NEWMARKET COURT FILE NO: CV-10-099958-00
(SUPPLEMENTARY) DATE: 20140721
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
VINCE NACCARATO AND FRANK MAURO
Plaintiffs
– and –
MULOCK CAFÉ INC., JANE FORFAR, BRUNO LOBE ALSO KNOWN AS BRUNO SOUCY, AND JANE FORFAR AND BRUNO LOEB ALSO KNOWN AS BRUNO SOUCY, OPERATING AS BRU LICIOUS
Defendants
Howard D. Gerson, for the Plaintiffs/Moving Parties
Jamie M. Sanderson, for the Defendants/Responding Parties
HEARD: March 13, 2014
supplementary REASONS FOR Decision
(Text of original decision has been amended – changes appended)
DOUGLAS J.:
[1] The plaintiffs move for:
(a) An order amending the statement of claim in the form attached to their notice of motion, dated September 3, 2013, as Schedule A;
(b) An order, if needed, extending the time to set the matter down for trial;
(c) An order that if the defendants do not answer their undertakings within 3 weeks, they be precluded from doing so and the consequences of the defendants’ failure be determined by the trial judge;
(d) Costs of motion on a substantial indemnity basis; and,
(e) Such further relief as the Court may deem just.
[2] The defendants move to compel answers to undertakings and refusals in respect of the Plaintiffs Naccarato and Mauro. The defendants’ motion to strike the affidavit of Wendy Field sworn November 21, 2013 was withdrawn. The defendants’ motion regarding undertakings and refusals was largely resolved prior to argument and only the issue of costs remained for argument.
[3] The parties are consenting to amendments to the statement of claim to include new causes of action for breach of fiduciary duty and rescission on the basis that such causes of action are deemed to have arisen on September 3, 2013 and that the defendants be granted leave to plead limitations defence. I invited counsel to draft wording in this regard for inclusion in my endorsement and accordingly I order as follows:
This court orders that the claims for breach of fiduciary duty and rescission are deemed to have been added on September 3, 2013 and that the defendants are granted leave to plead a limitations defence.
[4] Also, prior to argument of the motions I was advised that the parties had agreed that paragraphs 28(b) and (c) of the proposed amended statement of claim be deleted leaving only the wording of subparagraphs 28(g), (h), (j) and (k) of the amended statement of claim for argument on the plaintiffs’ motion to amend the statement of claim.
Motion to Amend Pleadings
[5] The claims advanced by the plaintiffs include breach of contract, rescission, breach of fiduciary duty, and oppression and include claims for punitive and exemplary damages.
[6] The amendments that remain in dispute are in paragraphs 28(g), (h), (j) and (k), which read as follows in the proposed amended statement of claim:
(g) Prior to June 7, 2010 the defendants instructed Kevin MacDonald of MacDonald Associates PC to deliver a notice of intent to defend on behalf of the defendants in the Threecaf proceeding without disclosing this to the plaintiffs.
(h) Between June 7, 2010 and July 29, 2010 the defendants instructed Kevin MacDonald to negotiate minutes of settlement and a release in the Threecaf proceeding.
(j) On July 21, 2010 the defendants were served with the statement of claim in this proceeding and they instructed Kevin MacDonald to deliver a notice of intent to defend on July 30, 2010.
(k) On August 23, 2010 the defendants instructed Jamie Sanderson of MacDonald Associated PC to deliver a statement of defence and counter claim that concealed all of the facts in (a) to (i) above, further misleading the plaintiffs as to the true state of the business.
