Court File and Parties

COURT FILE NO.: CV-10-398513

DATE: 20140404

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Jacques L. Lavergne, Plaintiff

AND:

Dominion Citrus Limited, Defendant

AND BETWEEN:

Dominion Citrus Limited, Plaintiff by counterclaim

AND:

Jacques L. Lavergne, Hamza Abaroudi, Somerav Sarl and Paul Louchon and Edward Atkinson, Defendants by counterclaim

BEFORE: Carole J. Brown J.

COUNSEL:
Ian Dick, Joshua Concessao, for the Plaintiff by counterclaim
R. Leigh Youd, for the Defendant by counterclaim
Albert Campea, for the Plaintiff

HEARD: February 26, 2014

ENDORSEMENT

[1] The defendant by counterclaim, Edward Atkinson, brings this motion pursuant to Rule 20 for summary judgment or partial summary judgment on the grounds that the action was commenced outside the limitation period, the claims have no chance of success and there is no genuine issue requiring a trial as against him.

[2] The plaintiff by counterclaim has brought a motion to amend the counterclaim as against Mr. Atkinson to claim, in addition to the other claims, gross negligence. Counsel for Mr. Atkinson argues that these allegations are commenced outside the limitation period.

The Parties

[3] Dominion Citrus Limited ("DCL") is a company involved in the importation and distribution of fruit and other produce and food products.

[4] Jacques. Lavergne was the President and CEO of DCL through March of 2009 when his employment was terminated without cause. The termination was subsequently, as a result of investigations as indicated below, changed to termination with cause.

[5] Edward Atkinson was employed as the Vice President Finance and CFO of DCL for a period of five years, from March 11, 2003 until his voluntary retirement on May 12, 2008. During Mr. Atkinson’s entire employment with DCL, Mr. Lavergne was the President and CEO.

[6] On March 5, 2010, the present litigation was commenced by Mr. Lavergne against DCL for wrongful dismissal and payment of salary in lieu of notice pursuant to the written employment agreement. The claim alleges that, rather than the 36 months pay in lieu of notice to which Mr. Lavergne was entitled pursuant to his written employment agreement, he was only offered 12 months pay in lieu on termination.

[7] On April 6, 2010, DCL filed a statement of defence, which alleged, inter alia, that Mr. Lavergne had been involved in the payment of "minority interest payments" or secret commissions ("kickbacks") through a French company, Somerav Sarl, and sought the return of approximately $1.8 million paid from May 2001 to July 2008.

[8] DCL also issued a counterclaim against Mr. Lavergne, as former CEO, Somerav Sarl ("Somerav "), a French company understood to be controlled by Paul Louchon, Paul Louchon and Hamza Abaroudi, who were alleged to have participated in an elaborate scheme of fraud on DCL involving, inter alia, the sale of clementines. DCL seeks damages of $5 million for fraud, conspiracy, breach of trust, breach of fiduciary duty, unjust enrichment, restitution, inducing breach of contract and interference with economic interests.

[9] On April 26, 2010, Mr. Lavergne filed a Reply and Defence to counterclaim. None of the other defendants by counterclaim defended the counterclaim. All have been noted in default.

[10] As regards the factual allegations, in 2001, DCL, through Mr. Lavergne, had entered into an agreement with a Moroccan company known as Fresh Fruit Maroc ("FFM"), of which Hamza Abaroudi was the CEO, whereby DCL became FFM‘s exclusive agent in Canada for the distribution of clementines to be supplied by FFM (the "Clementine program"). DCL received a payment from FFM on a fixed rate per crate of clementines sold.

[11] Based on investigations undertaken after Mr. Lavergne was dismissed without cause, DCL determined that as part of the Clementine program, DCL, through Mr. Lavergne, agreed to a commission payment, after all DCL expenses were paid, which is referred to as the "minority interest payment".

[12] In the statement of defence and counterclaim, DCL alleges that the minority interest was a fraudulent scheme of kickbacks. In its pleadings, DCL alleges that Mr. Lavergne was complicit in or aware of this allegedly fraudulent scheme and that he was receiving kickbacks as a result of the program.

