Court File and Parties

COURT FILE NO.: CV-14-231-00 DATE: 2017 01 09

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

TRACEY BROWN, SHAKEEM BROWN, AKAYLA QUEELEY-BROWN, ANIYAH QUEELY-BROWN and AVA QUEELEY-BROWN, BY THEIR LITIGATION GUARDIAN, TRACEY BROWN

Plaintiffs

Counsel for the Plaintiffs: R. Levin

- and -

KMI BROKERS INC, BEATA KRATIUK and SANJAY MAKKAR

Defendants

Counsel for the Defendants: D. Resiler

HEARD: December 20th, 2016

REASONS FOR JUDGMENT

LEMAY J

[1] This is a motion brought by the Plaintiffs to have the Defendants’ Statement of Defence struck out for failing to comply with Court Orders and failing to deliver an Affidavit of Documents.

[2] For the reasons that follow, the motion is denied, but I am imposing strict terms on the KMI Defendants. This is a very complex case that has been proceeding through the Court system for a very long period of time. As a result, I will set out the background history in more detail, as well as providing my reasons and the basis for my recommendation that a case management judge be appointed in this matter.

Background Facts

a) The Parties to the Action

[3] The principal Plaintiff in this action is Tracey Brown, who is an insurance broker, and was registered as such with the Registered Insurance Brokers of Ontario. The remainder of the Plaintiffs are Ms. Brown’s children, and are advancing a Family Law Act claim.

[4] The Corporate Defendant, KMI Brokers Inc. was Ms. Brown’s employer until April 23rd, 2013, when Ms. Brown was dismissed from her employment. Ms. Brown commenced this action (Court File No. CV-14-231-00) in January of 2014, and claimed wrongful dismissal on the part of all of the Defendants. I will refer to this action as the “wrongful dismissal action”. The individual Defendants all appear to be part-owners of the Corporate Defendant.

[5] The Defendants in this action all claimed that Ms. Brown engaged in, inter alia, fraudulent conduct by issuing insurance policies to parties using false information. As a result, they state that they had cause to terminate her employment.

[6] There is a companion action, originally started in Toronto by Aviva, which is an Insurance Company. Aviva sued Ms. Brown in the fall of 2013, and alleged that Ms. Brown had engaged in fraudulent conduct against Aviva by providing false information about customers that reduced their insurance premiums while she was an employee of KMI.

[7] Aviva originally brought their action in Toronto. It was transferred to Brampton by Order of McMahon J. in September of 2014, and assigned Court File No. CV-15-2893. I will refer to this action as the “fraud action”. McMahon J. Ordered that the two actions be tried together or one after the other, subject to the discretion of the trial judge.

b) The Progress of the Litigation

[8] The parties in the wrongful dismissal action agreed to a discovery plan in late January of 2015. Under this discovery plan, sworn Affidavits of Documents were to be exchanged by March 30th, 2015. Discoveries were to take place at the end of April, 2015.

[9] On April 8th, 2015, Aviva advised the parties in the wrongful dismissal action that it was seeking a sealing order on all documents that it was producing in the fraud action. Ms. Brown was not prepared to consent to this motion. As a result, it had to be argued, and the discoveries set for the end of April 2015 were adjourned. The Plaintiff produced her sworn Affidavit of Documents as well as the productions listed therein to the KMI parties by early April of 2015.

[10] The KMI Defendants did not produce any Affidavit of Documents at this stage, although they had been requested to do so by Ms. Brown’s counsel on both April 1st, 2015 and May 22nd, 2015.

[11] Aviva’s motion for a sealing Order was originally scheduled for May 28th, 2015. It was adjourned on consent to August 15th, 2015 and then again until April 27th, 2016. The adjournment between August of 2015 and April of 2016 was necessary because Mr. Levin, counsel for Ms. Brown, was off on medical leave. Costs from the August, 2015 appearance were ordered to be paid to the KMI parties by Van Melle J.

[12] Aviva’s motion was ultimately heard and granted in April of 2016, and Ms. Brown sought leave to appeal this decision, which was denied. As a result, the scheduled discoveries had to be postponed until November of 2016.

