CITATION: Holbrook v. FX Displays Packaging Logistics Inc., 2017 ONSC 4757
COURT FILE NO.: CV-15-534692
MOTION HEARD: 20170630
REASONS RELEASED: 201700804
SUPERIOR COURT OF JUSTICE – ONTARIO
BETWEEN:
JOHN HOLBROOK
Plaintiff
- and-
FX DISPLAYS PACKAGING LOGISTICS INC., FX DISPLAYS INC. and STEPHEN CROOKS
Defendants
BEFORE: MASTER M.P. McGRAW
COUNSEL: B. Arnold
Email: brent.arnold@gowlingwlg.ca
-for the Plaintiff
J. Russo
Email: jrusso@palletvalo.com
-for the Defendants
REASONS RELEASED: August 4, 2017
Reasons For Endorsement
I. Background
The Motions
[1] There are three motions before me which proceed pursuant to my Endorsement dated June 19, 2017.
[2] The plaintiff, John Holbrook, brings a motion to compel the defendants, FX Displays Packaging Logistics Inc. (“FXDP”), FX Displays Inc. (“FXDI”) and Stephen Crooks (collectively, the “Defendants”) to serve a further and better affidavit of documents pursuant to Rule 30.06. The Defendants oppose this relief and bring a cross-motion seeking an order granting leave for divided disclosure, production and discovery pursuant to Rules 30.04(8) and 31.06(6). The disputed documents are set out in the list entitled “Scope of Documentary Discovery” attached as Schedule “A” to the plaintiff’s Notice of Motion dated January 31, 2017 and are sought in support of the plaintiff’s claims of oppression and an equity interest in FXDP (the “Disputed Documents”).
[3] These motions first came before me on April 27, 2017. At that attendance, counsel directed me to Cadeau et al v. Aprile (unreported, September 15, 2016)(CV-14-511364); leave granted, Aprile Estate v. Aprile, 2016 ONSC 7898 where leave was granted to appeal to the Divisional Court on substantially the same issues in dispute on these motions. However, the Aprile appeal had not been perfected and the parties in this action were scheduled to attend Civil Practice Court on May 12, 2017 to schedule the plaintiff’s motion for partial summary judgment related to the plaintiff’s wrongful dismissal claim.
[4] In light of the pending appeal in Aprile and the upcoming attendance at Civil Practice Court, I adjourned these motions to a telephone case conference on May 15, 2017. At that case conference, counsel advised that the deadline to perfect the appeal in Cadeau had been extended to June 15, 2017 and that at the attendance in Civil Practice Court, Justice McEwan declined to schedule the plaintiff’s partial summary judgment motion until after mediation. Therefore, I adjourned these motions to another telephone case conference on June 19, 2017.
[5] At the June 19 case conference, counsel advised that the Aprile action had settled and the appeal was abandoned. Therefore, these 3 motions were scheduled to proceed today.
The Action
[6] FXDI manufactures and designs corrugated packaging products for retail use and provides payroll services to FXDP. FXDP assembles and ships these products to retail customers. The Defendant Mr. Crooks is currently the President and majority shareholder of FXDP and FXDI.
[7] This action arises from Mr. Holbrook’s termination as President of FXDP on or about April 7, 2015, a position he held for almost 7 years. Mr. Holbrook is currently the Vice-President of Sales and Operations of Astron Packaging (“Astron”), a direct competitor of FXDP. Mr. Holbrook alleges that he was promised a 15% equity interest in FXDP as condition of his employment however, the Defendants failed to execute a draft shareholder agreement they prepared (the “Shareholder Agreement”), did not issue him common shares or pay any dividends and issued special shares in lieu of the common shares promised.
[8] In the plaintiff’s Amended Amended Statement of Claim dated August 19, 2015 (the “Statement of Claim”), Mr. Holbrook seeks, among other things: a declaration that he was wrongfully dismissed; damages for breach of contract of $300,000; punitive damages of $500,000; oppression remedies under the Business Corporations Act (Ontario) including damages, a declaration that he holds 15% of the issued and outstanding common shares of FXDP and an order directing an independent valuation of FXDP and directing the Defendants to purchase his 15% interest. He also claims 50,000 special shares of FXDP which has now been resolved.
