CITATION: Ontario Psychological Association .v. Mardonet et al et al. 2015 ONSC 3063
COURT FILE NO.: CV-14-508239
DATE: 20150513
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
ONTARIO PSYCHOLOGICAL ASSOCIATION
Plaintiff
– and –
CHARLOTTE (CARLA) MARDONET, SARAH ESAAFI, GABRIAL BENSUSAN, 2181420 ONTARIO INC., BDO CANADA LLP, VERN E. PENNER and DR. JOHN SERVICE
Defendants
No one appearing for the Plaintiffs
Paul D. Stern for the defendant Carla Mardonet
Peter-Paul E. Du Vernet, for the defendant Gabrial Bensusan and 2181420 Ontario Inc.
Andrew W. MacDonald for BDO Canada LLP & Vern E. Penner
HEARD: April 30, 2015
FAIETA, j
REASONS FOR DECISION
[1] The defendants BDO and Penner (the “moving parties”) ask this Court to quash the Notices of Examination that were served on them by the defendant Mardonet on April 15, 2015. No affidavit evidence was filed by the parties in respect of this motion. In addition to the two Notices of Examination, the only other materials filed in respect of this motion were the Statement of Claim and the Notice of Motion for a Mareva Injunction, dated December 23, 2014 (without supporting affidavits) (the “Mareva Injunction Motion”).
Background
[2] The plaintiff commenced this action on July 11, 2014 by Notice of Action. By way of a Statement of Claim dated August 11, 2014, the plaintiff seeks, amongst other things, a declaration that: (1) the defendant Mardonet misappropriated funds from the plaintiff from about 2003 until 2013; (2) the defendants Esaafi, Bensusan and 2181420 Ontario Inc. received the misappropriated funds and conspired with the defendant Mardonet to defraud the plaintiff; and (3) the defendants BDO and Penner were negligent in the performance of audit and professional services provided to the OPA from about 2003 in failing to detect and disclose the alleged misappropriation of funds. In November 2013, new management at the OPA arranged for BDO to conduct a mini-audit using a new audit partner or lead. BDO subsequently advised the plaintiff that it had identified financial irregularities and advised that the defendant Mardonet failed to provide a satisfactory explanation for the payments. BDO advised the plaintiff that it needed to remove the defendant Mardonet from the workplace. The plaintiff alleges that the magnitude of the misappropriations since at least 2003 exceeds $1.6 million.
[3] The moving parties submit that: 1) Statements of Defence have not been served or filed by any of the defendants; 2) the defendants have not been noted in default; 3) pleadings have not been closed; and 4) the defendant Mardonet intends to serve a Cross Claim on the defendants BDO and Penner.
[4] The plaintiff asks this Court to issue a Mareva Injunction to restrain the respondents from dissipating their assets. No relief is sought in respect of the moving parties.
[5] Amongst other allegations, the following allegations are advanced in the Mareva Injunction Motion. From about 1998 until November 20, 2013 the defendant Mardonet was the plaintiff’s Administrative Officer. In that role, the defendant Mardonet was responsible for accounts payable and accounts receivable and the preparation and issuance of payments on behalf of the plaintiff. It is alleged that she was responsible for maintaining the plaintiff’s financial records. In August and September of 2013 the plaintiff began to identify various questionable payments involving the Respondents. In September 2013 the defendant Mardonet submitted a notice of resignation with a final working date in February 2014. The defendant BDO uncovered irregularities in the plaintiff’s financial records in November 2013. The defendant Mardonet acknowledged that she made purchases for personal use from a women’s clothing store using the plaintiff’s funds. The plaintiff subsequently terminated the defendant Mardonet’s employment.
[6] The motion for a Mareva Injunction is scheduled to be heard on June 19, 2015.
[7] The defendant Mardonet delivered a Notice of Examination to the defendant Penner and the defendant BDO. The substance of the two Notices is identical.
[8] The Notices of Examination state, in part, that:
YOU ARE REQUIRED TO ATTEND … for
x Examination out of court as a witness before hearing.