[13] On September 14th, 2016, Ms. Brown’s counsel once again wrote to the KMI parties seeking their Affidavits of Documents, and advising that a motion would be brought within twenty (20) days if the Affidavits were not produced. A partial Affidavit was produced on October 5th, 2016, which was 21 days after it was requested.

[14] As a result, Ms. Brown’s counsel proceeded with a motion against the KMI parties seeking the striking out of the KMI Defendants’ Statement of Defence, and in the alternative, seeking the delivery of sworn Affidavits of Documents. This motion was heard by Andre J. on October 21st, 2016.

c) The Motion Before Andre J. and Subsequent Events

[15] After the hearing of the motion on October 21st, 2016, Andre J. ordered that the Defendants were to produce a sworn Affidavit of Documents within ten (10) days of October 21st, 2016, failing which the Plaintiffs were at liberty to move, without notice, for a dismissal of the Statement of Defence. I note that this motion was brought on notice.

[16] In granting the Plaintiffs’ motion, Andre J. noted that the motion before him was necessitated by the tardiness of the KMI parties in providing their Affidavit of Documents. He also rejected the KMI parties explanation that the delay in providing their Affidavit of Documents resulted from Aviva’s motion for a sealing Order, in large part because the KMI parties’ counsel did not reply to the various requests for Affidavits of Documents from the Plaintiff’s counsel.

[17] After the motion was heard before Andre J., the KMI parties served a sworn Affidavit of Documents on October 28th, 2016. On reviewing that Affidavit of Documents, it is clear that it is not in the proper form in that the Affidavit is partly the form used by individuals and partly the form that corporations usually use.

[18] Then, very late on November 17th, 2016, one business day prior to the scheduled date for the discoveries, counsel for the KMI parties advised both counsel for Aviva and counsel for Ms. Brown that they had discovered that there were additional documents that needed to be produced.

[19] Counsel for the KMI parties then advised that he would be in a position to provide the updated Affidavit of Documents by Monday, November 21st, 2016. This deadline was not met. Ultimately, counsel provided the KMI Parties Affidavits of Documents in draft form on November 30th, 2016. A comparison of the two Affidavits of Documents shows that the second one contains at least 100 additional items, and Ms. Brown’s counsel confirms that these additional items amount to hundreds of pages of documents.

[20] In the materials filed on this motion, the KMI parties state that the reason that they found additional documentation at the last minute was because it had been located in the office of an employee who was on maternity leave. This information is provided in an affidavit sworn by their counsel, Chester Wydrzynski. No Affidavits from any of the KMI parties were provided to explain the delay in filing their materials, and no other explanation for the significant omissions is provided.

[21] Ms. Brown also raised issues about the failure of KMI to return her personal property, and its failure to produce its insurance policy. On the evidence I have before me, it is clear that the KMI parties have had difficulties in addressing these issues.

[22] In terms of the personal property, after this motion was filed, the KMI parties found additional notebooks that arguably belonged to the Plaintiff. Those notebooks were returned to the Plaintiff, although the Defendants dispute that they are “personal property”.

[23] The insurance policy was provided on November 30th, 2016. It was requested by Ms. Brown’s counsel on August 19th, 2016, and Mr. Wydrzynski stated on August 22nd, 2016 that he was not prepared to agree to any further delays while coverage was investigated because this “just feels like another endless one [sic] of the delay tactics from your office.” Had Mr. Wydrzynski been concerned about the delays in this case, he could have simply produced the policy in August of 2016, rather than waiting until this motion was brought to produce the policy. I will return to that issue below.

The Law

[24] Rule 30.03 of the Rules of Civil Procedure states:

30.03 (1) A party to an action shall serve on every other party an affidavit of documents (Form 30A or 30B) disclosing to the full extent of the party’s knowledge, information and belief all documents relevant to any matter in issue in the action that are or have been in the party’s possession, control or power. O. Reg. 438/08, s. 27 (1).

