ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-13-115180-00

DATE: 20151126

BETWEEN:

N-Krypt International Corp.
Plaintiff/Moving Party

– and –

Zillacomm Canada Inc., Zillacomm Inc., Over Z LLC, David W. Shiflett and Glenn R. Davis
Defendants/Respondents

Jamie Spotswood, as agent for the Plaintiff’s solicitor, Shahzad Siddiqui

Brian Belmont, for the Defendants

– and –

Asif Choksi, Mohammed Qasim Choksi, N-Krypt International Corp., and N-Krypt Global Services Inc.
Defendants by Counterclaim

HEARD: October 28, 2015

RULING ON MOTION

GILMORE j.:

Overview

[1] N-Krypt International Corp. (N-Krypt), the plaintiff/defendant by counterclaim (together hereinafter the plaintiff) seeks particulars from the defendant, Over Z LLC (Over Z).

[2] The defendant served a demand for particulars on the plaintiff on August 15, 2013. The plaintiff responded by providing 1,065 pages of documents.

[3] On July 4, 2014, the plaintiff requested particulars from Over Z, claiming that it was unable to respond to the defence and counterclaim due Over Z’s bald allegations.

[4] The defendants served a response to the demand for particulars on October 30, 2014. The plaintiff characterizes this response as a blanket one, which is perfunctory and does not contain the information which the plaintiff requires in order to respond to the pleadings.

[5] Over Z resists the motion, insisting that the plaintiff has not shown that it needs further particulars in order to plead a defence to Over Z’s counterclaim. Over Z submits that the plaintiff, in insisting on receiving particulars in this manner, is engaging in a form of discovery which is improper at this stage in the litigation.

Background Facts

[6] The defendants, Zillacomm Canada Inc., Over Z and Zillacomm Inc. (a U.S. company), injected equity capital into the plaintiff corporation.

[7] Over Z executed a subscription agreement with the plaintiff, in which it agreed to invest $2,000,000 U.S. in return for shares in the plaintiff corporation.

[8] The purpose of the investment was to obtain a share of the plaintiff corporation’s interest in Email2, a company which had designed unique and secure messaging technology.

[9] According to the plaintiff, Over Z did not invest the full $2,000,000 into the plaintiff corporation as subscribed. The plaintiff alleges that the defendants began colluding with Email2 against the defendant by counterclaim, Mr. Choksi, and the plaintiff.

[10] As indicated above, after the plaintiff served the statement of claim on Over Z, Over Z served a lengthy demand for particulars on plaintiff’s counsel, to which the plaintiff responded with substantial documentation. Once the response was sent, Over Z served a statement of defence and third party claim. The plaintiff then requested extensive particulars, including information on why the defendants had sued Mr. Choksi and his father. Over Z served a blanket denial of the plaintiff’s demand for particulars, which the plaintiff describes as perfunctory. The plaintiff asked Over Z for better particulars, but those were refused, resulting in the within motion.

[11] Over Z submits that the particulars which the plaintiff seeks are the documents in support of the defence and counterclaim and are, therefore, properly the subject of documentary discovery after pleadings have closed. The defendants blame the plaintiff for chronic delay, as two years have passed since the plaintiff commenced the action and the plaintiff already has a full documentary record in its possession.

The Party’s Positions

[12] The plaintiff’s position is that the statement of defence does not have the requisite level of particularity based on caselaw authorities. The statement of defence must frame the issues to determine relevance and ensure that a trial judge understands each party’s position. As well, based on the cross-examination of David Shiflett on February 23, 2015, it appears that the allegations against Mohammed Choksi are pure speculation.

[13] Over Z argues that the plaintiff already has a full documentary record in its possession, in that the documents have either previously been produced or were produced in the context of the plaintiff’s recent Mareva injunction motion, which was dismissed with costs. Over Z points out that the plaintiff was unable to convince the court that it had a strong prima facie case and accordingly their motion for an injunction failed. In the context of that motion, the plaintiff was required to put its best foot forward and, therefore, voluminous documentation has already been produced that goes to the merits of the case. Therefore the plaintiff’s motion is moot and unnecessary. Over Z submits that the plaintiffs have brought the motion in order to drive up costs and for an improper purpose.