[13] It is alleged that, without authorization from the DCL Board, Mr. Lavergne arranged for Somerav to be paid $1.8 million in minority interest payments, that invoices purportedly submitted by Somerav for payment were actually prepared by Mr. Lavergne, that the payments were made via wire transfers, that Somerav was a vehicle for Mr. Abaroudi and Mr. Lavergne, who knew one another, to receive kickbacks. DCL alleges that, at no time, did Mr. Lavegrne advise the Board of any of this. The circumstances of these payments were, allegedly, not discovered by DCL until 2008 or 2009.

[14] On September 29, 2011, DCL amended its pleadings to add Mr. Atkinson as a defendant by counterclaim. The amended defence alleges that Mr. Atkinson failed to advise the Chairman of the Board, Michael Blair, or the Board of the involvement of Somerav or Mr. Abaroudi in the minority interest payments. The amended counterclaim seeks damages in the amount of $5 million as against Mr. Atkinson for breach of fiduciary duty and breach of Mr. Atkinson's common law duty of good faith as an employee of DCL, in addition to the nine separate claims against all of the defendants by counterclaim, which are either intentional torts or involve some element of malice, dishonesty or self-dealing, including fraud, conspiracy, breach of trust, unjust enrichment, restitution, inducing breach of contract, breach of fiduciary duty, breach of duty of good faith and/or interference with the economic interests of DCL.

[15] These allegations are based on Mr. Atkinson's position as CFO, which entrusted him with discretion to act on behalf of DCL. They include allegations of breach of fiduciary duty and duty of good faith, concealing information regarding minority interest payments/kickbacks between 2001 and July 2008, assisting Mr. Lavergne in the preparation of invoices to facilitate the payment of kickbacks, facilitating the wire transfer payments regarding kickbacks and failure to advise the Board of same.

[16] On this motion, the plaintiff by counterclaim, DCL, seeks to amend its statement of defence and counterclaim to add an allegation of gross negligence as against Mr. Atkinson, which will be addressed below.

[17] The trial in this matter has been scheduled for November of 2014.

The Clementine Program and the Minimum Interest Payments.

[18] The Clementine Program was commenced in 2001, prior to the commencement of Mr. Atkinson's employment with DCL. The program was remunerative and enjoyed large profits.

[19] Chairman of the Board, Michael Blair, has given evidence that neither he nor any of the other Board members was aware that DCL had been making payments to someone associated with FFM (Mr. Abaroudi), a supplier to DCL. According to the affidavit evidence of Mr. Blair, on behalf of DCL, following the termination of Mr. Lavergne, and investigation of his arrangement with Mr. Abaroudi, culminating in a report on January 21, 2010, the Board’s understanding was that these payments amounted to "kickbacks" to an employee or agent of the supplier and were, therefore, improper.

[20] It is the position of DCL in this litigation that, as Vice President Finance and CFO, Mr. Atkinson had overall responsibility for all financial aspects of DCL's operations, including the monitoring of financial transactions undertaken by DCL and informing the Board of any significant or questionable financial matters. It is further their position that he had broad discretion in dealing with financial matters on behalf of DCL and was expected to raise any unusual or significant financial issues with the Board to seek instructions. It is their position that many of the payments made to Mr. Abaroudi were made during the time that Mr. Atkinson was CFO and, during that time, he had signed a number of authorizations for wire transfers facilitating these payments.

[21] It is the evidence of Mr. Atkinson that he was not asked to become involved in the Clementine Program upon joining DCL, that he had almost no involvement in the procurement operations for sales and marketing, nor in the accounting or provision of reports for the procurement programs.

[22] While the plaintiff by counterclaim, DCL, submits that Mr. Atkinson was responsible for all financial aspects of DCL's operations, Mr. Atkinson denies that he was involved in the operations of the Clementine program, except to sign wire transfers, which were also signed by another officer and director. Further, DCL submits that in 2010-2011, it first learned that Mr. Atkinson was aware that Mr. Lavergne had fabricated or reworked some of the Somerav invoices. Mr. Atkinson stated that he was consulted by Mr. Lavergne on one occasion regarding a Somerav invoice and understood this was to determine if it was sufficiently detailed to be acceptable to CRA.

