SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: Manga Hotels (Toronto) Inc., Manga Hotels Inc. and Manga Hotels (London) Inc., Plaintiffs

AND:

GE Canada Equipment Financing G.P. and 3072427 Nova Scotia Company, Defendants

BEFORE: D. M. Brown J.

COUNSEL:
P. Fruitman, for the Plaintiffs

J. Spotswood, for the Defendants

HEARD: April 30, 2014

REASONS FOR DECISION

I. Rule 31.10 motion

[1] The plaintiffs moved under Rule 31.10 of the Rules of Civil Procedure for an order granting them leave to examine a representative of the Royal Bank of Canada in this proceeding. The defendants opposed the order sought.

[2] The test under Rule 31.10 contains two basic components. First, a finding under Rule 31.10(1) that there is reason to believe that a person has information relevant to a material issue in the action. Second, the conjunctive factors enumerated in Rule 31.10(2) must be met. More specifically, the rule states:

31.10 (1) The court may grant leave, on such terms respecting costs and other matters as are just, to examine for discovery any person who there is reason to believe has information relevant to a material issue in the action, other than an expert engaged by or on behalf of a party in preparation for contemplated or pending litigation.

(2) An order under subrule (1) shall not be made unless the court is satisfied that,

(a) the moving party has been unable to obtain the information from other persons whom the moving party is entitled to examine for discovery, or from the person the party seeks to examine;

(b) it would be unfair to require the moving party to proceed to trial without having the opportunity of examining the person; and

(c) the examination will not,

(i) unduly delay the commencement of the trial of the action,

(ii) entail unreasonable expense for other parties, or

(iii) result in unfairness to the person the moving party seeks to examine.

II. Relevance: Rule 31.10(1)

[3] Turning to the requirement that “there is reason to believe that a person has information relevant to a material issue in the action”, the plaintiffs’ claim involves allegations of breaches by the defendants, especially GE Canada Equipment Financing G.P., of financing and lending contracts concerning several construction projects and hotels, including a project for the construction of a hotel on Front Street, Toronto.

[4] In paragraphs 8 through 12 of its Statement of Claim, the plaintiffs alleged that over the years a lending process with the defendant had emerged under which the plaintiffs would develop a construction budget and feasibility study for a hotel development which they would then present to GE and the Royal Bank of Canada for review and approval. If approved, GE would provide the permanent, take-out financing and RBC would provide the construction loan. In paragraph 25 of its Statement of Defence, GE acknowledged that from 2006 onwards there existed a financing proposal process under which the RBC would provide construction financing.

[5] In simple terms, the gist of the plaintiffs’ allegations concerning the Front Street property is that GE warranted and represented that it had full authority to provide such a package of financing for the property, when in fact it did not. Plaintiffs alleged that they relied on such representations to begin construction, only to be faced with GE subsequently stating that it would not finance the Front Street project. According to the plaintiffs, that led to a distress sale of the Front Street project, with a resulting loss to the plaintiff.

[6] In paragraph 35 of its Statement of Defence GE acknowledged that consistent with its usual practice, on August 23, 2007 it issued a proposal for the Front Street project to provide take-out financing and RBC would provide the construction financing. However, GE asserted that no formal commitment was ever made, and that if the plaintiff commenced construction without such a commitment, any damages suffered as a result of so doing were solely for the plaintiffs’ own account.

[7] Given GE’s pleaded acknowledgement that it made a proposal in respect of the Front Street project under which it would provide take-out financing and RBC would provide construction financing, and given that a key issue in dispute between the parties involves what representations were made by GE in respect of such a financing package, the accuracy of any such representations based upon the information GE had at the time of making them – including information from RBC – becomes relevant. In my view, therefore, there is reason to believe that RBC would have information relevant to that issue given GE's acknowledgment that RBC construction financing was part of that proposal.

[8] As well, on January 21, 2014, I made an order under Rule 30.10 of the Rules of Civil Procedure requiring RBC to produce relevant documents, which it has done. The defendants did not oppose the making of that order. An order under Rule 30.10 may be made where the court is satisfied that the documents are “relevant to a material issue in the action”. Given that GE did not oppose the making of an order against RBC under Rule 30.10, I fail to see how GE now can argue lack of relevance when the plaintiffs seek to examine a RBC representative. With respect, the defendants’ position lacked logical consistency.