[7] The following factual context is alleged by the plaintiffs:
(a) The plaintiffs hold 50% of the shares in Mulock Café Inc. (hereinafter “Mulock”);
(b) The defendant Jane Forfar (hereinafter “Forfar”) owns the remaining 50% of the shares in Mulock;
(c) The defendant Bruno Lobe (hereinafter “Lobe”) was to manage the business;
(d) Mulock is an Ontario corporation incorporated by the parties to own and operate a café that the parties agreed would be a franchise of Timothy’s Coffees of the World Inc. “Timothy’s” or the “business” to be located at 800 Mulock Drive, Newmarket, Ontario;
(e) The plaintiffs provided over $53,000.00 to Mulock by way of loan;
(f) Forfar and Lobe later refused to sign a shareholders agreement as originally anticipated as they wished to purchase the plaintiffs’ interest in Mulock;
(g) Forfar refused to execute corporate documents required for the issuance of share certificates to the plaintiffs;
(h) Forfar and Lobe operated the business without providing financial disclosure to the plaintiffs;
(i) During the discovery process the plaintiffs learned of the defendants’ breaches of fiduciary duties, oppressive conduct and Forfar’s failure to comply with the Business Corporations Act including those allegations referred to in paragraphs 28 (g), (h), (j) and (k) outlined above;
(j) In March 2005 defendants ceased operating as a Timothy’s and began to operate under a different name without the plaintiffs’ knowledge or consent;
(k) The franchisor sued the defendants and the defendants were represented in that litigation by defendants’ counsel in these proceedings. Minutes of settlement were negotiated in the other litigation;
(l) When the documents from the other litigation were disclosed to the plaintiffs in this proceeding the following was learned:
(i) The defendants incorporated a new company and caused Mulock to assign the Timothy’s franchise agreement to the new company in July 2008;
(ii) The defendants had been sued by the franchisor for breaching the franchise agreement;
(iii) Kevin MacDonald of the same firm that currently represents the defendants in these proceedings delivered a notice of intent to defend the franchisor’s claim;
(iv) The matter had been settled between the franchisor and the defendants on July 29, 2010, one day before Kevin MacDonald delivered the defendants’ notice of intent to defend in this proceeding;
(v) The defendants transferred all of Mulock’s assets to the franchisor in return for a lump sum payment of $1,000.00; and,
(vi) The defendants sold the lease for the business to the franchisor for $1.00 and the assumption of any rental arrears still owing by the defendants.
[8] The plaintiffs argue that the proposed amendments in paragraphs 28(g), (h), (j) and (k) are relevant because involvement of the defendants’ lawyer, and the instructions given by the defendants to their lawyer go to the defendants’ state of mind and this relates to the plaintiffs’ claim for punitive damages.
[9] The plaintiffs rely upon Duryea v. Kaufman, [1910] O.J. No. 814 (Ontario High Court of Justice) in which the court states:
No pleading can be said to be embarrassing if it alleges facts which may be proved – the opposite party may be perplexed, astonished, startled, confused, troubled, annoyed, taken aback, and worried by such a pleading – but in legal sense he cannot be “embarrassed.” But no pleading should set out a fact which would not be allowed to be proved – that is embarrassing...Even if a pleading set out a fact that is not necessary to be proved, still, if it can be proved, the pleading will not be embarrassing. Anything which can have any effect at all in determining the right of the parties can be proved, and consequently can be pleaded – but the Court will not allow any fact to be alleged which is wholly immaterial and can have no effect upon the result.
[10] The plaintiffs further rely upon the case of Brydon v. Brydon [1951] O.J. No. 77 OCA which indicates:
The test is not whether the fact is a major or a minor fact or a chief or an ancillary one, but rather is the fact pleaded relevant to the trial of the issue. Anything which can have any effect at all in determining the rights of the parties can be proved, and consequently can be pleaded – but the Court will not allow any fact to be alleged which is wholly immaterial and can have no effect upon the result.
[11] The plaintiff acknowledges that there is no claim against the defendants’ lawyers but it is important for the court to appreciate from the plaintiffs’ pleadings that the defendants’ lawyers conducted themselves as alleged above.
[12] The defendants argue that the problematic wording in paragraphs 28 (g), (h), (j) and (k) of the proposed amended statement of claim references the defendants’ instructions to counsel in each of those paragraphs. The defendants further argue that these allegations are irrelevant to the plaintiffs’ claims and the purpose is to cast dispersion on defendants’ counsel by suggesting counsel was a party to deceptive behaviour. Further, the reference of solicitor/client information represents a breach of solicitor/client privilege.