[9] The Defendants delivered their Statement of Defence on or about November 16, 2015. The Defendants refused to agree to the plaintiff’s proposed discovery plan including the scope of discovery and delivered their Affidavit of Documents on August 3, 2016 without any of the Disputed Documents. Subsequent discussions failed to result in a discovery plan and the parties were unable to agree on the terms of a confidentiality agreement for the production of any of the Disputed Documents.
II. The Law and Analysis
[10] The issue on these motions is whether the Defendants should be compelled to produce any or all of the Disputed Documents immediately or whether production and discovery should be postponed or divided until certain threshold issues are decided by the court and it is determined that the plaintiff is entitled to production of the Disputed Documents. The Disputed Documents are as follows:
i.) Group 1 - any of FXDP’s organizational documents including lists of: its management team and employees; major customers (with sales summaries for the past 5 years and copies of any major contracts or agreements); and suppliers;
ii.) Group 2 - financial statements for FXDP for the fiscal years ending 2011-2015, inclusive;
iii.) Group 3 - interim financial statements for FXDP prepared internally for the end of the most recent fiscal year to November 30, 2016 (the “Interim Period”), if applicable and if available;
iv.) Group 4 - most recently available T2 corporation income tax returns for FXDP;
v.) Group 5 - copies of current business plans, budgets or forecasts if any, with respect to the future operations of FXDP (ie. income statement forecast);
vi.) Group 6 - copy of prior valuations, if any, conducted on the assets or shares of FXDP in the years 2011-2015, inclusive;
vii.) Group 7 - any documentation summarizing the actual remuneration (ie. salary and bonus) expensed on the financial statements for the shareholders and any related parties on a fiscal year basis for the years 2011-2015, inclusive and for the Interim Period;
viii.) Group 8 - any documentation providing, on a fiscal year basis for the fiscal years 2011-2015, inclusive: a description and quantum of any material unusual or non-recurring (ie. one-time) revenues and/or expenses and any personal or discretionary expenditures expensed by FXDP that are not required to generate revenue for the business; and copies of any offers received to purchase the assets or shares of FXDP in the years 2011-2015, inclusive.
[11] Rule 30.03(1) provides as follows:
“A party to an action shall 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.”
[12] Rule 30.06 provides:
“Where the court is satisfied by any evidence that a relevant document in a party’s possession, control or power may have been omitted from the party’s affidavit of documents, or that a claim of privilege may have been improperly made, the court may,
(b) order service of a further and better affidavit of documents;
[13] Rule 30.04(8) states:
“ Where a document may become relevant only after the determination of an issue in the action and disclosure or production for inspection of the document before the issue is determined would seriously prejudice a party, the court on the party’s motion may grant leave to withhold disclosure or production until after the issue has been determined.”
[14] Rule 31.06(6) provides:
“Where information may become relevant only after the determination of an issue in the action and the disclosure of the information before the issue is determined would seriously prejudice a party, the court on the party’s motion may grant leave to withhold the information until after the issue has been determined.”
[15] The proportionality factors for discovery in Rule 29.2.03 (1) also apply to these motions:
(1)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.
(2) In addition to the considerations listed in subrule (1), in determining whether to order a party or other person to produce one or more documents, the court shall consider whether such an order would result in an excessive volume of documents required to be produced by the party or other person.
[16] Relevance, the scope of discovery and proportionality were canvassed comprehensively by Perell J. in Ontario v. Rothmans Inc., 2011 ONSC 2504 and Canadian Imperial Bank of Commerce v. Deloitte & Touche, 2013 ONSC 917. Specifically, discovery questions must be relevant to the issues as defined by the pleadings such that they must have probative value and adequately contribute to the determination of the truth or falsity of a material fact. Overbroad and speculative discovery and “fishing expeditions” are not permitted.