Contents

(2) The affidavit shall list and describe, in separate schedules, all documents relevant to any matter in issue in the action,

(a) that are in the party’s possession, control or power and that the party does not object to producing;

(b) that are or were in the party’s possession, control or power and for which the party claims privilege, and the grounds for the claim; and

(c) that were formerly in the party’s possession, control or power, but are no longer in the party’s possession, control or power, whether or not privilege is claimed for them, together with a statement of when and how the party lost possession or control of or power over them and their present location. R.R.O. 1990, Reg. 194, r. 30.03 (2); O. Reg. 438/08, s. 27 (2).

(3) The affidavit shall also contain a statement that the party has never had in the party’s possession, control or power any document relevant to any matter in issue in the action other than those listed in the affidavit. R.R.O. 1990, Reg. 194, r. 30.03 (3); O. Reg. 438/08, s. 27 (3).

Lawyer's Certificate

(4) Where the party is represented by a lawyer, the lawyer shall certify on the affidavit that he or she has explained to the deponent,

(a) the necessity of making full disclosure of all documents relevant to any matter in issue in the action; and

(b) what kinds of documents are likely to be relevant to the allegations made in the pleadings. O. Reg. 653/00, s. 3; O. Reg. 438/08, s. 27 (4).

Affidavit not to be Filed

(5) An affidavit of documents shall not be filed unless it is relevant to an issue on a pending motion or at trial. R.R.O. 1990, Reg. 194, r. 30.03 (5).

[25] In addition, on the argument of this motion, I was provided with a number of cases by both Ms. Brown’s counsel and by counsel for the KMI parties. In terms of the importance of Affidavits of Documents, in Cromb et al. v. Bouwmeester et al. (2014 ONSC 5318) Chappel J. stated (at paragraph 23):

One of the major purposes of the amendments to the Rules since 1984 has been to ensure a full exchange of relevant information between parties in a timely and efficient manner. (Ceci (Litigation Guardian) v. Bonk (1992), 89 D.L.R. (4th) 444 (Ont. C.A)). The service of a full and complete, sworn Affidavit of Documents is the fundamental starting point for the implementation of this objective in civil proceedings. Rule 30.03(1) requires every party to an action to serve on every other party an Affidavit of Documents disclosing to the full extent of the party’s knowledge, information and belief all documents relevant to any matter in issue in the action that are or have been in the party’s possession, control or power. Given the critical importance of documentary disclosure to the effective and efficient advancement of court proceedings, parties must comply with Rule 30.03(1) in a reasonably timely manner. Observance of this rule is not a matter of discretion; it is a basic precondition to a party’s ongoing participation in the litigation. This point is reflected in Rule 30.08(2), which provides that failure to serve a sworn Affidavit of Documents may result in very serious consequences, including a party’s claim being completely dismissed in the case of a Plaintiff, or a Defendant’s defence being struck.

[26] However, the Courts have also observed that striking out a Statement of Defence is a draconian remedy. As Master Dash stated in Eloro Resources Inc. v. Sovereign Capital Group (Ont.) Ltd. (at paragraph 6):

The court clearly has a direction to strike a defence in appropriate cases for repeated procedural breaches, particularly when the breaches are in violation of court orders, since the rules otherwise become meaningless and the court becomes but a paper tiger. However, striking a defence is an extreme remedy and a last resort. It should only be ordered when the defence of the action is no longer viable and appropriate because the defendant has by its failure or refusal to be bound by the rules and orders of the court effectively abandoned its right to participate in the court process or when the breaches have become contumelious such as to demonstrate an utter disregard by the defaulting party for the court’s orders or when the moving party can demonstrate prejudice. In this case the breaches prior to the former solicitors being removed from the record were trivial.

[27] With these competing principles in mind, I will now analyze the relevant facts in this case.

Analysis

[28] In considering this motion, I start by noting that a sworn Affidavit of Documents was provided by the Defendants within the time limitations set out in the Order of Andre J. However, I also note that this Affidavit of Documents did not follow the proper form as set out in the Rules. In my view, therefore, the KMI parties did not comply with the direction of Andre J. at least with respect to the form of the Affidavits that they provided. In light of the very significant delays on the part of the KMI parties in providing these Affidavits, their failure to promptly and completely comply with the Order of Andre J. is a significant issue.

