Court File and Parties

COURT FILE NO.: CV-16-548865 DATE: 20170630 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN: RESCON FINANCIAL CORPORATION Plaintiff – and – NEW ERA DEVELOPMENT (2011) INC. Defendant

AND BETWEEN: NEW ERA DEVELOPMENT (2011) INC. Plaintiff by Counterclaim – and – RESCON FINANCIAL CORPORATION and EBRAHIM BULBULIA Defendants to the Counterclaim

Counsel: Scott A. Crocco, for the Plaintiff/Defendants to the Counterclaim David Alderson, for the Defendant/Plaintiff by Counterclaim

HEARD: In writing

M. D. FAIETA j.

Reasons for Decision

Introduction

[1] I am case managing this action.

[2] The parties have asked that I determine the following issues:

• First, should the defendant be compelled to answer undertakings and refusals arising from the examination of the plaintiff’s representative?
• Second, should the defendant be granted leave to deliver an expert report?

Background

[3] The plaintiff is a mortgage broker who is claiming $400,000.00 in fees from the defendant, a development company. The defendant sought construction financing for a residential condominium project and assistance from the plaintiff to obtain acceptable mortgage financing for the project.

[4] The defendant denies that it owes any fees and submits that the plaintiff failed to perform in accordance with the terms of the contract either as written or as should be rectified and, as a result, caused the plaintiff to suffer damages.

[5] In June 2016 the plaintiff filed a motion for summary judgment against the defendant in the amount of $400,000.00. In support of that motion, it relies upon the affidavit of Ebrahim Bulbulia (“Bulbulia”), who is the founding principal of the plaintiff and its’ principal mortgage broker.

[6] On January 5, 2017, Bulbulia was cross-examined on his affidavit and examined for discovery. He refused to answer certain questions which leads to the first issue addressed below.

Issue #1: Should the Refused Questions Be Answered?

Analysis

[7] The Rules of Civil Procedure, R.R.O. 1990, Reg. 194 require full disclosure of information in order to prevent surprise and trial by ambush: Iannarella v. Corbett, 2015 ONCA 110, at para. 33.

[8] Rule 31.06(1) of the Rules of Civil Procedure provides that a person examined for discovery “…shall answer, to the best of his or her knowledge, information and belief, any proper question relevant to any matter in issue in the action…”.

[9] Relevance depends on the facts in issue. For evidence to be relevant it must tend to "increase or diminish the probability of the existence of a fact in issue…there is no minimum probative value required for evidence to be relevant.”: R. v. Arp, [1998] 3 S.C.R. 339, at para. 38.

[10] In Ontario v. Rothmans Inc., 2011 ONSC 2504, at para. 129, Justice Perell described the legal principles that have developed in relation to the scope of questions that may be asked on an examination for discovery:

• The examining party may not go beyond the pleadings in an effort to find a claim or defence that has not been pleaded. Overbroad or speculative discovery is known colloquially as a “fishing expedition” and it is not permitted;
• When the Rules provided for questions “relating to any matter in issue,” the scope of discovery was defined with wide latitude and a question would be proper if there is a semblance of relevancy. The Rules now require that a question be “relevant to any matter in issue,” which suggests that the scope of examination for discovery has modestly narrowed;
• The extent of discovery is not unlimited, and in controlling its process and to avoid discovery from being oppressive and uncontrollable, the court may keep discovery within reasonable and efficient bounds:
• The witness on an examination for discovery may be questioned for hearsay evidence because an examination for discovery requires the witness to give not only his or her knowledge but his or her information and belief about the matters in issue;
• The witness on an examination for discovery may be questioned about the party’s position on questions of law.

[11] Rule 29.2.03 of the Rules of Civil Procedure limits the scope of questions that may be asked on an examination for discovery. Rule 29.2.03(1) states:

In making a determination as to whether a party or other person must answer a question or produce a document, the court shall consider whether,

(a) the time required for the party or other person to answer the question or produce the document would be unreasonable;

(b) the expense associated with answering the question or producing the document would be unjustified;

(c) requiring the party or other person to answer the question or produce the document would cause him or her undue prejudice;

(d) requiring the party or other person to answer the question or produce the document would unduly interfere with the orderly progress of the action; and

(e) the information or the document is readily available to the party requesting it from another source.

