Court File and Parties
Ottawa Court File Nos.: 12-56265 and 11-50312 Date: 2016/10/12 Superior Court of Justice - Ontario
Between: Mildred McMurtry, Plaintiff (Court file no. 12-56265) And: John McMurtry and Mic Mac Realty (Ottawa) Ltd., Defendants
And Between: John McMurtry, Plaintiff (Court file no. 11-50312) And: Jim McMurtry, Defendant
And Between: Jim McMurtry, Plaintiff by Counterclaim (Court file no. 11-50312) And: John McMurtry, Brenda McMurtry, Barry Coons, Bouris Wilson LLP and Mic Mac Realty (Ottawa) Ltd., Defendants by Counterclaim
Before: Madam Justice Sylvia Corthorn
Counsel: Mark W. Smith for Mildred McMurtry (12-56265) Jeff Saikaley for John McMurtry (Both actions) and for Brenda McMurtry (11-50312) Daniel Mayo for Jim McMurtry (11-50312)
Heard: September 30, 2016
Ruling on Motion at Trial
[1] Following the completion of the first part of the trial of the above-noted actions, and in accordance with trial management conference endorsements released thereafter in this matter, Jim McMurtry (“Jim”), the defendant/plaintiff by counterclaim in Court File No. 11-50312, brings this motion for an order addressing the additional review of the finances of Mic Mac Realty (Ottawa) Ltd. (“Mic Mac”). The parties to both actions (“the Parties”) are in agreement as to the general nature of the financial review to be carried out and by whom the review is to be done. The Parties disagree as to the time period to be covered by the review.
[2] The Parties are also in agreement that for the purpose of the continuation of the trial of the actions a valuation of the shares in Mic Mac is required.
[3] It is anticipated that the second part of the trial will proceed in 2017. A date for the continuation of the trial has yet to be set as of the date of this Ruling.
Financial Review
a) Historical Review (2007 to 2011)
[4] Partial minutes of settlement were executed in 2011 by the parties to the action in which John McMurtry (“John”) is a plaintiff/defendant by counterclaim. The terms of the minutes of settlement addressed the finances and assets of Mic Mac and provided as follows:
- The 2011 action and counterclaim were stayed pending the completion of an audit of the books of Mic Mac;
- The parties to the 2011 action and counterclaim, other than Bouris Wilson and Barry Coons, were to retain Welch & Co. to audit Mic Mac’s books for the years 2007 to 2011;
- The parties to the 2011 action and counterclaim, other than Bouris Wilson and Barry Coons, were to retain the services of Juteau & Co. to appraise the real estate assets of Mic Mac both as to market value and as to highest and best use;
- The records needed for the audits were to be produced by John McMurtry and Brenda McMurtry within a stated time period;
- The parties to the 2011 action and counterclaim, other than Bouris Wilson and Barry Coons, were jointly and severally responsible for the expenses associated with the audit and the appraisal referred to above; and
- The costs of the audit and appraisal were to be paid out of monies held in trust by Mann & Partners.
[5] Welch & Co., now Welch LLP (“Welch”), carried out the audit and prepared a report dated April 2012.
b) Additional Review
[6] The Parties agree that Welch is to carry out a further review of the finances of Mic Mac. The Parties also agree that the review is to encompass the years 2012 forward.
[7] It is Jim’s position that in addition to bringing their work up-to-date from 2012, Welch is to carry out a review of Mic Mac’s finances for the years 1999 through 2006. Jim identifies 1999 as the starting point because of my finding that 1999 is the year in which Mildred McMurtry (“Mrs. McMurtry”) began to hold the shares in Mic Mac, which are the subject of her action (“the Shares”), in a constructive trust in favour of John. [1]
[8] John’s position is that the additional work to be done by Welch should not, without further order of the court at a later date, include a detailed review of the years preceding 2007. John relies on the following factors:
- As the benefactor of the constructive trust, the onus is on John to put forward evidence as to the loans he advanced and/or the debts he incurred with respect to the operation of Mic Mac from 1999 forward.
- The financial statements for Mic Mac for the years 1999 to 2006 can be made available to Welch.
- The detailed review of the years 1999 to 2006 requested by Jim needs to be considered in the context of a cost-benefit analysis including:
- The work required to locate and produce the relevant documents;
- The likelihood that some, if not many, of the supporting documents are no longer available; and
- The expense associated with the work required on the part of Welch to include those years in their review.
[9] With respect to the expense, it is Brenda McMurtry’s evidence that the cost-estimate provided by Welch for their work addressing the years 2012 forward is in the range of $15,000 to $18,000. That work includes forensic accounting and the special procedures previously undertaken. There is no evidence as to the additional cost of the work if Welch is required to consider the years 1999 to 2006 in the same manner in which they have addressed the years 2007 to 2011 and are to address the period from 2012 forward.
[10] Although there is approximately $420,000 held in trust with Mann & Partners pending the outcome of these actions, Mic Mac has limited cash flow and significant outstanding liabilities. As a result, it is John’s and Brenda’s position that from a cost-benefit perspective it is appropriate to limit the additional work by Welch to the years 2012 forward.
