CITATION: Crescent (1952) Unlimited v. Jones, 2017 ONSC 4771
COURT FILE NO.: CV-11-9115-00CL
DATE: 20170808
SUPERIOR COURT OF JUSTICE - ONTARIO
COMMERCIAL LIST
RE: CRESCENT (1952) LIMITED in the name and on behalf of SAFETY INSURANCE (1959) LIMITED, Plaintiff
and
ROBERT JONES, RICHARD DESLAUARIERS, JONES DESLAURIERS INSURANCE MANAGEMENT INC. and BLEVINS & ASSOCIATES INSURANCE AGENCY INC., Defendants
COUNSEL: S. Gleave and R. Pollard for the plaintiff
J. Rosenstein for the defendants
HEARD: July 31, 2017
Endorsement
[1] This is a production motion. It arises out of the plaintiff’s sale of its insurance business to the defendants, referred to collectively as “JDIMI”.
[2] The purchase agreement contains what the parties call a “warranty period”. In the simplest of terms, the purchase price requires the defendants to pay the plaintiff additional money if certain revenue targets arising from the book of business the plaintiff sold to JDIMI are met during the three year warranty period.
[3] JDIMI says they were not. The plaintiff suggests they were and has sued for $4.5 million. It takes the position that significant revenue earned from its clients during the warranty period has not been properly accounted for, and thus JDIMI has not properly disclosed all the appropriate revenue for the warranty period. The plaintiff says JDIMI improperly suppressed earnings by merging the sold business into their own business, and failing to maintain proper records or supervision.[^1]
[4] JDIMI has counterclaimed, asserting that it overpaid for the plaintiff’s business. It bases its claim on what it characterizes as the shortfall between the target EBITA during the warranty period, and what it says was actually achieved.
[5] The plaintiff says it cannot properly prove its claim without production of certain documents from JDIMI. The documents comprise some 12,000 pages of JDIMI records, which the parties refer to as the “JDIMI Production Report with Lead Sheet”.[^2] It essentially shows all the defendants’ revenues, from all clients, including those included in the purchase agreement, during the warranty period.
[6] JDIMI resists production, saying the plaintiff is simply on a fishing expedition. JDIMI takes the position they have completely complied with all their disclosure obligations under the Rules. They say all earnings arising from the sale have been properly accounted for in their records, and these records have been produced. They say the plaintiff must put forward cogent evidence to show there is good reason to believe there is additional relevant information in the documents to require them to make this additional disclosure. In other words, JDIMI says the plaintiff must put forward evidence that JDIMI has withheld information or lied about it.
[7] JDIMI goes further, and suggests that if they are compelled to produce the JDIMI Production Report and Lead Sheet they would be disclosing confidential client information to a competitor. They say they should not be required to do so.
[8] In response, the plaintiff says it, together with its counsel and any professional it might hire to review the production, will enter into whatever confidentiality agreement the defendants require, in order to protect their proprietary information.
[9] The plaintiff essentially argues that this additional documentary disclosure is necessary so it can cross check and determine if there are missing clients and premiums that JDIMI has failed to account for.
[10] Rule 30 of the Rules of Civil Procedure governs documentary disclosure. Simply put, the Rules impose an obligation of ongoing disclosure on parties. That obligation includes producing documents that come into a party’s possession or control that are relevant to the issues in the case. If a party has not disclosed them in its initial affidavit of documents, then it is required to serve a supplementary affidavit in which it does so.
[11] This obligation to disclose is tempered by the requirement that documentary disclosure must be proportionate. Rule 29.2.03 sets out the factors to consider on the issue of proportionality. First, the court must consider the time required to produce. Here, the documents are a computer printout, set by a series of instructions to the computer program. The documents have already been generated with little or no significant expenditure of time. They can easily be provided to the plaintiff simply by copying them onto a USB key.
[12] Second, the court must consider the expense associated with the production. Here, the expense is minimal as far as production is concerned. It is the plaintiff that will incur expense in reviewing the documents.
[13] Third, the court must consider whether there is any prejudice that would be caused through production. Here, JDIMI has raised the issue of the documents’ disclosing confidential of proprietary information along with relevant information. While that concern is real and well founded, it can be addressed through a confidentiality agreement, as well as the operation of the deemed undertaking rule. I do not see the prejudice as outweighing the necessity of providing complete disclosure of what may be probative information.
[14] Fourth, the court must consider whether production would interfere with the orderly progress of the litigation. In my view, it would not. The production itself can be made within a day or so. The plaintiff suggests it needs no more than 60 days to review the material and to deliver an affidavit to the defendants setting out its position concerning the JDIMI Production Report and Lead Sheet.
[15] Finally, the court must consider whether the document is available. Clearly it is. JDIMI has the JDIMI Production Report and Lead Sheet. In fact, the affidavits of Mr. Jack, tendered by the defendants, make specific reference to the JDIMI Production Report and Lead Sheet. Mr. Jack says in paragraphs 86 and 87 of his affidavit sworn 4 April 2017 that he has generated the production report. He has reviewed it. He says at best 3% of its content relates to the plaintiff, while the remaining 97% is irrelevant. His evidence may or may not be accurate. However, it seems to me the plaintiff must have an opportunity to satisfy itself that what Mr. Jack says is true. Having referred specifically to the document and their own review of it, the defendants must produce it to the plaintiff for similar review, subject to any necessary safeguards regarding confidentiality.