[14] Over Z submits that the requests by the plaintiff relate to evidence which, as indicated above, has already been produced, is already in the record or was already answered by Mr. Choksi on his examination in February 2015.

[15] Counsel for Over Z makes specific reference to the statement of defence and counterclaim, particularly paragraph 104, which he uses as an example, pointing out that this paragraph references the circumstances of the representation that was made. As well, in paragraphs 106 and 107, by further example, specific representations are referenced as well as from whom and to whom they were made.

[16] Counsel for Over Z also refers to the affidavit of Thierry LeVasseur, sworn July 3, 2015, which Over Z says also provides significant information. Counsel submits that the affidavit discusses the misrepresentations in detail. Further, the affidavit of Mr. LeVasseur makes it clear that Mr. Choksi is exploiting his own non-disclosure.

The Law

[17] The test for providing particulars is well known and set out in a number of cases, including, Brigaitis v. IQT, Ltd.[^1],

Particulars for pleadings are normally ordered only if: (a) they are not within the knowledge of the party demanding them; and (b) they are necessary to enable the other party to plead his or her response.

[18] Pleadings must define the issues as precisely as possible for the benefit of the parties and the court. Specifically rule 25.06(1) of the Rules of Civil Procedure[^2], (the Rules) states that “every pleading shall contain a concise statement of the material facts on which the party relies for the claim or defence.” Further, rule 25.08(8) states, “where fraud, misrepresentation, breach of trust, malice or intent is alleged, the pleadings shall contain full particulars, but knowledge may be alleged as a fact without pleading the circumstances from which it is to be inferred.”

[19] In Ottawa (City) v. Cole and Associates Architects Inc.[^3]. Master McLeod set out as follows,

A request for particulars, quite simply, is a request for more detailed information. It is not necessary that there be anything fundamentally wrong with the pleading before ordering particulars. Quite the opposite. … As Master Sandler put it, particulars are “additional bits of information or data or detail that flesh out the material facts but they are not so detailed as to amount to evidence” I would only add that facts, particulars and evidence are not always watertight compartments.

Particulars however are not merely an innocent request for information. They are a deliberate attempt to pin down the other party. … Particulars may therefore refine or narrow the pleading.

[20] Moving from general principles, it is important that the defendant identify where particulars may be found in the evidence and not simply respond that such particulars are somewhere in the evidence. As per Radulescu v. Toronto District School Board[^4] it is clear that even if the information required is already in the pleadings, the responding party must pinpoint where the evidence is, so long as the request for particulars is proper.

[21] In Walsh v. Toronto (City)[^5], the court made it clear that simple reference to the information being within the plaintiff’s knowledge by referring the plaintiff to a cross-examination transcript is insufficient. More specificity was required with respect to the actual references within the transcript. Specifically with respect to an alleged breach of contract, particulars must be provided with respect to the facts on which the party relied to establish that,

…the persons or bodies who made the alleged promises, or representations, had capacity to bind the plaintiff contractually, or to fix it with vicarious liability. The date on which the plaintiff’s acceptance occurred—or the conduct from which acceptance is to be implied – must also be indicated.

[22] Regarding misrepresentation, particulars related to when, where, how, by whom and to whom the misrepresentation was made must be provided including particulars related to it’s falsity, the inducement, the intention that the plaintiff should rely on it, the alteration by the plaintiff of his or her position relying on the misrepresentation and the resulting loss or damage to the plaintiff. (See: Deep v. M.D. Management[^6])

[23] As the responding party points out, particulars will be refused if the demand is being used as a way to discover evidence before the examinations for discovery. Pleadings should not be confused with the discovery and a demand for particulars should not be used as “pre-pleading” discovery. The onus is on the party requesting particulars to satisfy the court that such particulars are necessary[^7].

Analysis and Ruling

[24] It is clear that it is the plaintiff’s onus in this case to show that particulars are required. There must be some significant gap in the statement of defence and counterclaim which requires that particulars are needed for the plaintiff to fairly respond to the pleading. Care must be taken to ensure that ordering particulars does not create the effect of the plaintiff having a form of discovery before discoveries have actually taken place.