[17] I have also considered and applied Rule 1.04(1) which provides that the Rules of Civil Procedure shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits and Rule 1.04(1.1) which requires the court to make orders and give directions that are proportionate to the importance and complexity of the issues, and to the amount involved, in the proceeding.
[18] The general rule is that a party has a prima facie right to one trial and full documentary disclosure (Bilich v. Buck, [2008] O.J. No. 2706 at para. 14).
[19] The parties both rely on the oft-cited decision of Henry J. in L.C.D.H. Audio Visual Ltd. v. L.S.T.S. Verbatim Ltd. et al., 1986 CanLII 2758 (ON SC), [1986] O.J. No. 263 (H.C.J.) for the factors to be considered on a motion for divided production and discovery:
“(1) The decision to postpone disclosure of information and documents to a later stage, which inevitably postpones the consequential issue to a later stage and a further trial, is ultimately a matter of the discretion of the court having regard to all the circumstances.
(2) The modern philosophy which is inherent in the new Rules of Civil Procedure is that there should be the fullest disclosure of information on all issues to be tried with a view to the speedy and efficient resolution of those issues at one time in one trial.
(3) Postponement of production and discovery under rules 30.08 and 31.06 should be resorted to only in the clearest of cases; full disclosure before trial is the norm and indeed, the prima facie right of both parties.
(4) Where the threshold issue is not clearly severable from the consequential issue, in the sense that information sought to be withheld is not relevant to determination of the threshold issue, leave to divide discoveries and productions ought not to be granted since that could deprive the party of information necessary to establish or fortify its case; this is not a matter of discretion. In considering whether the information may become relevant only after the threshold issue is determined, the court ought to consider any possible relevance that the information sought to be withheld may have in determining the threshold issue, including questions of credibility.
(5) Once the court concludes that the issues are severable within the sense described, the test to be applied is serious prejudice to the moving party; that is the only test prescribed by the rule where the threshold and consequential issues are severable. Determination of serious prejudice to the party is not a matter of discretion but is a finding of fact for the court to make. If the court is unable to find serious prejudice by immediate disclosure of the information, the rule does not permit disclosure to be postponed. If, on the other hand, the court finds that serious prejudice to the party will result, the court must then consider how to exercise its discretion.
(6) The decision to exercise the courts' discretion must then be made on the usual basis -- judicially, in accordance with proper principles, on a case-by-case basis, according to all the circumstances of the case.” (see also Risi Stone v. Burloak Concrete Products Ltd., [1987] O.J. No. 1134 (H.C.J.); Bilich at paras. 11-19; Schlueter v. Stockie, [2000] O.J. No. 3051 (S.C.J.) at paras. 7 and 13).
[20] The plaintiff submits that the present case is similar to Bilich where the plaintiff claimed an equity interest based on his employment contract and a constructive trust. The defendants sought to withhold production of operational and financial documents generated after the date of the plaintiff’s termination. Master Sproat held that the threshold issue of liability, the plaintiff’s claim for an equity interest, was not clearly severable from the consequential issue of damages, his claim that the defendants were unjustly enriched. Master Sproat stated that determination of both the plaintiff’s equity claim and unjust enrichment required an examination of the defendants’ business activities both before and after the plaintiff’s termination. Therefore, if discovery were divided, the plaintiff would be hampered in his ability to adduce evidence as to the equity term of the contract.
[21] With respect to what constitutes “serious” prejudice, Henry J. stated at paras. 35-37 of LCDH:
“The master finds on the material before him that “I am not convinced the defendants will be seriously prejudiced”. The prejudice alleged by the defendants is that the information sought would give to the plaintiff detailed information about their financial affairs, including profitability, client base, corporate records, sales and other particulars of their success or otherwise in penetrating the market at the congress centre; as the plaintiff is now cast in the role of a competitor in that market, the defendants say that it would be highly detrimental to them for the plaintiff to have that information which is not ordinarily available to a competitor and would give it a significant competitive edge.