[9] In sum, I find that the plaintiffs have met the requirements of Rule 31.10(1).

III. The Rule 31.10(2) factors

[10] Let me turn to the factors under Rule 31.10(2). First, as to the requirement in Rule 31.10(2)(a), I conclude that the moving party has been unable to obtain the information from other persons it is entitled to examine for discovery. At Question 665 on his examination for discovery conducted September 10, 2013, Mr. Edward Khediguian, the representative of GE, was asked a question about RBC’s state of knowledge in respect of an aspect of the Front Street project financing. He replied:

"I can't speak for RBC so you would probably have to ask them…"

That response did not evidence a willingness by the person whom the moving party was entitled to examine for discovery to secure information from RBC for transmission to the plaintiffs and, in my view, amounted to a “constructive refusal” to seek out such information, as that term has been considered in the Rule 31.10 jurisprudence.[^1]

[11] As to the ability of the moving party to secure the information from the person it seeks to examine, RBC has taken the position that it will not produce a representative for examination absent a court order. An informal interview of the RBC representative therefore is not available to the plaintiffs in this case. Also, from the position taken by RBC I infer that there would have been no point in the moving party going through the formal exercise of posing numerous questions to the defendants’ representative on his examination for discovery to make inquiries of RBC, for RBC no doubt would have taken the same position in response to any inquiry from the defendants – i.e. go get an order under Rule 31.10.

[12] As to Rule 31.10(2)(b), I conclude that it would be unfair to require the plaintiffs to proceed to trial without having the opportunity to examine a representative RBC. A significant amount of money is at stake in this lawsuit. Under the financing proposal in dispute in respect of the Front Street project, it is alleged that RBC would provide the construction financing. In my view it makes sense that the party which wishes to adduce evidence from RBC at trial have the opportunity to obtain information from a representative of RBC prior to trial. RBC is requiring the making of a formal order before it will allow its representative to talk to plaintiffs’ counsel, although RBC is not opposing the order sought. To decline this motion and, instead, to require the plaintiffs to summons a representative of RBC to attend at the trial and make the trial the first opportunity to find out what the RBC representative will say would only create trial delay.

[13] The defendants submitted that granting a Rule 31.10 order would offend the principle of proportionality. I disagree. On the contrary, to refuse to grant the order would infringe the proportionality principle by ensuring some delay during the course of the trial as the parties, in effect, conducted an examination for discovery of the RBC witness within the confines of the trial court room. In civil matters, the trial is no place to conduct initial examinations for discovery; trial time should not be wasted in that way. Our Rules provide mechanisms, such as Rule 31.10, to conduct such detailed examinations prior to trial, ensuring that the actual questioning conducted at the trial will be much more focused.

[14] Finally, the moving party has satisfied the factors in Rule 31.10(2)(c). The examination will not delay the trial of this action – the action has not yet been set down for trial. The plaintiffs seek to examine a RBC representative for up to four (4) hours. That strikes me as a reasonable amount of time, and I limit the duration of the Rule 31.10 examination to four hours. Finally, the plaintiffs have agreed to the payment of costs sought by RBC in respect of the examination, so there will not be any financial prejudice to the person sought to be examined. The cost-impact of the examination on the defendants will be minimal.

IV. Conclusion and costs

[15] I therefore grant the plaintiffs’ motion. As to costs, the plaintiffs sought substantial indemnity costs of just under $7,000. The defendants submitted that in the event the motion was granted, partial indemnity costs of $2,500 would be appropriate. Having reviewed the plaintiffs’ Bill of Costs, I conclude that an award of partial indemnity costs in the amount of $3,500 would be reasonable, and I order the defendants to pay that amount to the plaintiffs within 30 days of the date of this order.

D. M. Brown J.

Date: May 1, 2014

[^1]: Famous Players Development Corp. v. Central Capital Corp. (1991), 1991 7202 (ON SC), 6 O.R. (3d) 765 (Div. Ct.).