, when he wasn't part of what happened between your client and Ms. Khoja -- Mr. Khoja, is quite troubling. Anyway, we'll deal with it in another forum. This examination is not going to proceed because this person has a prima facie right to be here, and I am sure you well know that. Okay?
MR. KOEHNEN: That's fine. Just to let you know, I will want to proceed with Mr. Khursheed's examination.”
22Counsel for the plaintiffs asserts that this was also the first time that Mr. Koehnen ever took the position that he would protest Khursheed’s attendance at Wolfe’s examination on the basis of credibility being in issue. Counsel further asserts that there is no evidence to support the exclusion of Khursheed from Wolfe’s discovery.
23In light of the foregoing the plaintiffs’ position is simply that there is no basis for denying Khursheed of his inherent right to attend the examination of discovery of an adverse party.
24The plaintiffs further seek their costs thrown away in respect of the aborted discovery, together with substantial indemnity costs for this motion.
V. Legal Arguments
25The Court has broad discretion to exclude an opposing party from an examination for discovery where proper cause is shown.
26The modern starting point on exclusion of parties from discovery is Sisson v Olson:
The weight of authority holds, I think, that either at a trial or on discovery a party cannot be excluded while his co-party testifies, without cause shown. But I do not think the onus of showing cause thus put on the opposite party is a heavy one; and I think the onus is lighter on discovery than at trial, since the possibility of injustice from exclusion is more remote. Even at a trial, I think the chance of injustice being done in this way is extremely small. But in many cases the chance of injustice to the opposite party from refusal to exclude may be very substantial. I think the benefit of any real doubt should be given to the party asking for exclusion. If from the pleadings or otherwise it appears that the examinations of the co-parties will cover the same ground, and that their credibility will be a factor, then it seems to me their exclusion should be ordered. (emphasis added)
27The applicable test is whether the exclusion of the party is necessary to secure the ends of justice.
28What constitutes proper cause for exclusion is determined in the unique factual matrix of each case. Courts have confirmed that proper cause for exclusion may be shown where the moving party can establish that the party sought to be excluded is likely to tailor evidence. In establishing cause to exclude on this basis, the party seeking the exclusion order must show that there is “more than a possibility” that a party will tailor his evidence if exposed to the evidence of the opposing party. In the case that established the “more than a possibility” test, the party seeking to exclude the other party simply made a bald allegation that evidence might be tailored and had no basis for the allegation. A bald allegation did not suffice to exclude a party from sitting in on another party’s discovery.
29The determination of whether this case crosses the line has caused me significant uncertainty.
30The plaintiffs rely on the Rules to seek significant adverse consequences for the defendants if I find against them.
31Rule 34.15 of the Rules of Civil Procedure sets out the consequences to a party for not complying with Rule 34.04(1):
34.15 (1) Where a person fails to attend at the time and place fixed for an examination in the notice of examination or summons to witness or at the time and place agreed on by the parties, or refuses to take an oath or make an affirmation, to answer any proper question, to produce a document or thing that he or she is required to produce or to comply with an order under rule 34.14, the court may,
(a) where an objection to a question is held to be improper, order or permit the person being examined to re-attend at his or her own expense and answer the question, in which case the person shall also answer any proper questions arising from the answer;
(b) where the person is a party or, on an examination for discovery, a person examined on behalf or in place of a party, dismiss the party’s proceeding or strike out the party’s defence;…
(d) make such other order as is just.
VI. Right to Attend?
32The plaintiffs submit that Wolfe and Salida have disregarded their obligations imposed by the Rules. They contend that as a result of the actions of these defendants, the plaintiffs have been and continue to be delayed or prevented from prosecuting this claim against these defendants.