[25] Further, this case is somewhat unusual in that there is a wealth of other material based on prior or other litigation that may assist the plaintiff with respect to responding to the defence and counterclaim. Notably, that includes the Mareva injunction motion, in the course of which both David Shiflett and Mr. Choksi swore affidavits, as well as a cross-examination of Mr. Choksi on February 20, 2015. Additionally, there is litigation in British Columbia involving the plaintiff and Mr. Thierry LeVasseur, in which Mr. LeVasseur’s allegations regarding the alleged misrepresentations and misconduct of Mr. Choksi and the plaintiff are outlined in detail. It should also be noted that the statement of defence and counterclaim of Over Z is some forty-five pages long and one-hundred and thirty paragraphs.

[26] Turning to the chart prepared by N-Krypt with respect to its particulars, these can be divided into certain sub-categories. A copy of the plaintiff’s chart of demanded particulars is included as Schedule “A” of this decision.

Alleged Breach of Agreements

[27] Demands 1 through 10 in Schedule “A” relate to alleged breaches of both the reseller agreement and the subscription agreement between the plaintiff and Over Z. While the demands speak for themselves, they relate generally to requests for particulars on how the subscription agreement was illegal or in violation of applicable statutory and regulatory requirements; how it contained inaccurate, untruthful, and misleading statements; how it contained material misrepresentations; and how it violated regulations of the Securities and Exchange Commission. In accordance with the provisions in Cerqueira v. Ontario[^8], all particulars in relation to demands numbered 1 through 10 must be provided.

Alleged Information Requests

[28] Demands 11 through 15 in Schedule “A” relate to requests for information with respect to the plaintiff’s alleged breach of its agreement with the defendant and its breach of applicable provisions of the Business Corporations Act.

[29] The allegations require more specificity in order for the plaintiff to be able to respond. As per the Ottawa (City) case, I do not find that there is anything fundamentally wrong with the pleading in paragraph 48. However, the defendant must provide particulars as to when and how such breaches occurred in the context of items 11 through 15 of Schedule “A”.

Particulars of Alleged Misconduct and Misrepresentation

[30] In Dugal v. Manulife Financial Corp.[^9], the court was clear that a pleading related to misrepresentation must be drafted with careful particularity. Further, if, as Over Z submits such information is already contained within affidavit material or transcripts they must provide a specific reference to such documents as per the Walsh case.

[31] As such, Over Z to provide particulars for items 16 to 32 of Schedule “A”.

Costs

[32] Counsel provided costs briefs on the day of the motion; however, given that there was insufficient time available on the day of the motion, and in the event the parties cannot agree on costs, I invite them to provide any further supplementary written submissions. I will receive those submissions on a seven day turnaround, commencing with the moving party, followed by responding submissions, then reply submissions, if any, commencing within fourteen days from the date of release of this endorsement. Cost submissions shall be no more than two pages in length, exclusive of any costs outline or offers to settle. All costs submissions shall be delivered via email through my assistant at jennifer.beattie@ontario.ca. If no submissions are received by within thirty-five days from above date, the issue of costs will be deemed to have been settled as between the parties.

Madam Justice C.A. Gilmore

Released: November 26, 2015

N-Krypt International Corp. v. Zillacomm Canada Inc., 2015 ONSC 7379

COURT FILE NO.: CV-13-115180-00

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

N-Krypt International Corp.
Plaintiff/Moving Party

– and –

Zillacomm Canada Inc., Zillacomm Inc., Over Z LLC, David W. Shiflett and Glenn R. Davis
Defendants/Respondents

– and –

Asif Choksi, Mohammed Qasim Choksi, N-Krypt International Corp., and N-Krypt Global Services Inc.
Defendants by Counterclaim

RULING ON MOTION

Madam Justice C.A. Gilmore

Released: November 26, 2015

[^1]: 2012 ONSC 6584 at paras. 37 to 39.
[^2]: R.R.O. 1990, Reg. 194.
[^3]: 2012 ONSC 3360 at paras. 23 and 29.
[^4]: 2004 52103 (ON SC), at para. 9.
[^5]: 2005 49973 (ON SC), at para. 36.
[^6]: 2006 CarswellOnt 270, at para. 4.
[^7]: Brigaitis, supra, at paras. 38 to 40.
[^8]: 2010 ONSC 3954.
[^9]: 2011 ONSC 387.