Court File and Parties

Court File No.: CV-13-493425 Motion Heard: 2017-04-26 Superior Court of Justice - Ontario

Re: AE Hospitality Ltd. et al, Plaintiffs, Responding Parties And: Irene George et al, Defendants, Moving Parties

Before: Master Jolley

Counsel: L. DiGenova, Counsel for the Moving Party Defendants S. Tock, Counsel for the Responding Party Plaintiffs

Heard: 26 April 2017

Reasons for Decision

Overview

[1] The defendants Irene George (“Irene”) and her daughter Anne Bolotin (“Anne”) are former employees of the plaintiff AE Hospitality Ltd. (“AE”). The other individual defendant is Irene’s husband and Anne’s father, Eugene George (“Gene”). This litigation started with a wrongful dismissal claim by Irene and Anne against AE. AE then commenced this action alleging that Irene, Anne and Gene (the “defendants”) misappropriated funds from AE and the other plaintiffs.

[2] In the context of this action the plaintiffs have sought and obtained both an ex parte Norwich Pharmacal order in November 2013 (the “Norwich order”) and an ex parte Mareva order (“the “Mareva order”) in January 2014.

[3] Before the court on the motion to obtain the Norwich order was the following material:

(a) a forensic accounting report of the plaintiffs’ books and records prepared by Crowe Soberman (the “Crowe Soberman Report”), at the request of the plaintiffs “to determine the extent of Irene’s fraudulent activities” appended as an exhibit to an affidavit of the plaintiffs’ representative Cary Silber (“Silber”);

(b) a report from a law firm in Greece that specializes in tracing and locating misappropriated assets which was retained by the plaintiffs to investigate Irene’s conduct and provide a report (the “Tartis Report”), also appended as an exhibit to the Silber affidavit; and

(c) the affidavit of Silber in which he deposed that, based on his review of the Tartis Report, he understood that Irene had set up a fraudulent scheme to defraud the plaintiffs.

[4] Before the court on the motion to obtain the Mareva order was the following material:

(a) an affidavit of Silber stating that (a) the information from the Tartis Report revealed a fraudulent scheme involving Irene; and (b) the banking documents delivered pursuant to the Norwich order confirmed information in the Tartis Report;

(b) another copy of the Tartis Report; and

(c) another copy of the Crowe Soberman Report.

[5] Silber was cross-examined on his affidavits and asked questions relating to the Tartis Report and the Crowe Soberman Report. Answers have been refused on the basis of litigation privilege.

[6] Those refusals give rise to this motion by the defendants. The defendants seek an order that Silber answer the questions refused and an order that the plaintiffs produce Tartis for cross examination with respect to the Tartis report and findings which form the basis of the plaintiffs’ claims and, alternatively, for leave to grant a commission and letter of request. At the outset I must note that the defendants did not argue for or provide case law in support of the request for an order compelling the plaintiffs to produce Tartis or for a commission and letter of request order. I also note that Tartis was not served with these motion materials. The defendants have restricted their argument to the refusals and I have done likewise.

[7] On a further motion, Silber relied on a report prepared by Eugene Filipowicz (“Filipowicz”), a digital forensic investigator at Duff and Phelps (the “Duff Report”) concerning the state of emails on the plaintiffs’ computer.

[8] The defendants examined Filipowicz pursuant to a summons to witness under Rule 39.03 of the Rules of Civil Procedure. He undertook to answer a number of questions and provide documentation. Since his examination he or, rather, the plaintiffs, have now taken the position that the information he undertook to provide is privileged. Further, Filipowicz now argues that there is likely a cost associated with answering those undertakings that neither he nor the plaintiffs is prepared to incur. This forms the second portion of the defendants’ motion.

[9] The last portion of the motion deals with miscellaneous refusals by the plaintiffs to produce accounting and financial records.

Tartis Refusal (Question 564)

[10] The defendants seek an order compelling Tartis to produce all correspondence and documents exchanged between him and Silber on the behalf of the plaintiffs.

[11] The defendants advance three grounds in support of the request for production: (a) Tartis is an expert and must comply with the disclosure obligations for experts as set out in Rule 53.03; (b) if Tartis is not an expert, his evidence was tendered to the court and any privilege that might otherwise protect the correspondence and documents between Tartis and his client has been waived; (c) an exception to the litigation privilege rule applies.