33Parties to litigation have an inherent right to attend at the examination for discovery of a party adverse in interest. This general principle is long established and consistent through the caselaw. In 1986, Borins D.C.J. (as he then was) commented on such in Baywood Paper Products Ltd. v. Paymaster Cheque-Writers (Canada) Ltd. 1986 2699 (ON SC), [1986] O.J. No. 2974 (“Baywood”):
..every person has an inherent right to be present at his or her trial or any other proceedings which form part of the trial process. This would include the examination for discovery of the opposite party. A party has as much right to be present at the examination for discovery of the opposite party as he or she has to be present in the court-room and listen to this testimony at the trial. No one is more vitally affected by the result of a lawsuit than a party. It is for this reason that a party has the right to participate in any phase of a trial in which his or her interests may be affected.
…the entitlement is that of the client, who is entitled to be present because it is his or her lawsuit. The presence of a party at the examination for discovery, like the presence of a party at trial, is consistent with due process and the right to protect his or her interests by observing the conduct of the examination. Similarly, where a corporation is a party, a representative of the corporation should be entitled to be present to insure that its interests are adequately protected.
34Master Haberman found application for this law in a recent decision, DiMartile et al. v. GMCL 2012 Carswell Ont 6613, 2012 ONSC 3149 (at paras 54 , 55):
The general rule that a party has an inherent right to be present during the examination for discovery of an opposite party makes perfect sense, as each party should know what has been said about the case so that he can properly instruct counsel. Being present at the discovery allows a party to immediately point out to their counsel that a response that has been given can be challenged on the basis of a particular document or by asking a particular follow-up question.
Further, the process is enhanced if parties are required to give their evidence while facing their adversary who may well have a different version of events. Some parties may find it more difficult to play fast and loose with the truth or to do so in a convincing manner when the person who knows the score is sitting right across from them. Thus, in most cases, permitting parties adverse in interest to hear one another testify may well enhance the ends of justice. Excluding parties in those cases is not something that should be undertaken lightly.
35Thus, a party cannot be excluded from the examination for discovery of the opposite party except for cause. What may constitute cause depends on the circumstances in each case.
36Lesniowski v. H.B. Group Insurance Management Ltd. 2003 CarswellOnt 9238 at para 17 is cited in support of the proposition that the exclusion of a party from an examination for discovery should be ordered rarely, sparingly, and only in exceptional cases.
37But that maxim still contemplates that there will still be some appropriate circumstances
38The consideration of the exclusion of a party from an examination on the basis of credibility takes on a separate and more stringent analysis where the parties are adverse in interest as opposed to co-defendants or co-plaintiffs. In the case of co-parties there is a greater risk of parroting or tailoring evidence as well as unfair exposure to the examining parties’ tactics. These are not concerns when dealing with parties adverse in interest, such as the parties at issue herein. Master Haberman in DiMartile, supra has commented:
The analysis, however, must be different when the issue involves co-parties rather than parties adverse in interest. This is necessarily the case, if the ultimate goal is to secure the ends of justice.
Sitting in on the examination of an adversary does not require counsel to tip his hand. When she asks questions, she is not making others who will be asked the same or similar questions aware of her strategy or eliminating the surprise element. Allowing adverse parties to hear one another testify, in most cases, will not affect responses given.
39However, where it is alleged that the concern is not a preview of trial strategy but rather an alleged motive to tailor evidence to address issues raised by the party opposite, allowing adverse parties to hear one another testify, may possibly affect responses given.
40Justice MacPherson (as he then was) (in Wilton v. Bustard Brothers Ltd. 1999 14778 (ON SC), [1999] O.J. No. 5730) affirmed the fundamental principal that it is a party’s right to be present at the opposing party’s discovery. While noting that the mere suggestion of a credibility issue is insufficient to displace that right, nevertheless acknowledged that :
Master Sedgwick recognized that there can be exceptions to this general rule. However, he did not think that this case should be one of them. I agree. The simple assertion that credibility lies at the heart of this case does not lift it out of the ordinary that is true of most cases.