[13] The defendants rely upon the case of Monks v. Zurich Insurance Company, 2001 Carswell Ont. 4866 (Ontario Master) which refers to the basic rule of solicitor/client privilege enunciated by the Supreme Court of Canada in R. v. Shirose 1999 CanLII 676 (SCC), [1999] 1SCR 565:
Legal advice of any kind sought from a professional legal adviser is permanently protected from disclosure except where the protection is waived.
Further, the displacement of solicitor/client privilege that exists between a party and the counsel cannot be forced on the parties seeking to maintain the privilege. A party cannot be required to waive privilege as a result of another party’s pleadings nor can one party force a waiver by the type of question it asks. Solicitor/client privilege cannot be destroyed by an allegation of “bad faith” no matter how specifically pleaded. To hold otherwise would allow one party to the litigation to completely defeat the protection of solicitor/client privilege simply because bad faith is alleged.
[14] The defendants further rely upon E.D. Miller Sales and Rentals Ltd. v. Caterpillar Tractor Co., 1992 Carswell Alberta 86 (Alberta Queens Bench) which provides that a party may waive privilege by a pleading as well as by actually giving evidence of a privileged communication; further, that privilege is waived when a party, by his testimony or pleading, voluntarily raises a defence or asserts a claim which makes his knowledge of the law relevant.
[15] The defendants argue that the plaintiffs’ allegations with respect to instructions provided by counsel are wholly immaterial and ought not to be allowed. The defendants’ state of mind has not been pleaded and the defendants’ instructions to counsel are privileged unless waived.
[16] The defendants argue that allowing the amendment of pleading as proposed would constitute an abuse of process and the proposed pleading should not be allowed as such is “scandalous, frivolous or vexatious” within the meaning of Rule 25.11(b) and an abuse of the process of the court in respect of Rule 25.11(c).
[17] The defendants submit that the impugned allegations are inserted solely for purpose of “atmosphere” and for that reason ought to be eliminated (See Wilson v. Wilson, 1948 Carswell Ont. 181 (Ontario High Court of Justice)).
[18] The defendants rely upon Everdale Place v. Rimmer, 1975 Carswell Ont. 905 (Ontario High Court of Justice) which stands for the proposition that when a pleading raises an issue, the determination of which can have no effect upon the outcome of the action, such pleading is embarrassing and should be struck out.
[19] The defendants argue that there is no relevance to the proposed allegations with respect to instructions to counsel and there is no authority permitting the inclusion of irrelevant allegations in the pleading.
Analysis and Decision
[20] Rule 26.01 of the Rules of Civil Procedure provides as follows:
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.
[21] In my view, the plaintiffs’ motion to amend the statement of claim in respect of the proposed wording regarding paragraphs 28(g), (h), (j) and (k) must fail for the following reasons:
(a) The allegations with respect to instructions from the defendants to their counsel in the other litigation are unnecessary, immaterial and irrelevant to the issues pleaded. While the facts alleged may be proven, they must also be relevant;
(b) The defendants’ counsel is not a party to this litigation. Whether a party provides instructions to counsel to do an act can have no relevance when those actions also could have been performed personally by the defendants and counsel was simply acting under the defendants’ instructions. Ultimately actions of counsel when instructed must simply be attributed to the party providing instructions to counsel. I can see no basis to conclude that the impugned allegations, if proven, would have any effect upon the outcome of this action; and,
(c) Regarding the issue of breach of solicitor/client privilege, in respect of the defendant Lobe, privilege was effectively waived by Lobe when, during his examination for discovery on November 12, 2012 he responded to questions, without objection by counsel, regarding instructions he had provided to counsel in the other litigation; however, this does not abrogate the obligation of the parties to restrict their pleadings to relevant, provable facts. While the content of instructions may well be provable given the waivers at discovery, allegations of fact touching on this area do not meet the test of relevance in this case.