YOU ARE REQUIRED TO BRING WITH YOU and produce at the examination the following documents and things, which are or have been within your possession, control or power:
Covering the time period from 2003 to the date of your examination, all documents, working papers, reports, correspondence and letters, contracts, books of account, ledgers, emails and other electronic communications and attachments thereto, statements, records, bills, invoices, notes, securities, vouchers, papers, deeds, bank accounts. [emphasis added]
[9] The following grounds are raised in the Notice of Motion:
a. the defendant Mardonet has not sufficiently identified the specific evidence sought nor demonstrated how it is relevant to the issues raised in the Mareva Injunction Motion;
b. the Notices of Examination require the moving parties to produce a vast array of materials and to submit to a wide-ranging examination;
c. the Notices of Examination are an abuse of process as they require the moving parties to undergo what amounts to examinations for discovery prior to the close of pleadings;
d. the Mareva Injunction Motion does not seek any relief against the moving parties.
The Law
[10] Rule 39.03(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, states, in part, that a “… person may be examined before the hearing of a pending motion … for the purpose of having a transcript of his or her evidence available for use at the hearing.”
[11] Rule 34.01(d) provides that Rules 34.02 to 34.10 apply to the examination out of court of a witness before the hearing of a pending motion or application under Rule 39.03.
[12] Rule 34.04(1)(a) states that where the person to be examined is a party to the proceeding a Notice of Examination (Form 34A) shall be served on the party’s lawyer of record.
[13] If a Notice of Examination under Rule 39.03 is challenged, the onus rests with the party seeking the examination to show that: (1) the evidence sought is relevant to an issue raised in the underlying motion; and (2) the person to be examined is in a position to provide such evidence.[^1]
[14] A person opposing a Notice of Examination bears the onus of showing that the Notice of Examination is an abuse of the Court’s process.[^2] The concept of abuse of process “… engages the inherent power of the court to prevent the misuse of its procedure, in a way that would be manifestly unfair to a party to the litigation before it or would in some other way bring the administration of justice into disrepute.”[^3]
Relevance
[15] The respondents provided the following explanation as to why the evidence that may be obtained pursuant to the Notice of Examination may be relevant to an issue(s) raised by the Mareva Injunction Motion.
[16] The respondents submit that given:
“… the issues raised by the Plaintiff’s Mareva Injunction Motion, and the allegations made in the Statement of Claim concerning investigations made by BDO and Penner, and reports by them confirming that there was no misconduct on the part of the Defendants, not only is the proposed examination not an abuse of process, but to preclude the Defendants, exposed to the Mareva Injunction Motion, from having the critical evidence, available only through BDO and Penner would unjustly limit the Defendants in showing the Plaintiff’s Mareva Motion to be unwarranted.”[^4] [emphasis added]
[17] The respondents further submit that:
It is clear from the Statement of Claim that the evidence sought from BDO and Penner would be “possibly relevant to the issues”, and indeed is certainly to be directly relevant to the issues, on the Mareva Injunction.[^5]
[18] Given that in order to obtain a Mareva Injunction a plaintiff must demonstrate a strong prima facie case against the defendant Mardonet on the merits, and given that the motion will focus on the evidence of whether the defendant Mardonet misappropriated funds rather than why the defendants BDO and Penner did not detect a misappropriation of funds earlier as advanced in the Statement of Claim, it is my view that the broad scope of the Notice of Examination (seeking to examine the moving parties on matters and documents going back to 2003 rather than simply in relation to the November 2013 mini-audit which found that the defendant Mardonet had misappropriated funds) has little apparent relevance to the determination of the Mareva Injunction Motion.[^6]
[19] Further, the respondents have provided no evidence to explain why the defendant Penner would have any evidence that is relevant to whether the plaintiff has a strong prima facie case that the defendant Mardonet misappropriated funds.
Abuse of Process
[20] The moving parties submit that the Notices of Examination are an abuse of process for several reasons.
[21] The moving parties rely on Sun-Times Media Group v. Black,[^7] in which the Court quashed a Notice of Examination served on the defendants in the context of a motion for a Mareva Injunction to freeze the defendants’ assets on the basis that it was an abuse of process. The Court stated:
Counsel for the Plaintiff candidly concede that they have not found a case in Ontario that would support the right of a plaintiff to examine a defendant in aid of a pending Mareva Injunction.
In my view, there is good reason why there has not been such a decided case. The relief, if granted based only on a Notice of Action and before any hearing whatsoever on the merits of the Mareva Injunction, would amount to an extraordinary intrusion. …
These cases to which I was referred in which Rule 39.03 has been used to examine the opposite party are all instances in which the opposite party has placed a matter in issue by placing a sworn affidavit before the Court on which he or she can be examined.
There is no case to which I have been referred in which the summons on a party has been held valid where (a) there is no preceding substantial order such as an injunction; and (b) where by affidavit or otherwise the opposing party has not filed a pleading or affidavit.