That the disclosure of this information to the plaintiff would be detrimental to the defendants in an ordinary commercial competitive situation is not denied and indeed, is conceded by Mr. Lidbetter on his cross-examination. This amounts to saying no more than a competitor in a market who obtains inside information about the financial affairs, customer lists and profitability of its competitor has an advantage over the competitor to which that information obtains. There is nothing unusual about this, and it is fair to say it is a generally accepted truism among business competitors.
That, however, does not necessarily meet the test of the rules which require that the defendants not merely be prejudiced, but be severely prejudiced. In my opinion, the rules do not refer to the normal expected and well-understood prejudice that comes from the disclosure of the type of information here being sought; it relates to other factors such as the disclosure of secret processes, special advantages pertaining to the particular competitor in the market, or know-how, that cannot commonly be acquired and known by competitors generally through commercial intelligence. These are examples of factors that may lead to severe prejudice as opposed to the normal giving of a competitive edge by the acquiring of unremarkable inside information about persons in the position of the defendants.
In all the circumstances, I am not persuaded that in assessing the extent of the prejudice as he did, the master was in error. In fact, having regard to all the circumstances of this case, I think he was right.”
[22] In Risi, Henry J. found that the defendants, a smaller, relatively new manufacturer would be seriously prejudiced by the production of documents and information to the plaintiff, a well-established direct competitor. In that case, there was uncontroverted evidence that the plaintiff had already written to some of the defendants’ customers attempting to persuade them not to buy the defendants’ products. Henry J. agreed that the production of information and documentation regarding the defendants’ receipts, sales volumes, customers, fixed costs, costs of production and other costs for the purposes of the consequential issues of damages and profits would erode the defendants’ competitive position by allowing the plaintiff to undercut the defendants’ bids to its customers.
[23] In Bilich, Master Sproat stated that “serious” prejudice requires evidence that production of the documents and information will disrupt the producing party’s “business relationship or harm their competitive position in the market” (Bilich at para. 19). Further, in the context of documentary discovery generally, the disclosure of confidential and commercially sensitive information is not a valid basis for refusing to make required disclosure (1414614 Ontario Inc. v. International Clothiers Inc., 2013 ONSC 4821).
[24] The Defendants urge me to follow the decision of Conway J. at first instance in Aprile. Similar to the present case, the plaintiff in Aprile commenced an action claiming various oppression remedies including a purchase of shares and a valuation. The plaintiff, an existing shareholder, brought a motion seeking the production of all financial information from one corporate defendant to enable her valuator to conduct a valuation of the company. The plaintiff sought to have the issues of oppression, the share purchase and the value of the shares all determined at the same trial.
[25] In dismissing the plaintiff’s motion, Conway J. did not consider serious prejudice, and stated as follows:
“The issues in this proceeding are whether there has been oppression, and what, if any, remedy is available to the plaintiff if she establishes oppression. In the Statement of Claim the plaintiff has sought a finding of oppression and various orders to appoint a valuator to determine the fair value of the shares, as well as orders with respect to various accounting matters.
In my view, to the extent that production of financial information is sought to determine whether there has been oppression, that is clearly relevant and must be produced.
However, to require all accounts and financial info to be produced at this point for purposes of enabling the plaintiff to conduct her own valuation is premature, invasive and not warranted. It is also not relevant at this point in the proceeding. Indeed, ordering production of this information would effectively provide the very relief that the plaintiff is seeking in her Statement of Claim (ie appointment of a valuator to determine the fair market value).
I cannot regard this as bifurcation of the issues. The court can determine whether there has been oppression, what the remedy should be and how that remedy is to be implemented. The court can appoint a valuator to determine the fair market value of the company, if it considers a purchase of the shares to be an acceptable remedy, all as requested by the plaintiff in the pleading.”