Defendants’ Motion, Re: Undertakings and Issue of Costs
[22] With respect to this motion the defendants allege:
(a) The motion pertains to 21 unanswered undertakings and 29 refusals;
(b) The June 30, 2013 order of Justice Brown defined the deadlines by which the parties’ undertakings were to be answered. The defendants answered in the timeframe imposed whereas the plaintiffs did not;
(c) On July 29, 2013 the defendants forewarned the plaintiffs of a motion to compel undertakings unless answered;
(d) On July 31, 2013 the plaintiffs provided some answers and took the position that undertakings were complete;
(e) As of October 8, 2013 numerous undertakings and refusals remained outstanding with respect to both plaintiffs and on that day this motion was served upon the plaintiffs;
(f) On January 27, 2014 defendants’ counsel wrote plaintiffs’ counsel identifying approximately 20 outstanding undertakings and 55 outstanding refusals. It is the defendants’ position that the plaintiffs bear the responsibility of defining outstanding undertakings and refusals and should not rely upon the defendants’ counsel to identify same for them;
(g) On January 28, 2014 the plaintiffs provided answers to 21 undertakings and 29 refusals;
(h) In an email dated February 3, 2014 defendants’ counsel advised plaintiffs’ counsel that it appeared many of the outstanding undertakings and refusals had been answered and further: “...you should not prepare any responding materials.”;
(i) The defendants filed additional materials on this motion thereafter simply to put the answers before the court addressing the issue of costs; and
(j) In these circumstances defendants submit that they are entitled to their costs of the motion re: undertakings.
[23] The plaintiffs submit as follows:
(a) The plaintiffs answered the outstanding undertakings and refusals after delivery of the notice of motion;
(b) The plaintiffs asked the defendants’ counsel to confirm what the outstanding undertakings were by way of letter dated January, 15, 2014;
(c) Further undertakings were answered on January 28, 2014;
(d) Notwithstanding the communication from defendants’ counsel inviting plaintiffs not to prepare responding materials, on February 10, 2014 the defendants served an amended notice of motion and supporting affidavit of Danielle Kelly. The supporting affidavit addresses plaintiffs’ undertakings that by that time had already been answered and thus unnecessary costs were incurred;
(e) As a result, the plaintiffs served a responding motion record dated February 11, 2014;
(f) The defendants then filed a further responding motion record and supporting affidavit with 11 exhibits on February 18, 2014;
(g) The order of Justice Brown required that all undertakings be answered by June 30, 2013. Although it is conceded that the plaintiffs did not answer their undertakings by that deadline, there was not a significant difference in the amount of time taken by the plaintiffs to answer their undertakings from the date the undertakings were given to the date the answers were provided compared to the amount of time taken by the defendants to answer their undertakings, many key elements of which remain outstanding;
(h) The defendants’ continued failure to produce documents represents part of a pattern of conduct to mislead by omission; and
(i) The defendants withdrew their opposition to the plaintiffs’ motion to amend virtually at the last possible moment apart from the issues addressed above.
[24] The defendants submit that by letter dated February 4, 2014 counsel for the plaintiffs advised the defendants: “We do not intend to bring a motion to compel production. However we will ask the court to draw an adverse inference against your client’s failure to produce the documents requested above.” It is the defendants’ position that it is therefore improper for the plaintiffs to attempt to bring a motion before this court under the heading of the “basket clause” in their motion to amend statement of claim.
[25] In this regard the defendants rely upon the case of Toms v. Agro, 1992 Carswell Ont. 1112 (Ontario Court General Division) in support of the broad proposition that the court should not grant relief except as requested in the originating documentation including a notice of motion. That case was dealing with injunctive relief.
[26] The defendants also rely upon the case of Toronto Dominion Bank v. Entretel Inc., 2008 Carswell Ont. 1205 (Ontario Superior Court of Justice) in further support of this position.
[27] The defendants further rely upon Elekta Ltd. v. Rodkin, 2012 Carswell Ont. 3928 (Ontario Superior Court of Justice) where the court refused to grant default judgment in furtherance of the standard “basket clause” in a notice of motion even where evidence existed to do so as such relief must be expressly sought in the notice of motion.