Examination for discovery would be unnecessary if the plaintiff’s proposition were to prevail …
In the absence of any authority, it defies common sense to suggest that a plaintiff could by the simple expedient of issuing a Notice of Action examine the opposing party before either (a) the opposing party puts evidence on which examination may be conducted before the Court; or (b) before the Court makes an Order that would make the examination appropriate. [emphasis added]
[22] I reject the respondents’ submission that the circumstances in Sun-Times are in no way analogous for two reasons. First, as in Sun-Times, the moving parties have not placed an affidavit before the Court on which they can be examined. Second, the broad scope of the Notice of Examination would make examinations for discovery redundant.
[23] The moving parties further submit that to be required to submit to examinations prior to the close of pleadings is improper. In Fehringer v. Sun Media Corp.,[^8] the Court quashed three summonses that required three persons employed by the defendant to be examined by the plaintiffs in support of a class action certification motion. Justice Cumming stated at para. 17 that one of the reasons that the summonses constituted an abuse of process was that:
…to allow discovery through the subpoenas would effectively permit the plaintiff, in effect, to have an early discovery before the close of pleadings. The normative rules (30.03(1)); 31.04(1), (20) provide for discovery after the close of pleadings.
[24] The respondents submit that Fehringer does not stand for the proposition that examinations under oath of the defendants prior to the close of pleadings are, in and of themselves, an abuse of process. In my view, the reasoning described above is sufficient basis to find that the Notices of Examination are an abuse of process. As noted in Abou-Elmaati an examination is improper if the purpose of the examination is to prematurely inquire into a party’s defences or otherwise commence the discovery process.[^9]
[25] Further, the moving parties submit that the examinations amount to a “fishing expedition.” The Notices of Examination are broadly drafted. The Notices do not reflect any attempt to limit the scope of the Notices of Examination to matters solely relevant to the Mareva Injunction Motion. There is nothing in the respondents’ factum or submissions which suggests that the respondents disagree with the moving parties’ submission that: (1) all matters addressed in the Statement of Claim (55 pages in length plus appendices) would be open to examination; (2) any other party, including the plaintiff, will also be entitled under Rule 39.03(2) to examine the moving parties if these Notices of Examination are not quashed. In my view, these Notices of Examination amount to a fishing expedition. Upholding these Notices of Examination would not “secure the just, most expeditious and least expensive determination” of this proceeding on its merits and ignore the need for proportionality under Rule 1.04(1.1).
[26] I hereby quash the Notices of Examination. The respondents have failed to demonstrate that the defendant Penner is in a position to provide evidence that is relevant to the issues to be determined in the Mareva Injunction Motion. In any event, it is my view that to permit an examination of the moving parties in these circumstances would be an abuse of process for all of the reasons described above. The parties shall deliver their written costs submissions, maximum three pages in length, within 14 days.
Mr. Justice M. Faieta
Released: May 13, 2015
CITATION: Ontario Psychological Association .v. Mardonet et al et al. 2015 ONSC 3063
COURT FILE NO.: CV-14-508239
DATE: 20150513
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
ONTARIO PSYCHOLOGICAL ASSOCIATION
Plaintiff
– and –
CHARLOTTE (CARLA) MARDONET, SARAH ESAAFI, GABRIAL BENSUSAN, 2181420 ONTARIO INC., BDO CANADA LLP, VERN E. PENNER and DR. JOHN SERVICE
Defendants
REASONS FOR JUDGMENT
Mr. Justice M. Faieta
Released: May 13, 2015
[^1]: Abou-Elmaati v. Canada (Attorney General), 2013 ONSC 3176, at para. 62.
[^2]: Abou-Elmaati, at para. 67.
[^3]: Toronto (City) v. Canadian Union of Public Employees (C.U.P.E.), Local 79, 2003 SCC 63, [2003] 3 S.C.R. 77, at para. 37.
[^4]: Respondents’ Factum, at para. 5.
[^5]: Respondents’ Factum, at para. 21.
[^6]: The test for a Mareva Injunction is described in O2 Electronics Inc. v. Sualim [2014] O.J. No. 4126, at para. 67.
[^7]: [2007] O.J. No. 795, at paras. 39-40, 46-48, 50.
[^8]: (2001), 2001 28060 (ON SC), 54 O.R. (3d) 31.
[^9]: Abou-Elmaati, at para. 64.