[26] The plaintiff relies on the leave decision of Molloy J. in Aprile. In granting leave to appeal, Molloy J. stated the following at paragraphs 8-10:
“8 ….. I do not agree with the statement of the motion judge that her order did not result in a bifurcation of the trial. The result of her order is that the trial will proceed with respect to issues of liability: i.e. whether there has been oppression. The motion judge held that the court could also determine the appropriate remedy and how it would be implemented, which could include the appointment of a valuator to determine the fair market value of the company. That is possible, but it may not be the only appropriate remedy. It would not be possible for the plaintiff to even determine if that is a remedy she wants without knowing the fair market value of the shares. Settlement of the action prior to disclosure of this information would also be extremely difficult, if not impossible. There was no consideration or determination by the motion judge of whether production of the material sought would seriously prejudice a party (as arguably would be required under Rules 30.04(8) and 31.06(6)).
9 In effect, the result of the motion judge's decision is bifurcation -- with liability being decided in the first part of the action, and remedy being dealt with only after liability has been established. This is not the usual method of proceedings in civil litigation in Ontario and there is considerable merit to the plaintiff's argument that this cannot be done without consent, as stipulated in Rule 6.1.01 and as held by this Court in Bondy-Rafael v. Potrebic, 2015 ONSC 3655 (Div.Ct.). The plaintiff has therefore met the first branch of the test that there is good reason to doubt the correctness of the decision.
10 Rule 6.1.01 did not come into force until 2010. The issue of bifurcation under that rule has not been dealt with by the Divisional Court in the context of an oppression case. There was a vigorous dissent in Bondy-Raphael, which was a personal injury action. There are important issues involved with respect to the general principles of: the desirability of finding the most expeditious and least expensive ways of resolving disputes and whether bifurcation frustrates or facilitates that; the desirability of promoting early settlement and whether that can be fully informed without complete disclosure at an early stage; whether different principles for production should be applied in commercial litigation; and the burden on parties of complicated and expensive document production that might prove to be pointless if there is no finding of oppression. These principles have broad impact beyond the issues in this particular case. This is an area of the law that could benefit from appellate guidance.”
[27] The plaintiff has a prima facie right to the production of any of the Disputed Documents which are relevant to his claim based on the pleadings. In order to depart from this general rule, the standard test established in LCDH and the line of subsequent cases require the Defendants to demonstrate that: i.) the threshold issue on the plaintiff’s oppression claim, liability, is clearly severable from the consequential issue, the remedy, valuation; and ii.) they would suffer serious prejudice as a result of the immediate production of some or all of the Disputed Documents. However, if I adopt the approach of Conway J. in Aprile as urged by the Defendants, the second part of the test, a consideration of serious prejudice, is not required. Whatever approach I use is subject to a consideration of relevance, proportionality and Rule 1.04.
[28] Having considered the case law and the submissions of counsel, in my view, the appropriate approach is the standard two-part test from LCDH which requires me to consider whether or not the Defendants would suffer serious prejudice as a result of the production of the Disputed Documents. In contrast to the LCDH line of cases, the motion decision in Aprile is the only case which counsel referred me to where serious prejudice was not considered. I am also persuaded by Molloy J.’s comments in the Aprile leave decision where she states that it is “arguable” that a consideration of serious prejudice is required. Further, as stated by Molloy J., the production of financial information related to valuation may assist in the narrowing or settlement of the plaintiff’s claim, which, in my view, advances of the purposes and principles of proportionality and Rule 1.04. As a result of my decision to follow the LCDH test and my conclusions below, I will not consider the issue of bifurcation of the trial as set out in the Aprile decisions.
[29] Turning to the LCDH test, the first part is the whether the threshold issue, if oppression occurred, and the consequential issue, valuation of the plaintiff’s equity interest, are clearly severable. Although the present case is not entirely on point with Bilich, it is similar in that the plaintiff in Bilich was, like Mr. Holbrook, claiming an equity interest and not an existing shareholder, as the plaintiff was in Aprile. In Bilich, Master Sproat concluded that the test for severability was not met because documents which were relevant to both the threshold issue of an equity interest claim were also relevant to the constructive trust claim.