[12] The plaintiffs take the position that Tartis is not an expert but only a fact witness and therefore is not bound by the disclosure requirements in Rule 53.03(2.1). Alternatively they argue that the tendering of the Tartis Report does not amount to a waiver of the exchanges of correspondence and documents, if any, between Tartis and the plaintiffs. Third, they argue that no exception applies that would negate the litigation privilege.

Analysis

[13] The defendants argue that Tartis is an expert and, as a result, is required to produce the instructions he was given by the plaintiffs and any documents he exchanged with the plaintiffs concerning the nature of the opinion being sought along with his assumptions, research he undertook and every document he relied on. I note that the question asked of Silber on examination was different from this request on the motion. It was to “produce all correspondence going back and forth between you and the Tartis law firm”. I have restricted this decision to the refusal on the record.

[14] The defendants argue that even if Tartis is not an expert, the same information is required to be produced. They argue that the litigation privilege claimed by the plaintiffs has been waived as a result of the Tartis Report being filed in court and delivered to a number of financial institutions.

[15] Tartis notes in the Tartis Report that he “conducted an investigation into the potential misappropriation of funds by a Ms. Irene George, formerly a financial officer at [the plaintiffs’] firm. Further we looked into the complicity of her immediate family members, daughter, Anna Bolotin and husband Eugene ‘Gene” George. The result of this investigation are to be found in Appendix A below.”

[16] Tartis did various analyses of the funds deposited, transferred and withdrawn and correlated the figures against other transactions and against information given to him by Silber, including a “new refund list”.

[17] He reviewed various accounts and expressed his opinion, in relation to one account that “there did not appear to be any data indicating malfeasance.” Tartis noted in two separate instances (Sept 26, 2013 and October 3, 2013) that “We looked at the account transaction history. We did not note any activity that collated with any fraud activity. However, we did note that Ms. George received 25 small interact deposits from her daughter Anna Bolotin. The total of those transactions was 10 500 Cdn. It is our belief that Ms. Bolotin was moving assets to keep them from her husband and that the husband is the family member the account notation referred to. This may have been in anticipation of their eventual split.”

[18] Silber deposes in his first affidavit sworn 22 November 2013 in support of the motion for the Norwich order that he retained the Tartis firm, which specializes in tracing and locating stolen and misappropriated assets, to investigate Irene’s conduct and the suspicious transactions. He deposes that Tartis made various “findings” as a result of his investigation. In short, Tartis found that a visa card was issued by CIBC to Irene. Further, he found that after certain funds were refunded to the visa card, deposits were made into a bank account held by Irene at HSBC. It is not stated how Tartis obtained that information, whether from the plaintiffs or another source. Finally Tartis determined that the HSBC account was then emptied and closed. Silber concluded in his affidavit “based upon my review of the Tartis Report, Irene used the credit card refund scheme to misappropriate at least $58,919.44 using the Visa Card. Moreover, based on the Tartis Report, I verily believe that Irene used other credit cards to further perpetrate the scam and that she currently maintains (or has maintained) either bank accounts and/or credit cards with HSBC, BNS, CIBC, the Bank of Montreal and the Toronto Dominion Bank.”

[19] In Silber’s affidavit sworn 19 January 2014 in support of the motion for the Mareva order, he deposes “the Tartis Report reveals that Irene was transferring the Plaintiff’s misappropriated funds from her credit cards to a series of accounts maintained with HSBC. She then moved these ill-gotten funds from her HSBC accounts to accounts maintained with BNS …. According to the Tartis Report, the funds placed into the BNS accounts were used to fund two bank drafts payable to “Lilyview Estates”, which constructed a home where Anna resides.”

[20] The defendants say they are entitled to test the evidence and to do so they require disclosure of the documents given to Tartis and disclosure of when those documents were exchanged. In the Tartis Report, Tartis noted certain transfers involving Tanya on 5 September 2013. The defendants argue that the date when Tanya’s alleged involvement was known or should reasonably have been known to the plaintiffs is relevant to the upcoming motion to add her as a defendant.

[21] The defendants also request all drafts of the Tartis Report either internal to Tartis or exchanged between him and Silber.

[22] While much time was spent on arguing whether Tartis was an expert witness or a fact witness, I do not think much turns on that characterization for the purposes of this motion given the plaintiffs do not intend to call Tartis at trial.