[23] The plaintiff by counterclaim, DCL, alleges that the minimum payments were off balance sheet transactions, that there was something untoward about the wire transfers of which Mr. Atkinson was or should have been aware, that the transfers were being paid through a bank account in Andorra, which should have raised a red flag in his mind, and that Mr. Atkinson had knowledge regarding the minority interest payments that should have been brought to the attention of the Board of Directors.

[24] As regards the wire transfers, Mr. Atkinson admitted that he had signed wire transfers, although they were always signed by another officer and director as well. It is the evidence of DCL that Mr. Atkinson had probably noticed wire transfers going to Andorra, which should have raised a red flag. It was the evidence of Mr. Atkinson that he did not believe, nor did he have any reason to believe that there was anything untoward about the minority interest or the wire transfers. It is the evidence of Mr. Atkinson that the practice of the wire transfers developed prior to his commencement with DCL as CFO and he was simply continuing the practice.

[25] The minority interest payments, an amount per case, net of related DCL expenses was paid to Somerav, a French company in which Mr. Abaroudi is alleged to have had an interest. Mr. Atkinson's evidence was that he understood that Mr. Abaroudi and Somerav provided services to the Clementine program and, therefore, that the minimum interest payments were legitimate commercial obligations.

[26] Mr. Atkinson denies all of these allegations. He states that the minimum interest payments/liabilities were reflected on DCL's accounting statements and were noted each year by the DCL auditors and noted in the audited financial statements. He states that accounting for the program was overseen by the current CFO of DCL, Ernie Collinson, who is not joined in this action, that the minimum interest payments were made by wire transfer pursuant to a practice established prior to his being hired, that all wire transfers were signed by two officers/directors, and not himself alone. As regards knowledge that DCL alleges should have been brought to the attention of the Board, he states in his affidavit that he was aware that, on one occasion, Mr. Lavergne received an invoice from Somerav which he showed to Mr. Atkinson. Mr. Atkinson admits that Mr. Lavergne advised him that he was going to make changes to or rework the invoice. It is the evidence of Mr. Atkinson that he understood that he was being shown the invoice to confirm that it would be acceptable to CRA. He denies any knowledge that Mr. Mr. Lavergne was fabricating the invoices from Somerav. This was never brought to the attention of the Board.

The Positions of the Parties

[27] Mr. Atkinson submits that there is a paucity of evidence to support any of the many allegations against Mr. Atkinson. Further, he alleges that the facts were or ought to have been known in 2008-2009 and any new allegations of gross negligence, as set forth in the amendment to the pleadings sought to be made by DCL are out of time.

[28] It is the position of Mr. Atkinson that there is no sufficient evidence on which to establish any of the claims as against him, based on all of the evidence before this Court and, accordingly, that summary judgment or partial summary judgment should issue.

[29] It is the position of DCL that, given the complex factual matrix, and the fact that the trial will go ahead in any event, with the trial judge having to make actual determinations as regards the alleged scheme regarding minimum interest payments and kickbacks, it would be inappropriate for this Court to make findings of fact which may conflict with those found on a full evidentiary record at trial.

[30] It is the position of Mr. Atkinson that he is being brought into this litigation given the evidence that he was aware that Mr. Lavergne was going to change or rework an invoice from Somerav. On behalf of Mr. Atkinson, it is submitted that DCL has no evidence to establish that he received any monies in the form of kickbacks from the minority interest payments, had no evidence to establish that he had in any way acted fraudulently, other than inferences that could be drawn from his knowledge as regards the invoices, and no evidence to establish that he was part of the process to authorize wire transfers, nor evidence as regards the alleged conspiracy. He states that DCL has failed to answer undertakings regarding reporting requirements of Mr. Atkinson to the DCL Board. It is the position of Mr. Atkinson that there is no sufficient evidence to establish any of the allegations as against him, nor to establish the requisite elements of the intentional torts alleged.