[11] An exhibit to Jim’s affidavit filed in support of this motion is a copy of the April 2012 report of Welch. The author of the report lists, at page one of the report, documents reviewed:
- Unaudited financial statements compiled on a Notice to Reader basis for Mic Mac for the 2007 to 2011 fiscal years;
- General Ledgers of the company for the 2007 to 2011 fiscal years;
- Invoices provided by John McMurtry and Brenda McMurtry; and
- Bank statements and deposit books provided by John McMurtry and Brenda McMurtry.
[12] It is Brenda’s evidence that she and John have always complied and co-operated with Welch with respect to requests for documents and they will continue to do so.
[13] The sole issue to be determined is whether the additional forensic accounting and special procedures to be carried out by Welch is to include the 1999 through 2006 fiscal years. In determining that issue I have considered the nature of the claims being made, the findings made to date, and the remedies being sought by the Parties. The evidence with respect to the finances and operation of Mic Mac is relevant to: (a) the constructive trust found in favour of John; and (b) the oppression remedy claims advanced in the actions.
[14] I have also considered the general principles and proportionality principle set out in rule 1.04 of the Rules of Civil Procedure:
General Principle
(1) These rules shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits.
Proportionality
(1.1) In applying these rules, the court shall make orders and give directions that are proportionate to the importance and complexity of the issues, and to the amount involved, in the proceeding. [2]
[15] It has been 17 years since the events giving rise to the constructive trust imposed with respect to the Shares that are the subject of the 2012 action. To expect that detailed financial records are still available for the period 1999 to 2006 (10 to 17 years ago) and that John and/or Brenda have easy access to those records is not reasonable.
[16] The evidence before me is that the financial statements for the 1999 to 2006 fiscal years can be made available to Welch. There is no evidence before me as to whether General Ledgers for the years 1999 to 2006 are available.
[17] I am of the view that Welch is to be given the opportunity to carry out its work on the basis of limited documentation with respect to the years 1999 through 2006, before a determination is made as to whether additional documents, such as invoices, bank statements, and deposit books, are reasonably required. By “limited documentation” I mean the financial statements and General Ledgers for the years 1999 to 2006.
[18] It is incumbent on the Parties to instruct Welch to identify additional documents it requires. To the extent that the additional documents are within the possession, power, or control of one or more of the Parties and can be easily obtained, the Parties are to co-operate in producing the documents.
[19] Welch may make a request for additional documents that are no longer in the possession of the parties but may be available from non-parties. In the event the Parties are unable to reach an agreement as to a response a request for documents which fall into that category, it remains open to any one of the Parties to bring a motion for an order requiring the production of documents from non-parties. I anticipate that such a motion would be necessary only if one or more of the Parties refuses to co-operate in obtaining copies of documents from non-parties or if the Parties are unable to reach an agreement as to the significance of the documents to the work being carried out by Welch.
[20] I am not prepared to order, as requested by Jim, that Welch be given the authority to obtain directly from non-parties any documents Welch requires to complete its work with respect to either 1999 to 2006 or 2012 forward. Such an order would result in the Parties losing control over the cost of the financial review to be carried out.
Disposition
[21] In summary, I order as follows:
On the consent of the Parties: a) The Parties shall jointly retain and instruct Welch LLP to carry out a review of the finances and operations of Mic Mac, so as to bring up to date the April 2012 Welch LLP report - specifically for the period from January 1, 2012 to an end-date as close as practicably possible to the date of continuation of the trial of the actions; b) The Parties shall co-operate so as to provide Welch LLP with: i) The financial statements compiled for Mic Mac for the 2012 to 2016 fiscal years; ii) The General Ledgers of the company for the 2012 to 2016 fiscal years; and iii) Supporting documents as may be requested by Welch LLP, including but not limited to invoices, bank statements, and deposit books. c) The Parties shall jointly retain and instruct an expert to carry out a valuation of the shares of Mic Mac.
The Parties shall: a) Jointly retain and instruct Welch LLP to carry out a review of the finances and operations of Mic Mac for the 1999 through 2006 fiscal years; b) Co-operate so as to provide Welch LLP with: i) The financial statements compiled for Mic Mac for the 1999 to 2006 fiscal years; and ii) The General Ledgers of the company for the 1999 to 2006 fiscal years.
The costs of the services of Welch LLP and the entity retained to carry out a valuation of the shares of Mic Mac shall be paid from the monies held in trust by Mann & Partners.
Date: October 12, 2016 Madam Justice S. Corthorn
Ottawa Court File Nos.: 12-56265 and 11-50312 Date: 2016/10/12 Superior Court of Justice – Ontario
Court File No. 12-56265 Between: Mildred McMurtry, Plaintiff And: John McMurtry and Mic Mac Realty (Ottawa) Ltd., Defendants
Court File No. 11-50312 And Between: John McMurtry, Plaintiff And: Jim McMurtry, Defendant
And Between: Jim McMurtry, Plaintiff by Counterclaim And: John McMurtry, Brenda McMurtry, Barry Coons, Bouris Wilson LLP and Mic Mac Realty (Ottawa) Ltd., Defendants by Counterclaim
Before: Madam Justice Sylvia Corthorn
Counsel: Mark W. Smith for Mildred McMurtry Jeff Saikaley for John McMurtry and Brenda McMurtry Daniel Mayo for Jim McMurtry
Ruling on Motion at Trial Madam Justice S. Corthorn
Released: October 12, 2016
[1] See the trial decision at McMurtry v. McMurtry, 2016 ONSC 2853.