CITATION: 2212886 Ontario Inc. v. Obsidian Group Inc., 2016 ONSC 6836
COURT FILE NO.: 8866/12
DATE: 20161102
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: 2212886 Ontario Inc., William Porteous and Kirsten Porteous (Plaintiffs)
AND:
Obsidian Group Inc., Obsidian Inc. and Gus Karamountzos (Defendants)
BEFORE: Justice H. A. Rady
COUNSEL: Daniel J. MacKeigan, for the plaintiffs
John Polyzogopoulos, for the defendants
HEARD: October 26, 2016
ENDORSEMENT
Introduction
[1] This motion arises in the context of a special appointment, originally scheduled for October 19, 2016, but which was adjourned to early December to permit this motion to be heard and a decision made because its outcome had the potential to affect the scheduled December hearing.
[2] The December date is for the hearing of the plaintiffs’ motion for summary judgment, among other things, arising from a franchise agreement between the parties. The defendants now seek to introduce further evidence after cross-examinations of the plaintiffs have been concluded and for an order compelling the plaintiffs to produce certain additional material. They also wish to continue the cross-examination of a representative of the plaintiff. All of this, of course, has the potential to derail the December motion, which has been marked peremptory on the defendants. The plaintiffs resist the relief sought.
The Parties
[3] The plaintiff numbered company carried on business as a franchise operation – called Crabby Joe’s Tap and Grill – in Bradford, Ontario. Mr. and Mrs. Porteous are the principals of the numbered company.
[4] The defendant, Obsidian, is an affiliate of the franchisor and was sub-landlord to the plaintiff. It was a franchisor’s associate as the term is defined in the Arthur Wishart Act, 2000. Mr. Karamountzos was the sole director of the franchisor and Obsidian. He, too, was a franchisor’s associate as statutorily defined.
A Brief History
[5] The parties entered into a franchise agreement on June 16, 2010. The agreement was later cancelled and replaced for reasons not germane to the lawsuit.
[6] Prior to signing the agreement, the plaintiffs were provided certain disclosure documents that they say are so deficient that they amount to no disclosure at all. They started this action following their service of a notice of rescission of the franchise agreement. They seek damages and rescission.
[7] Both sides have been represented by counsel. In April of this year, the plaintiffs delivered their motion seeking summary judgment. A timetable order was signed on consent at the time, setting out the remaining steps to be taken to ready the motion for hearing in October, including the delivery of responding material. Mr. Porteous was cross-examined in August 2016. The defendants were not cross-examined. Undertakings have been largely answered.
[8] On August 31, 2016, the defendants served a notice of change of lawyers. In late September, the new solicitor – Mr. Polyzogopoulos – requested an adjournment of the motion to permit him to complete his review of the motion material.
[9] Mr. MacKeigan responded pointing out that London’s practice direction now limits adjournments of special appointments to rare or exceptional circumstances. The request was refused on this basis. There followed an exchange of correspondence. The defendants reiterated the adjournment request, said that they wished to continue the cross-examination of Mr. Porteous and further information was requested.
[10] The plaintiffs continued to resist any adjournment and denied that a further examination or materials was necessary. They delivered their factum on October 6, 2016. The defendants delivered the record for this motion three days later.
[11] At the centre of the dispute now before me is an earnings projection that the plaintiffs allege was shown to them by an agent of the defendants in May 2010 and which formed part of a business plan provided to the RBC in June 2010 in connection with a small business loan made by the RBC to the plaintiffs. The RBC sued the plaintiffs following their default on the loan. Judgment was granted in that action by Justice Murray on December 2, 2014 following a motion for summary judgment.
The Parties’ Positions
[12] The defendants submit that Mr. Porteous gave evidence at trial and at his cross-examination that is materially at odds about when he saw the earnings projection. They wish to file additional affidavit material and to continue their cross-examination. They want the plaintiffs to produce the evidence in the RBC action because they cannot retrieve it from the court in a timely way. They say the findings in the RBC decision are relevant to the motion for summary judgment and there is a risk of inconsistent findings if the order is not granted.
[13] The plaintiffs submit that the information sought is a red herring and in any event, the defendants’ motion is in response to the plaintiffs’ factum in which they seek an adverse inference for the defendants’ failure to adduce evidence bearing on the May earnings projections. They say that the defendants are now attempting to remedy their earlier failure to put their best foot forward.