[31] DCL submits that there is sufficient evidence to establish breach of a duty of good faith as against Mr. Atkinson which involves the duty to disclose facts which impact on the business of the Corporation, and the duty not to conceal facts which ought to be revealed. As regards a branch of fiduciary duty, it is their position that there is sufficient evidence on which to found allegations against Mr. Atkinson that he failed to act in good faith in the best interests of the Corporation when discharging his duties, which include a duty of skill and competence, and a duty to disclose information of potential fraudulent activity. DCL argues that there is sufficient evidence as regards a breach of fiduciary duty, duty of good faith and, as discussed below, gross negligence. It argues that there are material facts in dispute as between Mr. Atkinson and DCL, which must be determined at trial.

[32] DCL submits that, as regards the breach of fiduciary duty to disclose, the breach of duty of good faith, the breach of fiduciary duty and gross negligence, there is a factual matrix, with disputed facts, which is intertwined as regards the factual underpinnings of the alleged scheme of minority interest payments and the involvement and knowledge of Mr. Lavergne and Mr. Atkinson. It is DCL's position that the factual determinations would also be required as regards the balance of the claims which will go to trial and, therefore, that this is not an appropriate case for summary judgment or partial summary judgment.

Rule 20 and Summary Judgment

[33] Rule 20 provides for summary judgment where there is no genuine issue requiring a trial with respect to a claim or defence.

[34] The Supreme Court of Canada, in Hyrniak v Mauldin, 2014, SCC 7 and Bruno Appliances and Furniture Inc.. v Hyrniak, 2014 SCC 8, has recently reinterpreted Rule 20, taking into account the recognized need for access to justice for the majority of Canadians. The Supreme Court held that summary judgment rules must be interpreted broadly, favouring proportionality and fair access to the affordable, timely and just adjudication of claims. It found that the Court of Appeal, in Combined Air Mechanical Services Inc. et al v. Flesch et al, 2011 ONCA 764, placed too high a premium on the "full appreciation " of evidence that can be gained in a conventional trial, given that such a trial is not a realistic alternative for most litigants. It held that a trial is not required if a summary judgment motion can achieve a fair and just adjudication, if it provides a process that allows the judge to make the necessary findings of fact, apply the law to those facts and is a proportionate, more expeditious and less expensive means to achieve a just result than going to trial.

[35] On a motion for summary judgment, the judge must first determine if there is a genuine issue requiring trial based only on the evidence before the judge without using the judge's new fact-finding powers.

[36] There will be no genuine issue requiring a trial if the summary judgment process provides the motion judge with the evidence required to fairly and justly adjudicate the dispute on the merits within the meaning of Rule 20.04(2)(a)and is a proportionate, more expeditious and less expensive means to achieve a just result. Where a summary judgment motion allows the judge to find the necessary facts and resolve the dispute, proceedings at trial would generally not be proportionate, timely or cost-effective. However, a process that does not give the judge confidence in conclusions to be drawn can never be the proportionate way to resolve the dispute.

[37] Madam Justice Karakatsansis, writing for the Court, observed as follows in the companion case, Bruno Appliances, supra, at paragraph 22:

The motion judge should ask whether the matter can be resolved in a fair and just manner on a summary judgment motion. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) if the proportionate, more expeditious and less expensive means to achieve a just result. If there appears to be a genuine issue requiring a trial, based only on the record before her, the judge should then ask if the need for a trial can be avoided by using the new powers provided under Rules 20.054 (2.1) and (2.2). She may, at her discretion, use those powers, provided that their use is not against the interest of justice.

[38] To grant summary judgment, on a review of the record, the motions judge must be "of the view that sufficient evidence has been presented on all relevant points to allow him/her to draw the inferences necessary to make dispositive findings under Rule 20.

[39] The Supreme Court recognized that concerns about credibility or clarification of evidence can often be addressed by calling oral evidence on the motion itself, using the powers given to the court pursuant to Rule 20.04(2.1). However, it also recognized that there may be cases where, given the nature of the issues and the evidence required, the judge cannot make the necessary findings of fact, or apply the legal principles to reach a just and fair determination.

[40] The enhanced fact-finding powers granted to motion judges in Rule 20.04(1.1) may be employed on a motion for summary judgment unless it is in the "interest of justice" for them to be exercised only at trial. The Supreme Court observed that inquiry into the interest of justice to be served by summary judgment must be assessed in relation to the full trial and the relative efficiencies of proceeding by way of summary judgment as opposed to trial, including the cost and speed of both procedures, the evidence available at trial versus that on the motion, as well as the opportunity to fairly evaluate such evidence.