[12] Accordingly, a person may refuse to answer a question on an examination for discovery if: (1) the question is not relevant to any matter in issue in the action; or (2) the question is not proper, which includes the considerations described in Rule 29.2.03.

Examination of Ebrahim Bulbulia

[13] The defendant seeks an order compelling Bulbulia to provide answers outstanding undertakings and certain questions refused at his examination and to re-attend to answer questions arising from the answers flowing from the above order.

[14] Bulbulia refused to produce telephone records of cell phones and land lines for 2012 to the present of calls with Razagh Vaseghi (“Vaseghi”) or the defendant. In my view, such records are neither relevant (as they will not address what was said) nor proportional. Refusal upheld.

[15] Bubulia refused to disclose the principal terms of his employment relationship with Rescon. The defendant submits that Bulbulia and Rescon breached their duties as a mortgage broker and brokerage, respectively, by preferring their interests ahead of the defendant’s interests. The defendant submits that the terms of Bulbulia’s employment set out the extent Bulbulia was required to adhere to Rescon’s policies. The defendant states that the terms of Bulbulia’s employment are relevant to determining whether Bulbulia complied with his duties as a mortgage broker. Such duties are outlined in Mortgage Brokerages: Standards of Practice, O. Reg. 188/08, which specifies the duties of a mortgage broker to their client. I am not satisfied that the principal terms (salary, benefits, work hours, holidays, etc.) are relevant to whether Bulbulia or Rescon preferred their interests ahead of the defendant’s interests.

[16] Bulbulia and Rescon refused to provide “documents, all records regarding Rescon’s facilitation of loans on behalf of private family, high net worth investors” The defendant states that this information is relevant because Bulbulia and Rescon breached their fiduciary duties by submitting a commitment letter from a company of which Bulbulia was a director. The requested information goes far beyond the aforementioned rationale and is neither relevant nor proper, particularly given the privacy concerns outlined by Rescon.

[17] Bulbulia and Rescon refused to produce “Rescon’s records regarding the total number of lenders from which Rescon obtained commitment letters or mortgage financing for borrowers from 2010 to the present, including the amounts of the proposed mortgages”. Rescon submits that records from 2010-2014 will show whether and how much Rescon and Bulbulia relied on Alterna and other lenders as a source of business, which would compromise their objectivity and other duties owed to the defendant. It also submits that it will show what experience Rescon and Bulbulia had in transactions of the type that involved the defendant. In my view, the number of lenders is neither relevant nor proper, given that it reaches back to 2010. In any event, Bulbulia and Rescon have provided information for 2015 regarding the total number of lenders with the names of the lenders redacted.

[18] The defendant sought a copy of a settlement agreement entered between Rescon and two other companies related to proceedings commenced in this Court in 2011 and 2014. The defendant submits that these other companies made allegations against Rescon that are similar to those made by the defendant. In my view, the settlement agreements are irrelevant. It is also improper to disclose such agreements: Sable Offshore Energy v. Ameron International Corp., 2013 SCC 37, at para. 17.

[19] The defendant submits that Bulbulia failed to answer whether he understood the defendant’s urgency to obtain funding. In my view, Bulbulia answered this question when he stated that he understood that such financing was required in a “timely manner”.

[20] The defendant requires that Bulbulia disclose the identity of a private lender referenced in an email that he or Rescon purportedly solicited to provide financing to the defendant. It submits that this is relevant as such lender might reasonably have knowledge of the efforts Rescon made to obtain suitable financing for the defendant. In my view, this question should be answered. Unlike the earlier request for documents and identities of lenders from 2010 to 2015, this question directly relates to the defendant.