[16] Importantly, the defendants are the ones who have the necessary material to either prove or disprove the plaintiff’s allegations. It seems to me the defendants should not be permitted to withhold the documents simply alleging there is nothing relevant in them. They are the ones who control the documents.
[17] The parties agree on the test for requiring a party to produce a further and better affidavit of documents. Simply put,
…there must be some evidence that there has been an omission such that production and/or inspection ought to be ordered, and there is no right to in effect “rummage through an opponent’s filing cabinets” or computer, etc., to see if there is anything interesting: [cites omitted] However, the case also establishes that the level of proof required should take into account the fact that one party has access to the documents and the other does not: [cites omitted][^3]
[18] While the law is clear the plaintiff may not simply fish, but must have some factual basis to assert the defendant has withheld documents, I am satisfied the plaintiff has made out enough of a case to support the relief it seeks. Essentially, the plaintiff says on the basis of its historical earnings before the sale, it simply cannot be that JDIMI did not meet the performance targets during the warranty period. There is some evidence about how the changeover from the plaintiff’s computer accounting system to JDIMI’s may have resulted in some commissions being booked improperly, to the plaintiff’s detriment.
[19] JDIMI has the documents to prove or disprove this assertion. It is manifestly unfair for JDIMI to say that it has made a review of its own documents, it has concluded its position is correct, and it has produced only those documents that support its position, but no others. As I have said, JDIMI has already generated the 12,000 pages of requested material. It is readily available in PDF form, or in an Excel spreadsheet form. JDIMI was not put to any particular expense to generate the documents from its computer system. The documents can be easily produced to the plaintiff. It is the plaintiff who must bear the cost of reviewing the documents.[^4]
[20] However, JDIMI’s concern about releasing confidential information to a competitor is well founded. While JDIMI suggested perhaps the documents might only be made available to an expert retained by the plaintiff, and not disclosed to the principal of the plaintiff himself, that unduly restricts production. The defendants’ concerns can be properly assuaged by a comprehensive confidentiality agreement containing specific prohibitions on the use of any of the confidential information produced, both by way of the deemed undertaking rule, and whatever other protections the defendants properly seek. No production need be made unless and until the plaintiff, its counsel and any professional retained to review the JDIMI Production Report and Lead Sheet have executed such a confidentiality agreement.
[21] Once the production has been made and the plaintiff and its counsel and any expert have reviewed it, the parties will all be in a similar position to assess the relative strength and weaknesses of their cases. This will allow them to have meaningful settlement discussions, with a view to resolving the case without the necessity of a trial.
[22] The motion is therefore granted on the following terms:
a) The defendants will provide the plaintiff with a confidentiality agreement to be executed by the plaintiff and the principal of the plaintiff, the plaintiff’s counsel, and any expert retained by the plaintiff to review the “JDIMI Production Report with Lead Sheet”. The confidentiality agreement shall be executed by these individuals, and immediately delivered to defendants’ counsel;
b) Upon the defendants’ counsel receiving the executed confidentiality agreement referred to in (a), above, the defendants will forthwith deliver to the plaintiff the “JDIMI Production Report with Lead Sheet”, in either PDF or Excel format, whichever the plaintiff prefers;
c) Within 60 days of receiving the “JDIMI Production Report with Lead Sheet” the plaintiff will deliver an affidavit setting out, with particularity, its position regarding whether the document discloses evidence of any commissions or payments which should have been credited to the plaintiff’s account and were not. If the plaintiff’s position is that the document does disclose missing payments or commissions, the affidavit will include the plaintiff’s analysis of the material produced in terms of its effect on any payment the plaintiff alleges it is owed. The affiant may be either the plaintiff, or the plaintiff’s expert;
d) Upon the completion of (c), above, the parties will arrange a 9:30 appointment to schedule next steps in the action, including a settlement conference and a trial date;
e) Costs of this motion are fixed, as agreed, at $10,000, all in. Entitlement to those costs, if to anyone, is in the ultimate discretion of the trial judge.
MESBUR J.
Released: August 8, 2017
[^1]: See paragraph 9 of plaintiff’s amended factum
[^2]: Although the plaintiff’s notice of motion seeks production of other material as well, argument was limited to seeking production of the JDIMI Production Report and Lead Sheet. Accordingly, that is what I will deal with in this decision.
[^3]: Defendants’ factum at paragraph 101, citing Abou-Elmaati v. Canada (Attorney General), [2010] O.J. No. 2605 (S.C.J.) and Apotex Inc. v Richter Gedeon Vegyeszeti Gyar RT, 2010 ONSC 4070, 2010 O.J. No. 2718 (Master), RCP Inc. v Wilding, [2002 O.J. No. 2752 (Master)
[^4]: While the parties discussed jointly retaining and instructing an expert to review the JDIMI Production Report and Lead Sheet, instead of disclosing it to the plaintiff and its principal, sadly they were unable to come to any agreement concerning this sensible suggestion.