41The plaintiffs assert that:
“Much like in the above case, the defendants here have simply and baldly asserted credibility as an issue. They have showed no cause nor attempted to show any. Such is insufficient to have the Court remove an adverse party from an examination for discovery.
42Conversely the defendants point out that in assessing whether there is “more than a possibility” the Court has found:
It is difficult to imagine how the applicant could establish in evidence directly, a probability that one or other of the respondents would tailor his evidence if he had access to the evidence of the others before being cross-examined. While in rare circumstances that might be possible, direct evidence would not normally be available to demonstrate that future probability. It seems to me to be a matter which must be evaluated in the circumstances of the case and the issue or issues to be determined in the litigation. I am inclined to the view expressed by Sidney Smith, J.A. in [Sissons] that the onus on the applicant seeking exclusion is not a heavy one and that the chance of injustice resulting from exclusion is pretty remote. (emphasis added)
43Courts have made exclusion orders in circumstances where, as here, issues of credibility are central to the litigation.
44In Berndt, as here, the plaintiff alleged misrepresentation against the defendant. Credibility was at the heart of the action. The defendant wanted to attend the plaintiff’s discovery. The court found that the most expedient resolution for the ends justice was to give the defendant a choice: he could examine the plaintiff first but not attend the examination or could be examined first and then attend the subsequent examination of the plaintiff.
45This is the same choice that Wolfe’s counsel offered to Khursheed.
46In Fraserglenburnie a similar situation arose: the plaintiff wanted to attend the examination of the defendant. As in the present case, the litigation turned on representations. Accordingly, credibility clearly was in issue.
47The court ordered that the plaintiff should be examined first following which the defendant could be examined with the plaintiff present. In addition, the court ordered that the defendant should receive no information about the plaintiff’s evidence until the defendant’s examination was concluded.
48Here counsel for the defendants asserts that this case involves more than a bald allegation that there is a mere possibility that Khursheed might tailor his evidence. Counsel argues that here are substantial risks here that allowing one party to attend the other’s discovery will affect the evidence.
49In particular the Respondents’ factum asserts that Khursheed has already given evidence that:
(a) Khursheed lent Khoja $800,000 before even meeting Wolfe or of Salida. Khursheed first met Khoja in or around January, 2010. In January 2011, Khursheed and Khoja began to discuss investment opportunities. By the end of March 2011, Khursheed had already loaned $800,000 to Khoja. Khursheed was not introduced to anyone at Salida until April 2011.
(b) Even though Khursheed understands that Khoja has “a criminal record and..., had been convicted of fraud” and even though Khursheed alleged in this action that Khoja had defrauded him, Khursheed settled this action against Khoja on terms that contemplate future business dealings between them. In particular, under the settlement agreement Khursheed “will be offered the opportunity to participate” in projects to promote ticketed speaking events – the same type of events that were the subject of Khursheed’s claims against Khoja until he settled them.
(c) Khursheed has admitted to intentionally back-dating documents at Khoja’s request; including the document relating to his claim against Wolfe and Salida. Although Khursheed claims he gave Khoja money on the strength of representations by Wolfe and Salida, the documentation surrounding those payments is dated April 1, 2011. Wolfe is expected to testify that Khursheed did not meet her until April 6, 2011. Khursheed explains the discrepancy by saying that he gave Khoja money on April 11 and 15, 2011, that the documents recording this were not created until October 2011 and that the documents were back-dated to April 1, 2011.
(d) Khursheed has admitted to “frequently” listening to private phone calls between Wolfe and Khoja without Wolfe’s knowledge.
50The Respondents submit that Khursheed’s affidavit evidence confirms a history of repeated instances of questionable conduct on the part of Khursheed. They argue that, “[g]iven this history and in light of his continued dealings with Khoja, the credibility of Khursheed and Wolfe will be critical drivers in the resolution of this action.”
51It is clearly premature for me to make any findings as to credibility of the parties. What I am able to determine is that the respective views of the factual matrix between the parties will be central to the determination of liability in this case.