[21] The defendant submits that Bulbulia and Rescon should disclose the identity of a borrower referenced in an email as well as in the plaintiff’s Affidavit of Documents for whom they sought to arrange financing. In my view, this question was properly refused as it is neither relevant nor proper.

Issue #2: Should the Defendant Be Granted Leave to Deliver an Expert Report?

[22] On September 27, 2016, the parties agreed to the final steps of a timetable that would lead to hearing the plaintiff’s motion for summary judgment on January 20, 2017; however, that date was vacated as a result of these motions.

[23] The defendant seeks leave under Rule 39.02(2) of the Rules of Civil Procedure to deliver an affidavit of an expert mortgage broker.

[24] Rule 39.02(2) states:

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.

[25] The moving party bears the onus of establishing that leave should be granted. Granting leave is the exception, not the rule. I agree with the following observations made by Morawetz, R.S.J. in Redstone Investment Corp (Re), 2016 ONSC 513, at paras. 9-10:

There is a high threshold for admissibility under Rule 39.02(2).

In Shah v. LG Chem, Ltd., 2015 ONSC 776, at para. 23, Perell J. summarized the principles that have emerged in Rule 39.02(2) jurisprudence:

1. Leave under Rule 39.02(2) should be granted sparingly.
2. The moving party has a very high threshold to meet.
3. The rule about the delivery of subsequent affidavits should not be used as a “mechanism for correcting deficiencies in the motion materials”
4. The rule is designed to fairly regulate and provide closure to the evidence gathering process for motions and applications.

[26] In Lockridge v. Ontario (Ministry of the Environment, Director), 2013 ONSC 6935, at para. 24, the Ontario Divisional Court stated that the following test should be applied in deciding whether to grant leave under Rule 39.02(2):

1. Is the evidence relevant?
2. Does the evidence respond to a matter raised on the cross-examination, not necessarily raised for the first time?
3. Would granting leave to file the evidence result in non-compensable prejudice that could not be addressed by imposing costs, terms, or an adjournment?
4. Did the moving party provide a reasonable or adequate explanation for why the evidence was not included at the outset?

[27] No affidavit evidence was delivered by the defendant in support of its motion.

Is the Evidence Relevant?

[28] There is no dispute that the expert evidence would be relevant.

[29] The defendant submits that:

Defendant expects the broker’s expert’s opinion will assess the broker’s standard of care based on the evidence for issues including whether a) the alleged fee arrangement created a conflict of interest for the plaintiff and whether the plaintiff properly explained the alleged fee arrangement to defendant; b) plaintiff acted reasonably in failing to find an alternate lender despite Alterna’s significant delays, and c) plaintiff advised defendant regarding the suitability of the loan in the circumstances.

Does the Affidavit Respond to a Matter Raised on Cross-Examination?

[30] The defendant submits that the expert mortgage broker could not give an opinion before discovery as the evidence obtained was necessary for the broker to assess whether the plaintiff fell below the standard of care.

[31] The plaintiff submits:

New Era asserted a set-off defence from the outset, in its initial Defence served in April 2016, based on Rescon’s alleged delay and inability to obtain an acceptable mortgage loan. The affidavit evidence of both parties was exchanged by August, 2016, which contained a fulsome record of the well-documented and pertinent communications between the parties and their respective obligations under the subject contracts. The motion materials provided ample factual, contextual and evidentiary basis for expert broker analysis. The parameters applicable to broker duties have been present from the outset. New Era’s request for belated expert evidence is therefore not responsive to cross-examination as it could have been provided as part of its pre-cross-examination evidence. New Era is merely seeking to bolster its perceived weaknesses in its evidence and to further delay the hearing of the motion.

[32] I agree with the Plaintiff’s submissions. By calling an expert mortgage broker, the defendant is not responding to the cross-examination as it was open to the defendant, given its assertions, to obtain such expert evidence before the examination – it chose not to do so.

Would Leave Result in Non-Compensable Prejudice?