[23] That being said, I find it unlikely that Tartis could be characterized as a fact witness, as the plaintiffs suggest. He had no direct involvement in the issues until he was retained by Silber to assist in investigating the whereabouts of the plaintiffs’ funds and Irene’s involvement with those funds. Further, he gave opinion evidence on the connection between funds transfers and motivations for those transfers.

[24] However, it does not follow that Tartis was an expert witness either. The plaintiffs categorically deny calling him on that basis. He did not complete the acknowledgement of expert’s duty or comply with the Rules governing expert witnesses.

[25] It may have been that, had his evidence been challenged, it would not have been admissible as was the case in Canadian Broadcasting Corp. v. Ontario (Attorney General) 2015 ONSC 3131 where the moving party proposed to introduce the evidence of a journalism professor who purported to provide evidence to the court as “a stranger to the underlying events who gave an opinion based on a review of documents or statements from others concerning what had taken place.” The court held her affidavit evidence to be inadmissible as opinion evidence from a participant witness. As she had not signed the Rule 53 form, she was also not entitled to testify as an expert witness.

[26] Whether or not Tartis is an expert, his report was tendered to the court. Were he an expert, the defendants would have been entitled to obtain from the plaintiffs disclosure of Tartis’ findings, opinions and conclusions. Given the reliance on the Tartis Report, I agree that the defendants are entitled to these same foundational documents in this case to the extent that they fall within the request refused, namely documents exchanged between Tartis and Silber. The defendants are entitled to know what documents Tartis received from the plaintiffs so that they can challenge his report and conclusions.

[27] Whether Tartis was an expert or a purported fact witness, in my view, he must also produce his retainer (a document that presumably passed between Tartis and the plaintiffs) so that the defendants may challenge his instructions, his independence, credibility and reliability.

[28] On the request that Tartis produce notes between him and the plaintiffs, even if Tartis were an expert, it does not follow that his notes are producible. As noted in Moore v Getahun 2015 ONCA 55, mandating disclosure of all written communications between counsel, in that case, and an expert is unsupported. I find this does not change depending on the characterization of Tartis’ role and I find that Tartis’ notes are not producible.

[29] I find that Tartis is also not required to produce his internal drafts of the Tartis Report. They were not requested when Silber was examined. Nor is he required to produce drafts of the Tartis Report, if any, that were exchanged with the plaintiffs. Moore v. Getahun resolved that draft reports as well as notes of interactions that are subject to litigation privilege are not required to be disclosed.

[30] The other basis for ordering disclosure, being evidence of improper conduct or abuse of process, as examples, was not made out (Blank v. Canada 2006 SCC 39 at paragraph 45; Lizotte v. Aviva Insurance 2016 SCC 52 at paragraph 41). I do not find evidence that the plaintiffs have used litigation privilege to shield improper conduct. There is no evidence to show reasonable grounds to suspect that counsel or the plaintiffs communicated with Tartis in a manner likely to interfere with the witness’ duties of independence and objectivity (assuming he was tendered as an independent witness). As held by the Court of Appeal in Moore v. Getahun at paragraph 78: “Absent a factual foundation to support a reasonable suspicion that counsel improperly influenced the expert, a party should not be allowed to demand production of draft reports or notes of interactions between counsel and an expert witness.”

Crowe Soberman Refusal (Question 569)

[31] The defendants seek an order compelling Crowe Soberman to produce all correspondence and documents exchanged between it and Silber on the behalf of the plaintiffs.

[32] The parties take the same position with respect to this refusal as they do on the Tartis refusal, above.

[33] Crowe prepared the Crowe Soberman Report dated 22 November 2013 and addressed it to the lawyers for the plaintiffs. Crowe Soberman stated in the Crowe Soberman Report that they were retained to assist with respect to the alleged misappropriation of assets and/or improper accounting by Irene.

[34] Crowe Soberman made the following preliminary conclusions: (1) Irene obtained the benefit of significant and unusual credit card returns belonging to the plaintiffs; (2) under Irene’s watch, significant petty cash was unaccounted for; (3) Irene diverted funds under the guise of payroll to herself and Gene.

[35] Unlike the Tartis Report, the Crowe Soberman Report does outline the documentation it relied on to prepare its Report. The plaintiffs confirmed that each of the listed documents have been produced to the defendants.