[41] The Supreme Court further commented that the interest of justice inquiry goes further and also considers the consequences of the motion in the context of the litigation as a whole. In cases where some claims against the parties will proceed to trial in any event, it may not be in the interest of justice to use the new fact-finding powers to grant summary judgment against a single defendant. Such partial summary judgment may run the risk of duplicative proceedings or inconsistent findings of fact and therefore the use of the powers may not be in the interest of justice.

Analysis

[42] I am of the view that there are genuine issues requiring a trial which cannot be determined using the powers granted to the court pursuant to Rule 20.03(2.1) and (2.2). I am further of the view that in the circumstances of this case, the summary judgment process will not provide the evidence necessary to fairly and justly adjudicate the dispute on the merits, that it may lead to inconsistent findings, given that the balance of the action will proceed to trial and that summary judgment or partial summary judgment is not a proportionate way to resolve this dispute.

[43] While many of the facts in issue are not disputed, certain key facts are in dispute. The affidavits of DCL's Chairman of the Board, Michael Blair and of Mr. Atkinson differ on material facts. The determination of these facts will depend not only on documentary evidence before the court but, as regards certain key issues, on the credibility of the deponents, which can only be determined with viva voce evidence. While the court is given the powers to weigh the evidence, evaluate credibility and draw any reasonable inferences from the evidence and may, pursuant to Rule 20.03(2.2) conduct a mini trial to determine credibility, I am of the view, in all of the circumstances of this case, that this will not be sufficient to produce a just and fair result, given the factual matrix and complexity of the issues involved. Further, I am of the view that conducting a mini trial will not effectively reduce time and will not, in the end, be in the interest of justice. Given the analysis of the facts and the factual determinations which the court will be called upon to make in the context of the summary judgment motion and the potential overlap of those findings with the issues which must go on to trial in the main action and counterclaim as against Mr. Lavergne, I am not satisfied that summary judgment or partial summary judgment in the circumstances of this litigation will serve the goals of timeliness, affordability or proportionality in light of the litigation as a whole, nor will they serve the interest of justice.

[44] With respect to partial summary judgment, I am of the view that no findings of fact should be made where the balance of the claim is to be decided at trial and where the issues are linked by a factual matrix. I do not find there to be a discrete claim that can be dealt with absent an analysis of the overall factual matrix of the alleged scheme. Partial summary judgment would require a review of all of the evidence regarding the transactions at the time that Mr. Atkinson was CEO. There would have to be a review and consideration of the evidence regarding the business transactions in the Clementine program as regards Mr. Atkinson. The trial judge would also have to consider and analyze that evidence as regards the allegations in the main action and those remaining in the counterclaim.

[45] There should not be multiple reviews of the same basic facts, nor the potential for conflicting findings. Indeed, summary judgment or partial summary judgment in this context may run the risk of duplicative proceedings and/or inconsistent findings of fact, such that the use of the Rule 20 powers would not be in the interest of justice.

[46] Where some claims are going forward to trial arising from the same intertwined factual matrix, I am of the view that partial summary judgment should not be granted, which would require the court to make findings of fact. All findings should be left to the trial judge.

[47] I do not find this an appropriate case for summary judgment, nor for partial summary judgment. There are no discrete claims which can be disposed of in isolation from the other claims and the overall factual matrix, which will have to be considered. As some of the allegations against Mr. Atkinson will proceed to trial, all should.

The Limitation Period Argument

[48] Counsel for the defendant by counterclaim, Mr. Atkinson, argues that, in any event, the action as against Mr. Atkinson is statute-barred, as it was commenced outside the statutory limitation period stipulated in the Limitations Act, 2002, S.O. 2002, c. 24 Schedule B.