The Law
[14] Rule 39.02 (2) provides as follows:
(2) A party who has cross-examined on an affidavit delivered by an adverse party shall not subsequently deliver an affidavit for use at the hearing or conduct an examination under rule 39.03 without leave or consent, and the court shall grant leave, on such terms as are just, where it is satisfied that the party ought to be permitted to respond to any matter raised on the cross-examination with evidence in the form of an affidavit or a transcript of an examination conducted under rule 39.03.
[15] The Divisional Court in First Capital Realty Inc. v. Centre Corp. Management Services Ltd., [2009] O.J. No. 4492 reiterated the four factors to consider when the court deals with a motion such as this:
is the evidence relevant?
does the evidence respond to a matter raised on the cross-examination, not necessarily raised for the first time?
would granting leave to file the evidence result in non-compensable prejudice that could not be addressed by imposing costs, terms or an adjournment?
did the moving party provide a reasonable or adequate explanation for why the evidence was not included at the outset?
[16] The court continued:
[14] A flexible, contextual approach is to be taken in assessing the criteria relevant to rule 39.02(2), having regard to the overriding principle outlined in Rule 1.04 of the Rules of Civil Procedure that the rules are to be interpreted liberally to ensure a just, timely resolution of the dispute. An overly rigid interpretation can lead to unfairness by punishing a litigant for an oversight of counsel…
[24] [It is an error to elevate] the reasonable explanation for the delay [in tendering the evidence] to a near-dispositive requirement. All four criteria established by the case law should be weighed evenly in determining in light of the facts of each case whether it is appropriate to grant leave under Rule 39.02(2)…
[27] The Rules of Civil Procedure are meant to promote both fairness and the search for truth. They are not meant to encourage the adversarial game of cat and mouse, with technical but impractical arguments.
[17] I was provided with several other authorities supporting the parties’ respective positions but ultimately, the First Capital case is of the most assistance. To my mind, distilled to its essence, the question to be answered is this: what does the justice of the case require?
[18] I have concluded that the defendants should be permitted to file the additional affidavit they wish for several reasons. First, it is significant that the outstanding motion is for summary judgment. If successful, the plaintiffs may obtain rescission and monetary relief and the proceedings would be at an end (subject to an appeal). Accordingly, the same safeguards that ensure trial fairness should be observed here. The responding party must lead trump and in my view, must be permitted an opportunity to do so, even at this stage, in order that the court is able to perform its truth seeking function.
[19] Second, there has been a change of counsel. It is fair to say that he has likely brought a new or different perspective to the claim. Something has obviously struck him as important that previous counsel did not consider to be so. The time to evaluate that evidence is on the motion, with the benefit of a full evidentiary record, rather than in the context of this motion.
[20] I acknowledge that the plaintiffs say the earnings projection is not relevant given the other evidence available. However, I am most reluctant to make that determination in a vacuum. At the risk of repetition, the summary judgment motion judge, with the benefit of a more complete record, might well agree. It bears saying that some pieces of evidence at first considered irrelevant take on a different complexion at trial (or on summary judgment).
[21] Finally, the rule is mandatory. Leave shall be granted and terms may be imposed to attenuate any concerns about prejudice. I see no non-compensable prejudice to the plaintiffs. The motion is now scheduled for December and is marked peremptory on the defendants. And for the reasons that follow, I am not prepared to make the kind of all-encompassing order that the defendants seek which could jeopardize the date.
[22] The defendants are at liberty to file additional material in the form of an affidavit from Mr. Grammenopoulos, who will be made available for cross-examination before the December date. Any cost associated with expediting a transcript is to be borne by the defendants.
[23] I am not prepared to order a continued cross-examination of Mr. Porteous. He has given his evidence on cross-examination and in the RBC action. The defendants may well rely on the alleged inconsistencies in support of their argument that a genuine issue exists requiring a trial. If such an issue does exist, the motions judge may consider the exercise of the court’s expanded powers under Rule 20.
[24] I see no reason why the plaintiffs should be required to produce the evidence in the RBC action. The reasons for judgment speak for themselves. It occurs to me (although I need not determine the issue) that the implied undertaking rule may also apply.
[25] Finally, on the issue of the solicitor’s franchise file, Mr. MacKeigan has satisfied the undertaking. He says the only arguably relevant document has been produced. In the absence of some evidence that further information is likely to be found, the request is an impermissible fishing expedition.
[26] I will receive brief costs submissions from both sides by November 30, 2016.
“Justice H. A. Rady”
Justice H. A. Rady
Date: November 2, 2016