[29] This brings me to the question of the additional documents that the Defendants found in mid-November. The KMI Defendants claimed that they only found these documents at the last minute because they were in the office of an employee who had been on maternity leave.

[30] I unreservedly reject this explanation for the following reasons:

a) Under the discovery plan that the KMI Defendants agreed to, the Affidavit of Documents from the KMI Defendants was originally due in April of 2015, some eighteen months before the hearing of this motion. The employee who is currently on maternity leave would not have been on maternity leave at the time that the Affidavit of Documents of the KMI parties was supposed to be delivered. That employee should have provided her documents to the Corporation’s counsel back in April of 2015.

b) The gaps in the Affidavits delivered by the KMI parties are very significant. Based on the differences between the Affidavit delivered at the beginning of November and the Affidavit delivered at the end of November, there would have to have been a significant quantity of documents relating to a number of different files in the absent employee’s office. In light of that observation, the explanation tendered by counsel for the KMI parties is not an explanation that I am prepared to accept.

c) In addition, the fact that this explanation comes from counsel for the KMI parties rather than from any of the parties themselves is of concern to the Court. A party that has failed to comply with an Order of the Court should be prepared to explain that failure themselves, rather than having their lawyer do so. In my view, the fact that this explanation comes from Mr. Wydrzynski rather than his clients makes it a far less forceful explanation.

d) In making an Affidavit of Documents, a party must attest that they have done a diligent search of the Corporate Records. In my view, diligence requires a search through paper records in the office of an employee who is away on leave.

[31] This brings me to the KMI Defendants’ explanation that they could not disclose their Affidavit of Documents until Aviva’s sealing motion was dealt with by the Court. This explanation suffers from three fatal flaws. First, the Affidavits of the KMI parties were due before Aviva indicated it was bringing its’ motion. The documents should have all been gathered together in March of 2015. Second, and most importantly, this issue was never communicated to Mr. Levin, and I heard no explanation whatsoever for this failure. If a party is going to rely on an issue for not producing documents, they should clearly articulate this fact to the other side. Finally, even if this was the KMI Defendants’ concern, their Affidavit should have been prepared promptly after Aviva’s motion was addressed in the spring of 2016.

[32] In short, the Defendants have no reasonable explanation for their failure to provide a proper Affidavit of Documents in accordance with the Order of Andre J. On a technical reading of Andre J.’s Order, the Statement of Defence could easily be struck out.

[33] In addition, I am of the view that there are reasonable grounds for striking out the Statement of Defence. On this point, I note the issues with the failure of the KMI parties to provide the insurance policy. When asked for this policy, Mr. Wydrzynski’s accusations of delay on the part of the Plaintiff are of significant concern to the Court. Specifically, I note that, in responding to Ms. Brown’s request for a copy of the insurance policy in August of 2016, Mr. Wydrzynski stated “after two years of delays, your sudden concern for prompt delivery of documents is a welcome change. Might I get an affidavit of documents from your client at some point?”

[34] The problem with this statement is that Ms. Brown had delivered her Affidavit of Documents some sixteen months before Mr. Wydrzynski asked for it in this e-mail. It is clear to me that, rather than deal with the documentary disclosure issues directly, Mr. Wydrzynski was seeking to blame Ms. Brown and her counsel for the delays. The KMI parties and their counsel are not addressing documentary disclosure in an appropriate way.

[35] However, the striking out of a Statement of Defence is a draconian remedy that grants judgment to one party on a procedural, rather than a substantive, basis. In this case, I am reluctantly persuaded that I should not strike out the Statement of Defence in this case as long as the KMI parties adhere strictly to the terms I have set out below.

[36] I should note for the parties that my exercise of discretion in this case is a close call. This brings me to the question of the costs thrown away on discovery.

[37] In assessing these costs, I note that Ms. Brown is seeking $15,780.45 inclusive of HST and disbursements on a partial indemnity basis, and $22,543.50 inclusive of HST and disbursements on a substantial indemnity basis.

[38] I am mindful that, in a separate consent Order I signed the same day I heard this motion, Aviva and the KMI parties agreed to $4,000.00 as the costs thrown away as a result of the abandoned discovery.