[36] Also unlike Tartis, here the plaintiffs agree that Crowe Soberman is an expert under the Rules. The plaintiffs have advised that they will call Crowe Soberman at trial. Their position is that under Rule 53.03(2.1) the defendants can obtain (a) the instructions provided to Crowe Soberman; and (b) the reasons for Crowe Soberman’s opinion including a description of the factual assumptions on which the opinion is based, a description of any research conducted that led Crowe Soberman to form its opinion and a list of every document that it relied on in forming its opinion, not less than 90 days before the pre-trial conference.

[37] Where the plaintiffs have filed and relied on the Crowe Soberman Report to obtain ex parte relief on two separate occasions, I find it would be unfair for the defendants to have to wait until just before a pre-trial conference to obtain answers to the question refused, namely production of correspondence and documents exchanged between Crowe Soberman and the plaintiffs, when the defendants require the information to respond to the plaintiffs’ upcoming motion.

[38] The defendants are entitled to know what documents Crowe Soberman received from the plaintiffs so that they can challenge the Crowe Soberman Report and its conclusions. While Crowe Soberman has listed the documents they relied on, that is not the same as listing all the documents they received. To the extent they received documents from the plaintiffs other than those which are set out in Appendix 2 of the Crowe Soberman Report, they are to disclose them to the defendants.

[39] Crowe Soberman must also produce their retainer so that the defendants may challenge their instructions, independence, credibility and reliability.

[40] For the reasons set out above in relation to Tartis, notes between Crowe Soberman and the plaintiffs or the plaintiffs’ counsel are not producible. Nor are they required to produce drafts of the Crowe Soberman Report, if any, that were exchanged with the plaintiffs or their counsel.

[41] As above, there is no evidence to suspect that counsel or the plaintiffs communicated with Crowe Soberman in a manner likely to interfere with the witness’ duties of independence and objectivity and, therefore, no exception is made out to the litigation privilege.

Duff and Phelps

[42] Filipowicz gave 14 undertakings during his examination, three of which (questions 23, 54 and 152) have been answered. The one refusal (question 16) has been resolved on the basis that it will be answered by the plaintiffs.

[43] Filipowicz now refuses to answer the questions he undertook to answer on the basis of privilege now asserted by the plaintiffs or on the basis of cost.

Questions undertaken and now refused on the basis of privilege (Questions 25, 49, 55, 61)

[44] Filipowicz undertook to answer these listed questions during his examination on 6 March 2015. As noted on the record of the transcript, Mr. Keith Landy, counsel for the plaintiffs, attended. The one question that was refused was refused by Mr. Landy on Filipowicz’ behalf. Mr. Landy did not object when Filipowicz undertook to answer questions 25, 49, 55 and 61.

[45] Subsequent to Filipowicz giving those undertakings, on 31 March 2015 the lawyer for the plaintiffs wrote to advise the defendants that they were reviewing the undertakings to determine if questions of privilege arose. The plaintiffs further advised that they could not determine whether the answers from Filipowicz would give rise to a claim of privilege until Filipowicz did the work and provided them first with the answers. They then took the position that Filipowicz did not have to begin the exercise of answering the questions until the defendants agreed to pay the costs of him doing so. The issue of costs is dealt with below.

[46] Case law is clear that privilege may be waived in civil cases only by the client and then only when it is waived deliberately and knowingly and not inadvertently (Cineplex Odeon Corp. v. Canada (A.G.) at paragraph 22).

[47] I find that if Filipowicz purported to waive the privilege of the plaintiffs, he either did so inadvertently or without knowing that was what he was doing. He was not capable of waiving a privilege belonging to his client (Somerville Belkin Industries Ltd. V. Brocklesby Transport).

[48] It could be argued that the plaintiffs impliedly waived the privilege through their lawyer’s failure to object to the disclosure of the potentially privileged information while sitting through the examination. At best, I find that this would have been inadvertent. But, again, privilege can only be waived by the client and not by Filipowicz and not by Mr. Landy. As noted in Descôteaux v. Mierzwinski, [1982] 1 S.C.R. 860, privilege is to be interfered with as little as possible and, accordingly, disclosure without the consent of the client will not operate to waive privilege.