[28] As noted above, the plaintiffs seek relief from the court with respect to the defendants’ alleged outstanding undertakings; however, they do so notwithstanding the absence of a formal motion specifically seeking this relief. In this regard the plaintiffs allege that Forfar has not answered undertakings given at her November 28, 2011 discovery as follows:
(a) To produce all bank statements for Mulock Café Inc. from the inception of the business to present;
(b) To produce a copy of all cheques written against Mulock Café Inc.’s bank account; and
(c) To provide a chronology of money Forfar paid into or on behalf of Mulock Café Inc.
[29] It is the position of the defendants that undertaking (c) above was answered on February 20, 2014 prior to the motion being argued.
[30] With respect to undertakings (a) and (b) above the issue between the parties is who should pay for the expenses associated with producing the copies.
[31] Forfar’s undertakings were not made subject to the issue of costs.
[32] Similarly, Lobe provided undertakings at his discovery on November 12, 2012 and the following undertakings remain outstanding:
(a) To produce everything in ADP’s file relating to Mulock Café Inc. and Magna Centre Café Inc.;
(b) To provide the names and addresses of the employees of Mulock Café Inc. and Magna Centre Inc. that were paid through ADP; and,
(c) To produce the bank and financial records for both Mulock Café Inc. and Magna Centre Café Inc.
[33] The defendants maintain that they have no difficulty producing the answers to these undertakings so long as the plaintiffs pay the costs associated therewith. In the case of Lobe’s undertakings, the transcript of the examination for discovery makes it clear that the undertakings were subject to costs of producing same.
[34] The plaintiff seeks an order that upon the defendants’ failure to produce the outstanding undertakings within 30 days then they will be precluded at trial from relying upon the documents required by the undertakings.
[35] The defendants submit that Rule 30.08(1)(a) essentially prescribes this relief in any event without the necessity of an order of the court.
[36] It is not necessary for me to address the issue of responsibility for the costs of production of these undertakings by the defendants as there is no motion before me seeking this relief.
[37] I reject the plaintiffs argument that the “basket clause” contained in the notice of motion is sufficient in the circumstances. The relief sought is significant and not ancillary to the relief sought in the plaintiffs’ notice of motion.
[38] Further, the plaintiffs, through counsel, specifically advised the defendants by way of letter dated February 3, 2014 that they would not be bringing a motion to compel compliance with undertakings.
[39] Regarding the issue of costs of the defendants’ motion the plaintiffs acknowledge that every party has an independent duty to define and answer a party’s undertakings; however, the plaintiffs submit that there is a practice that opposing counsel will confirm undertakings outstanding and in this case defendants counsel declined to do so, resulting in delayed delivery of the answers to undertakings.
[40] The plaintiffs further submit that if a moving party is in default regarding undertakings then they should not be entitled to costs. The plaintiff provides no authority for this proposition.
[41] The plaintiffs submit that all the plaintiffs’ undertakings were answered after delivery of the notice of motion and accordingly the defendants’ costs, if any, must be minimal. The defendants drove up costs by filing further and unnecessary material.
[42] On the issue as to whether the plaintiffs are liable to the defendants for costs of the defendants’ motion in that regard, I conclude that they are; however, those costs ought to be restricted to the costs reasonably attributable to effort actually expended to secure the undertakings and thereafter to fairly address the issue of costs.
[43] I am prepared to receive brief written submissions from the parties as to costs of the defendants’ motion and costs of the plaintiffs’ motion upon the following schedule:
(a) Defendants’ submissions on both motions within 2 weeks and limited to 3 pages;
(b) Plaintiffs’ submissions within 4 weeks and limited to 3 pages; and,
(c) Defendants’ submissions in reply, if desired, within 5 weeks.
[44] On consent, further order to go extending the date by which this matter must be set down for trial to July 31, 2014.
_____________________________________ DOUGLAS J.
Released: July 21, 2014
AMENDMENTS
Page 2 – para. 3 (amended) to now read:
[3] …. I invited counsel to draft wording in this regard for inclusion in my endorsement and accordingly I order as follows:
This court orders that the claims for breach of fiduciary duty and rescission are deemed to have been added on September 3, 2013 and that the defendants are granted leave to plead a limitations defence.
Page 11 – Para. 44 added