[39] However, I am of the view that this is not a sufficient amount for Ms. Brown’s costs for the following reasons:

a) Aviva’s counsel is likely to be more familiar with the issues on this case, and is likely to need less time to review the materials than Mr. Levin will require.

b) The agreement between Aviva and the KMI parties is precisely that- an agreement. It is a compromise of the parties’ positions to avoid litigation. As a result, it will not completely reflect the costs that Aviva’s counsel incurred in preparing for the discoveries.

[40] In addition, given my conclusions on the motion, this is an appropriate case for substantial indemnity costs to be awarded against the KMI parties. The costs of the discovery thrown away are entirely the responsibility of KMI and its counsel. Had they prepared their Affidavits of Documents in accordance with the Rules of Civil Procedure, the adjournment of the discoveries would not have been necessary. No cogent reason has been advanced for this failure.

[41] However, I must balance these concerns against the fact that Mr. Levin’s Bill of Costs reflects the entire time that he spent preparing for discoveries. While I acknowledge that the productions for KMI may very well change the way that Mr. Levin approaches discovery, the fact remains that the detailed review of the documents that he conducted is useful preparation for the next discovery. As a result, not all of the costs incurred are ‘costs thrown away’.

[42] In my view, a reasonable amount of costs thrown away in this case is $12,500.00 inclusive of HST and disbursements, and the KMI parties are to pay those costs to Ms. Brown within seven (7) calendar days of the release of these reasons as one of the conditions that their Statement of Defence is not struck out.

Conclusions

[43] As I have set out above, the motion is dismissed, but on terms. Those terms are as follows:

a) The KMI Defendants will pay the costs thrown away by Ms. Brown in the sum of $12,500.00, inclusive of HST and disbursements within seven (7) calendar days of the release of these reasons.

b) The KMI Defendants are to confirm with the Court within seven (7) calendar days of the release of these reasons that they have served a properly sworn and complete Affidavit of Documents on the Plaintiff, and are to file all of these Affidavits with the Court. There should be four- one for each of the individual KMI Defendants and one for KMI as a Corporation.

c) In the event that significant additional documents are discovered to be missing from the KMI parties Affidavit of Documents and are not disclosed within seven (7) days of the release of these reasons, the motion to strike out the Defence of the KMI parties may be renewed on notice.

d) KMI must consent to case management if ordered by RSJ Daley.

[44] This brings me to my directions on case management. I do not have the authority to appoint a case management judge in this matter. However, I can recommend case management and, by copy of this endorsement to Daley RSJ, I am doing so.

[45] My reasons for recommending case management are as follows:

a) This is a complicated case with a number of parties and some significant allegations, including allegations of fraud.

b) The events relating to this case took place four years ago, and the actions were all commenced three years ago. In spite of that fact, the action has not yet advanced to the discovery stage.

c) There have been a number of motions in relation to documentary discovery, which suggests that there are likely to be more motions between the parties.

d) The parties appear to be having communications problems. I note as an example that counsel for the KMI parties did not communicate any concerns about providing an Affidavit of Documents while Aviva’s sealing motion was outstanding until November of 2016, long after the motion was brought and disposed of.

[46] I anticipate that the parties will hear from Daley RSJ shortly about whether he is prepared to appoint a case management judge in this matter. I note that I raised this issue with the parties during the hearing of this motion and did not hear any strong objections to case management for this action.

[47] This brings me to the question of costs of this motion, which are separate from, and additional to, the costs thrown away on discoveries. Ms. Brown is to provide her costs submissions for the costs of the motion within seven (7) days of the release of these reasons. Those costs submissions are not to exceed two (2) double-spaced pages, exclusive of offers to settle, case-law and bills of costs.

[48] The KMI Defendants are to provide their reply costs submissions within seven (7) days of receiving Ms. Brown’s submissions. Again, those costs submissions are not to exceed two (2) double-spaced pages, exclusive of offers to settle, case-law and bills of costs.

[49] There shall be no reply submissions on costs without my leave.

LEMAY J

Released: January 9, 2017