[49] The defendants are still entitled to challenge any claim of privilege made once the plaintiffs have the answers from Filipowicz and have advised the defendants of their position on these questions.

Questions undertaken and now refused on the basis of cost (Questions 66, 113, 115/116, 117, 119, 202, 212)

[50] Filipowicz provided unconditional undertakings to answer these questions. There was no objection to cost at the time. That issue was only raised by the plaintiffs well after the conclusion of the examination.

[51] While the case of Ontario v Rothmans Inc. 2011 ONSC 1083 dealt primarily with questions refused by a party being cross-examined on an affidavit in aid of a pending motion, the decision also commented on the issue of undertakings given on such an examination. Perell J. stated at paragraph 146:

146 … If an undertaking is voluntarily given, then it simply must be honoured. As already noted earlier, that there is no prohibition against an examining party asking for an undertaking, and there is no preventing a deponent from volunteering an undertaking as a way to answer a proper question, and, as noted above, the rules recognize that undertakings may be given on both examinations for discovery and on cross-examinations of deponents.

147 Indeed, a deponent might be quite happy to give an undertaking to provide evidence that he or she omitted to provide in the affidavit. In asking for an undertaking, the examining party runs the risk associated with cross-examinations that the answer to a question may not help his or her case, and unlike evidence from an examination for discovery, the examining party does not control what use can be made of the transcript from a cross-examination of a deponent for an application or motion.

[52] Rule 31.07 notes the obligatory status of undertakings. If Filipowicz was of the view that obtaining answers to the questions posed would be onerous or expensive (and there is no evidence that either is the case), then the time to object was when he was asked to undertake to answer. He did not object. He undertook to provide the information.

[53] He is obliged to answer the questions he undertook to answer.

Miscellaneous Refusals

Questions 290 and 291 – How cash proceeds were divided among Roshan, David and Silber; who was responsible for dividing the proceeds among the three.

[54] The plaintiffs refused to answer these questions on the basis of relevance. Their position is that the three concede they received cash payments and also plead the information relates to two other entities and is not relevant on that basis. I disagree.

[55] The issue is raised squarely in the statement of defence, paragraph 14 and is denied in the reply. The issue as to who instructed whom on cash payments and what instructions were given goes to, among other things, the relationship between Silber and Irene. It also goes to the extent that cash payments were common and what impact, if any, those payments may have had on the companies’ cashflow and overdrawn positions.

[56] This portion of the motion is allowed.

Questions 590, 110, 369 – Provide the general ledgers for the companies along with the trial balances and financial statements for the years in question; allow opposing counsel to review the general ledgers of the companies as they relate to the specific allegations; provide or allow the defendants to inspect the monthly bank statements of each plaintiff for the years in question or for however many years they have them.

[57] The statement of claim alleges that Irene failed to make timely source deductions, failed to manage the bookkeeping records, failed to pay bills on time, failed to maintain adequate bank balances and also set up a scheme to direct credit card refunds belonging to the plaintiffs to her and her family. In his affidavit in support of the various orders obtained to date, Silber alleges that the company account was overdrawn and that this was out of the ordinary.

[58] To the contrary, the defendants allege that the company accounts were routinely overdrawn and in disarray due to Silber’s personal appropriation of cash received and his manipulation of the companies’ books and profits to artificially reduce income.

[59] The plaintiffs have agreed to produce what they have on hand and to ask their banks for information from 2002 to 2013. If there is no cost, they will produce what they are given by the banks. If there is a cost, they want the defendants to pay that cost. The banking documents are relevant as they have been put in issue by the plaintiffs in the statement of claim. The defendants require the documents to respond to the allegations made concerning the general state of the companies’ bank accounts, concerning late payments, fraudulent transfers and other alleged manipulations. The documents are within the “power and control” of the plaintiffs, if not their immediate possession. As such the plaintiffs are required to obtain the documents at their expense and produce them to the defendants.

Question 569 – productions between Silber and Toronto CA Solutions, Moneris and Elavon

[60] This was not pursued in the course of argument. The plaintiffs have advised that all communication with these entities was by telephone and, presumably, on that basis, the request was withdrawn.

Costs

[61] If the parties cannot agree on costs, they may provide the court with submissions no more than 3 pages in length by 26 May 2017.

Master Jolley Date: 9 May 2017