52The Respondents assert that the interests of justice are best served by excluding them from each other’s examinations for discovery or, by having Khursheed examined first and once his examination is concluded, having Wolfe examined at a discovery that Khursheed can attend. Counsel for Khursheed rejects this proposal.
53In his factum he notes that at the February 21 aborted examination, counsel to Wolfe and Salida suggested as a solution that he could examine Khursheed first and then Wolfe could be examined the following day at which Khursheed would be free to attend:
“While this may seem reasonable, it is not. By agreement of the parties and by virtue of Rule 31.04(3) of the Rules of Civil Procedure, the plaintiffs were entitled to examine first and they intended to exercise this right. The defendants are not able to alienate this right by simply objecting to Khursheed’s presence. In a 1988 decision of Mr. Justice Anderson, ICC International Computer Consulting & Leasing Ltd. v. ICC Internationale Computer and Consulting GmbH, 1988 4637 (ON SC), [1988] O.J. No. 1751], he stated:
“Counsel for the Knoppke defendants submitted that the problem which gave rise to the difficulties was susceptible of a simple solution; Rosen should be examined first and then Knoppke. This suggestion met with objection from counsel for the moving parties. Counsel for ICC Canada, who supported the motion, also objected. Reference was made to rule 31.04(3):
31.04(3) The party who first serves on another party a notice of examination under rule 34.04 or written questions under rule 35.01 may examine first and may complete the examination before being examined by another party, unless the court orders otherwise.
I see nothing in the circumstances of this case which indicates that I should order otherwise.”
54While I appreciate this argument, nevertheless I also recognize that some circumstances do indicate that the court should order otherwise. I have determined that this is such a case
VII. Resolution
55Khursheed’s affidavit evidence confirms a history of repeated instances of questionable conduct on the part of Khursheed. Given this history and in light of his continued dealings with Khoja, the credibility of Khursheed and Wolfe will be critical drivers in the resolution of this action. The interests of justice are best served by excluding them from each other’s examinations for discovery or, by having Khursheed examined first and once his examination is concluded, having Wolfe examined at a discovery that Khursheed can attend.
56In the result there is no basis to strike Salida/Wolfe’s defence and the discoveries will have to proceed. The election to be put to the plaintiff is set out below in the form of a general decision tree for such cases.
VIII. A Short Matrix
57Having looked at all the case law and facts in this matter think it is useful to set out what I believe ought to be the appropriate approach to the cases such as this from the point of view of the parties:
a) A party (the “Initiating Party”) should serve affidavit of documents and appointment for examination for discovery to establish normal priority of examination;
b) consult with parties opposite to prepare discovery plan;
c) establish whether or not there is an issue with respect to parties attending discovery of other side;
d) if there is an issue bring a short motion or otherwise seek case management to address issue a priority of examination;
e) where credibility is an issue and a determination is made that an unexamined party cannot sit in on the examination of the opposite party, the Initiating Party shall make an election between:
i. having counsel conduct the first examination without the presence of the initiating party, or
ii. yielding the entitlement to examine first to the party opposite, in which event the initiating party would be entitled to witness that examination.
f) Subject to a court order to the contrary both parties would be entitled to attend on any subsequent examinations arising out of refusals or undertakings.
58I believe that this matter preceding would give an appropriate balance and meet both the tests outlined in the caselaw and the requirements of proportionality.
IX. Conclusion
59The parties are to reschedule the Discoveries in light of the foregoing guidance. In any event the second examined party should receive no information about the other’s evidence until that party’s examination is concluded.
60In the circumstances of this case, the plaintiff’s motion, while lost, was a “close call” which could have been avoided by properly negotiating a discovery plan which ought to have identified the issue at a much earlier stage.
61Costs to the defendants, but in the Cause.
Master D. E. Short
November 8, 2013
DS/ R61