[33] Rescon states:

It is imperative that Rescon obtain judgment without further delay, and before the Project reaches the declaration stage at which time New Era’s title to the Project will be transferred to a condominium corporation and/or unit purchasers, to the prejudice of Rescon, leaving Rescon with a shell defendant and a worthless law suit, despite having expended substantial resources to date. New Era’s documents indicate that the subject condo Project will be registered in the Fall 2017; the prejudice to Rescon is therefore very real and highly significant.

[34] The defendant does not address this concern. I find that the plaintiff will suffer non-compensable prejudice if an expert affidavit is delivered (once such person is retained) with the attendant cross-examination.

Is there a Reasonable Explanation for the Failure to include the Evidence from the Outset?

[35] The defendant provides the following explanation:

Plaintiff’s summary judgment motion was premature. Plaintiff’s affidavits did not contain the necessary evidence. Your Honour ordered the parties to conduct examination for discovery and serve Affidavit of Documents. Examination of Plaintiff (not yet complete) resulted in 290 pages of evidence. Plaintiff’s Affidavit of Documents disclosed 302 documents. Discovery yielded relevant evidence regarding the broker’s breach of duties.

It is not common to deliver an expert report before discoveries. It is also impractical. The expert could not be asked to opine on whether the broker fell below the standard of care without the evidence of the broker’s conduct. Perhaps for this reason, there do not appear to be any cases under Rule 39.02(2) denying leave to file an expert affidavit in a summary judgment motion brought before discoveries.

Most cases applying Rule 39.02(2) involve attempts to add further fact evidence to correct factual deficiencies in the motion record. Here the defendant is seeking to deliver necessary expert opinion, not to bolster Defendant’s affidavit.

[36] The defendant has attended before this Court on many occasions since May 2016 in relation to this motion for summary judgment. In November 2016, the defendant retained new counsel. It then commenced a Notice of Action which has been consolidated into this action as a counterclaim alleging breach of duty.

[37] Rescon submits that the Ontario Bar Association’s “Discovery Best Practices - General Guidelines for the Discovery Process in Ontario”, states:

The untimely production of expert reports and the proliferation of expert reports are both factors that increase cost and delay in the discovery process. These guidelines are designed to ensure that expert evidence is helpful to the litigation process and encourage a cooperative approach to the discovery of expert evidence.

Guideline: Counsel should turn their mind to obtaining required expert reports and opinions as soon as possible in the litigation process [italics in the original].

Commentary: From an advocacy point of view, an expert should be retained early on in the proceedings, probably even before pleadings are filed. While a formal report can wait until all the necessary facts have been collected, it is good advocacy to have the guidance of an expert before pleadings are prepared and the discovery process has commenced.

Likewise, lawyers should request experts reports as early as possible … Waiting until the eve of trial to obtain expert reports also often results in postponing the trial date, delay in the resolution of the case, and scheduling difficulties for the court. A lawyer should never purposefully delay designating an expert witness or deliver an expert’s report in an effort to postpone trial. [Emphasis added.]

[38] The defendant has not provided a reasonable explanation for the delay to provide expert evidence prior to the examination of the plaintiff’s representative. The defendant advanced a breach of duty counterclaim. There was no need to wait until after examinations to retain an expert or to notify the plaintiff that the defendant would be retaining a mortgage broker expert to deliver a report. Similarly, the defendant could have filed the expert’s report based on the facts assumed by the defendant to be the basis for the breach of duty claim prior to Bulbulia’s examination.

Conclusions

[39] For the reasons given, I have dismissed most of the defendant’s request to compel answers to the questions refused by Bulbulia and I have refused to grant the defendant leave to deliver an affidavit from an expert mortgage broker.

[40] I direct that the parties advise me of their availability for a teleconference at the earliest date in order to address next steps including confirmation of the hearing date of the motion for summary judgment.

[41] I encourage the parties to come to an agreement on the question of costs for these motions, failing which I will ask the parties for their submissions on this matter at the next teleconference.

Mr. Justice M. D. Faieta Released: June 30, 2017