[49] Counsel for Mr. Atkinson submits that Mr. Atkinson retired from DCL in May 2008, that according to the evidence, DCL began to investigate the Clementine program and the minority interest in April of 2009, at which time the dates and amounts the wire transfers were identified. By June of 2009, Mr. Blair, Chairman of the Board, raised issues of the minority interest, payments that had been made to Andorra and insufficiency of paperwork for the transfers with counsel for Mr. Lavergne and that Mr. Atkinson was not joined as a party defendant on the counterclaim until September 29, 2011. It is argued that DCL is presumed to know of the facts alleged against Mr. Atkinson on the date the actions or omissions took place unless the contrary can be proven. Accordingly, it is their position that this claim is statute-barred, including any amendment sought to be made to the counterclaim.

[50] Is the position of DCL that it was not until October 2010 that DCL first learned that Mr. Atkinson may have been aware of fabrication of some of the invoices by Mr. Lavergne. At that time, however, the source of the information, Ted Baker, a representative of DCL's insurer, who had interviewed Mr. Atkinson about the minority interest payments, declined to provide any details of admissions made by Mr. Atkinson as he maintained that the interview had been confidential.

[51] According to the evidence before this Court, it was not until May of 2011 that Mr. Baker confirmed to DCL that Mr. Atkinson had known that Mr. Lavergne was fabricating or altering invoices. It was four months after learning of that information, that Mr. Atkinson was joined as a party to the counterclaim.

[52] Based on the foregoing, I am satisfied that there is an issue of discoverability as regards the claim against Mr. Atkinson, which must go forward to a trial along with the other issues.

Amendment to the Amended Amended Statement of Claim and Counterclaim

[53] DCL seeks to amend the statement of defence and counterclaim as against Mr. Atkinson to add a claim for gross negligence. The arguments of the parties proceeded on the basis that the amendment had been made.

[54] As regards the amendment sought to be made, it is the position of DCL that the facts giving rise to a claim for gross negligence were not known until May of 2013. DCL submits that that it was not until Mr. Atkinson was examined for discovery in May 28, 2013, that a number of additional admissions concerning his involvement with the payments to Mr. Abaroudi were discovered. These included that Mr. Atkinson had probably noticed the wire transfers to Andorra because they were a "little different" than normal; that he had assumed that Mr. Abaroudi was one of the principals behind Somerav and that he seemed to be an agent or third party of FFM; that as regards any invoice from Somerav, he was told by Mr. Lavergne that Mr. Lavergne was going to rework the invoice to ensure that it would satisfy Revenue Canada; and that Mr. Atkinson never discussed with the Board or DCL's audit committee that Mr. Lavergne was reworking some of the invoices, nor did he ever discuss with the Board the nature of the relationship between the minority interest and FFM. The evidence indicates that Mr. Atkinson had during his time with DCL, assured the Board of DCL that the financial statements presented to the Board were reliable and fully disclosed material issues, and that he had signed a number of certificates verifying that there were no "off-balance sheet transactions". DCL takes the position that these representations were untrue.

[55] Accordingly, DCL submits that as regards the amendment sought to be made, there is also an issue of discoverability.

[56] It is the position of Mr. Atkinson that this amendment is a thinly veiled attempt to keep him in the trial even if he succeeds on the summary judgment motion and that all of the facts giving rise to these claims were or ought to have been known in 2008 or 2009, or at latest, by 2011.

[57] Pursuant to Rule 26.02, on motion at any stage of an action, the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment. Rule 26.01 is mandatory, and an amendment is to be permitted even in the face of unfairness and prejudice unless the prejudice cannot be compensated for in costs for an adjournment. The court is entitled to inquire into the merits of the proposed amendment to ensure that it is tenable at law.

[58] In this case, I am advised by counsel that there will be no necessity for further examinations for discovery, nor will there be any need to plead additional facts. I am of the view that the proposed amendment is tenable at law and that there is a triable issue as regards whether there was gross negligence, namely a marked departure from the standard of care. I do not find there to be any prejudice that may result from such an amendment that cannot be compensated for by costs. Accordingly, I grant DCL's motion to amend its amended amended statement of defence and counterclaim to add a claim as against Mr. Atkinson for gross negligence.

Costs

[59] I would urge the parties to agree upon costs, failing which I would invite the parties to provide any costs submissions in writing, to be limited to three pages, including the costs outline. The submissions may be forwarded to my attention, through Judges’ Administration at 361 University Avenue, within thirty days of the release of this Endorsement.

Carole J. Brown J.

Date: April 4, 2014