[30] As I conclude later in these Reasons, some of the Disputed Documents are relevant to both the threshold issue of oppression and the consequential issue of valuation. The alleged oppressive conduct includes denial of the plaintiff’s equity interest, denial of access to books and records and exclusion from the corporate governance of FXDP. Certain financial records are probative of whether there was oppressive conduct in the financial or general management of FXDP and any related financial implications and to the value of the alleged equity interest. They may also be relevant to credibility as financial documents and records may support or impugn other evidence provided by the parties. In short, there is overlap on both issues with respect to the Disputed Documents. Therefore, I conclude that that the threshold issue and the consequential issue are not clearly severable.
[31] Even if I had concluded that the threshold and consequential issues are clearly severable, the Defendants’ motion for divided discovery must fail on the basis that they have not demonstrated that they would suffer serious prejudice as a result of the immediate production of the Disputed Documents. The Defendants submit that the information in the Disputed Documents has always been confidential and its production to Mr. Holbrook, now employed by a direct competitor, would cause irreparable damage given it would permit Astron, and, if on the public record, other competitors, to identify and target FXDP’s customers. The Defendants assert that this would compromise FXDP’s position in the market which may put FXDP out of business.
[32] In my view, these circumstances do not constitute serious prejudice. The Disputed Documents do not relate to secret processes, trade secrets or know-how that could not be obtained by commercial intelligence and production would unlikely confer any special competitive advantage on Mr. Holbrook, Astron or any direct competitor or disrupt, harm or erode FXDP’s competitive position. Rather, this is largely the normal and well-established kind of information which is expected to be disclosed in commercial litigation. With respect to the financial information which forms part of the Disputed Documents, much of the information is now stale-dated and any alleged prejudice can be mitigated through court-ordered confidentiality provisions. The information sought in the Disputed Documents is also distinguishable from the kind of scientific proprietary research in Apotex v. Wellcome (1993), C.P.R. (3d) 305 cited by the Defendants nor is FXDP like the defendant in Risi which was a new business threatened by the plaintiff, a larger established competitor who was already contacting its customers.
[33] Further, the Defendants place significant emphasis on the risk that Mr. Holbrook poses as an employee of a direct competitor such that if the Disputed Documents are produced, he may improperly use the documents in a manner which would compromise FX’s competitive position. As party to this action, Mr. Holbrook is subject to the deemed undertaking rule in Rule 30.1.01(1) such that he and his counsel are deemed to undertake not to use any evidence of information produced in this proceeding for purposes other than this proceeding. There is no evidence that Mr. Holbrook has or would breach his obligations under Rule 30.1.01(1). Further, much of the information in the Disputed Documents, particularly customer lists, is already known to Mr. Holbrook given that he was the President of FDXP for almost 7 years and any prejudice is further reduced by the fact he is only seeking information and documents for a limited period following his termination.
[34] In addition to the protections provided by Rule 30.1.01(1), any potential prejudice can also be addressed by imposing confidentiality terms in any production order granted. Counsel for the Defendants submits that if any of the Disputed Documents are ordered produced, they should be subject to “counsel’s eyes only” confidentiality provisions such that Mr. Holbrook would not be entitled to review them. This proposal was made previously by the Defendants and was rejected by the plaintiff. In my view, the production of the Disputed Documents without the ability of Mr. Holbrook to review them and provide appropriate instructions and direction to his counsel and any other advisors or experts would be of little or no value.
[35] Based on my consideration of the relevant factors and circumstances above, I conclude that the Defendants have not satisfied the test for divided production and discovery and therefore, there is no reason to depart from the general rule regarding discovery. In order to determine which, if any of the Disputed Documents should be produced, I turn to a consideration of relevance and proportionality.
[36] The plaintiff submits that all of the Disputed Documents are relevant to both the threshold issue of liability, whether or not the Defendants engaged in oppressive conduct, and the consequential issue of a valuation of his alleged equity interest. At paragraph 35 of the Statement of Claim, the plaintiff sets out the particulars of his claim that the Defendants engaged in oppressive conduct or unfairly disregarded his interests as a shareholder. This includes the Defendants’ alleged failure or refusal to acknowledge and formalize the plaintiff’s 15% equity interest by, among other things: refusing to finalize and execute the Shareholder’s Agreement, issue common share certificates and pay dividends; ignoring requests to purchase his shares; blocking access to FDXP’s books and records; excluding him from participating in the corporate governance of FXDP; and excluding him from any appreciation in value of the business.
[37] Mr. Holbrook submits that he is in the often typical position of a plaintiff alleging oppression where the Defendants are possession of substantially all of the relevant documentation and information which he requires to determine what occurred and prove his case. In this regard, the court has held that in the determination of oppressive conduct, both sides of the relationship must be examined and where, as here, there are allegations that the plaintiff was shut out of the business, access must be given to financial records to determine if such conduct happened and if so, to what extent (S.A. Thomas Contracting Inc. v. Dyna-Build Construction Inc., 2015 ONSC 7242 at paras 37 and 39).
[38] The Defendants submit, relying on Justice Conway’s motion decision in Aprile, that those of the Disputed Documents sought for the purposes of valuation are not relevant at this point in the proceeding and would provide the very relief that the plaintiff is seeking, specifically, his claim for an independent valuation of FXDP and full and complete access to FXDP’s financial books and records at paragraphs 2(f) and 2(k), respectively, of the Statement of Claim. However, although Conway J. concluded that documentation regarding valuation was not relevant, to the extent that production of financial information was sought to determine whether there had been oppression, it was “clearly relevant and must be produced”. Further, in the Aprile motion decision Conway J. did not conclude that any of the documents and information sought were relevant to both the threshold and consequential issues as I conclude here.
[39] Counsel for the Defendants concedes that if I conclude that any of the Disputed Documents should be produced because they are relevant to whether there has been oppressive conduct, he would concede that the Disputed Documents in Groups 2, 3, 4 and 7 are relevant and producible. Counsel for the Defendants also confirms that there are no documents which are relevant or responsive to Group 6 as there have been no prior valuations.
[40] Based on all of the factors and considerations, I conclude that some of the Disputed Documents are only relevant to the threshold issue of whether oppression occurred and others are relevant to both the threshold issue and the consequential issue of the remedy, valuation. In my view, none of the Disputed Documents are relevant only to the issue of valuation and some of the Disputed Documents are not relevant to either issue.
[41] My conclusions with respect to the 7 groups of Disputed Documents (excluding Group 6) are set out below.
[42] Group 1: FXDP’s management staff lists for the period 2011-2015 are relevant to the plaintiff’s oppression claim largely as context and background for the management of FXDP, the exclusion of the plaintiff and may supplement other relevant documents and information. Lists of major customers and suppliers for the years 2011-2015 and copies of any major customer contracts or agreements and sales summaries for 2011-2015 are also relevant to whether there was oppressive conduct in the management of FXDP including alleged exclusion of the plaintiff from the management and governance of the business.
[43] Groups 2 and 3 - Financial statements for FXDP for the fiscal years ending 2011-2016 (given the passage of time this would now include financial statements for the Interim Period), are relevant to both whether there was oppressive conduct and a valuation of the plaintiff’s equity interest, if any. As set out in S.A. Thomas, where, as here, a plaintiff alleges that he has been excluded from the management and governance of the business, financial information is relevant and producible in order to establish whether or not oppression occurred. Further, such information and documentation is necessary for a proper valuation of any equity interest.
[44] Group 4 – Similar to my conclusions for Groups 2 and 3, the most recently available T2 corporation income tax returns for FXDP are relevant to both whether oppression occurred and a valuation of the plaintiff’s alleged equity interest.
[45] Group 5 – I am not satisfied that business plans, budgets or forecasts, if any, for the current fiscal year, with respect to the future operations of FXDP are relevant. In my view, any such documents, for the fiscal year 2015, the year of the plaintiff’s termination, when he alleges the oppressive conduct was taking place and he was excluded from the governance of FXDP, would be relevant as probative of any such oppression.
[46] Group 7 - I am satisfied that any documentation summarizing the actual remuneration (ie. salary and bonus) expensed on the financial statements for the shareholders and any related parties for the fiscal years 2011-2015 is relevant to whether or not there was oppressive conduct. Any such documents or information would be probative not only of the financial management of FXDP but whether and the extent to which there was any oppressive conduct and/or resulting prejudice related to the payment of remuneration to Mr. Crooks or others as compared to Mr. Holbrook and his alleged exclusion from the governance of FXDP.
[47] Group 8 – I am also satisfied that any documentation providing, for the fiscal years 2011-2015, inclusive: a description and quantum of any material unusual or non-recurring (ie. one-time) revenues and/or expenses and any personal or discretionary expenditures expensed by FXDP that are not required to generate revenue for the business is also relevant to whether there has been oppression. Similar to Group 7 above, any such documentation would be probative of the financial management of the business and the reasonability of paying any unnecessary, unusual or other discretionary expenses including to the prejudice of the plaintiff or as a result of the exclusion of the plaintiff’s from governance of the business. Further, in my view, copies of any offers received to purchase the assets or shares of FXDP in the years 2011-2015 are relevant to both whether oppression occurred, including whether any oppressive conduct related to governance or management affected the value which others may have ascribed to FXDP and if there was any oppressive conduct in the consideration and rejection of any such offers and the valuation of the plaintiff’s alleged equity interest.
[48] Accordingly, the Defendants’ motions are dismissed and the Disputed Documents which I have concluded are relevant shall be produced within 30 days. In order to address any remaining concerns with respect to confidentiality and potential prejudice, the relevant Disputed Documents shall, subject to further order of the court be produced subject to the terms of a confidentiality order such that they shall be produced solely for the purpose of discoveries, shall not be disclosed to any other person other than the plaintiff, his counsel and any other advisors, including experts, for the sole purpose of these proceedings and if filed with the court for mediation or on any motions or other steps in these proceedings, shall be filed on a sealed basis.
III. Disposition
[49] Order to go as follows:
i.) the Defendants shall produce FXDP’s management staff lists for the period 2011-2015 within 30 days;
ii.) the Defendants shall produce FXDP’s major customers and suppliers lists for the fiscal years 2011-2015 and copies of any major customer contracts or agreements and sales summaries for 2011-2015 within 30 days;
iii.) the Defendants shall produce financial statements for FXDP for the fiscal years ending 2011-2016 within 30 days;
iv.) the Defendants shall produce the most recently available T2 corporation income tax returns for FXDP within 30 days;
v.) the Defendants shall produce any business plans, budgets or forecasts for the fiscal year 2015 within 30 days;
vi.) the Defendants shall produce any documentation summarizing the actual remuneration (ie. salary and bonus) expensed on the financial statements for the shareholders and any related parties for the fiscal years 2011-2015 within 30 days;
vii.) the Defendants shall produce any documentation providing, for the fiscal years 2011-2015: a description and quantum of any material unusual or non-recurring (ie. one-time) revenues and/or expenses and any personal or discretionary expenditures expensed by FXDP that are not required to generate revenue for the business; and copies of any offers received to purchase the assets or shares of FXDP in the years 2011-2015
viii.) the documents produced pursuant to this order shall, subject to further order of the court, be produced solely for the purpose of documentary and examination for discoveries and mediation, shall not be disclosed to any other person other than the plaintiff, his counsel and any other advisors, including experts, for the sole purpose of these proceedings and if filed with the court for mediation or on any motions or other steps in these proceedings, shall be filed on a sealed basis.
[50] If the parties cannot agree on the costs of this motion they may file costs submissions in writing not to exceed 4 pages (excluding costs outlines) with me through the Masters Administration Office by September 30, 2017.
Released: August 4, 2017
Master M.P. McGraw