COURT FILE NO.: CV-15-522882

MOTION HEARD: June 14, 2016 and August 17, 2016

SUPERIOR COURT OF JUSTICE – ONTARIO

Re:

H.R.D. KITCHEN SERVICES (TORONTO) LTD., H.R.D. KITCHEN

SERVICES LTD. and H.R.D. SERVICES (ONTARIO) LTD.

and 9032428 CANADA INC.

Plaintiffs

v.

PRIME FOOD EQUIPMENT SERVICES LTD., JASON KILLEEN,

STEPHEN CHERESHNEVSKY, EDWARD BERNARD, FRANCOIS

CSEPLO, a.k.a. FRANK CSEPLO, MARIO GUERRERO, MICHELLE

SAVOIE and RYAN WHITE

Defendants

BEFORE: Master Lou Ann M. Pope

APPEARANCES: Jonathan Kulathungam, Teplitsky, Colson LLP, for plaintiffs

Fax: 416-365-0695

Leo Klug, Klug Law LLP, for defendants

Fax: 905-889-9747

REASONS FOR ENDORSEMENT

[1] The plaintiffs seek various forms of relief including leave to amend the statement of claim and an order that the defendants answer outstanding undertakings and questions improperly refused at the examinations for discovery held on March 30, 2015, March 31, 2015 and November 18, 2015.

[2] In this action it is alleged that the defendants, former employees of the plaintiffs, misappropriated the entire business of the plaintiff, H.R.D. Toronto (“HRD Toronto”), between December 2014 and January 2015. The plaintiffs provide parts and services to commercial restaurant equipment such as convection ovens, steam ovens, fryers, grills, slicers, mixers and other such restaurant equipment. Essentially, it is alleged that the personal defendants ransacked the plaintiffs’ office and warehouse taking nearly everything they could carry and drove off with three of the plaintiffs’ service trucks. The plaintiffs further allege that prior to the defendants physically removing the plaintiffs’ assets, the defendant, Stephen Chereshnevsky (“Stephen”), had incorporated the defendant, Prime Food Equipment Services Ltd. (“Prime Food”), in August 2014 and had been operating that company from September 2014. It is further pled that the defendants used the knowledge of the plaintiffs’ business gained through their positions with the plaintiffs and from files taken, both physical and computer files, and used the confidential information to operate Prime Food in direct competition with HRD Toronto.

[3] The plaintiffs obtained a Mareva injunction and a preservation order. In particular, on March 12, 2015, the parties consented to an order granted by Justice C.J. Brown which required the defendants to, inter alia, preserve all of the defendants’ property and return the plaintiffs’ assets to them. In addition, the order required the defendants to be examined under oath and answer all questions that relate to the events which transpired from July 2014 to the date of the order, including the operation of Prime Food.

[4] The motion that was originally before Madam Justice Brown on March 12, 2015 was adjourned and continued before Justice Diamond on April 30, 2015. Justice Diamond found that there was sufficient evidence to support the continuation of the Mareva injunction until the trial of this action. In addition, the defendants were ordered to post $100,000 as security and to produce specified financial documents by May 30, 2015 and monthly thereafter to their counsel, who, in turn, was ordered to advise plaintiffs’ counsel in writing of his receipt of the said documents.

[5] Several of the defendants were examined as ordered by Brown J. on March 30, 2015 and November 18, 2015. The following are my rulings with respect to the remaining undertakings and refusals in dispute.

Defendants’ Undertakings and Refusals

Stephen Chereshnevsky – November 18, 2015

Refusal – Question 536, Page 75:

[6] Stephen refused to produce his personal computer for inspection by the plaintiffs.

[7] Stephen’s evidence is that he destroyed all original invoices and work orders issued by Prime Food prior to January 5, 2015 and subsequently recreated the invoices using his personal computer. Therefore, the original invoices have not been produced by the defendants.

[8] Justice Diamond found that the defendants destroyed documents. (page 2 of Endorsement of Diamond, J. April 30, 2015) In ordering that the Mareva injunction granted by Brown J. continue, Diamond J. ordered that the defendants preserve any and all property including all original documents and records that are in question in this proceeding (paragraph 1(a) of the Brown J. Order). Further, the order at paragraph 1(e)(i) restrains the defendants from disposing of, inter alia, the defendants’ assets. Paragraph 1(e)(ii)(A) restrains the defendants from destroying financial records, including invoices, that relate to services rendered to third parties by the defendants from August 2014 onwards.

[9] In my view, given Stephen’s evidence, his personal computer is relevant to the material issue raised in the amended statement of claim as to whether the defendants illicitly misappropriated the entire business of HRD Toronto and work performed and customer services by Prime Food. Further, given his evidence that he recreated the invoices on his computer and the fact that the original invoices were destroyed, the plaintiffs are entitled to inspect his computer to test the veracity of his statements. Moreover, in my view, Stephen’s personal computer comes within the purview of Justice Diamond’s order, in particular, paragraph 1(e)(ii)(A).

[10] Therefore, this question was a proper question and improperly refused by Stephen. Thus, the plaintiffs shall be entitled to inspect Stephen’s personal computer that he used to recreate the invoices. I will leave it to counsel to work out the details of the inspection and I will make myself available to deal with any issues that may arise with respect to this order.

Stephen Chereshnevsky – March 31, 2015

Refusal - Question 36, Page 7 and Question 650, Page 84:

[11] Stephen refused to produce bank statements from his chequing account number 3015165 and personal bank accounts for the past three years or, in the alternative, the past year.

[12] Stephen’s evidence is that he purchased parts with cash from his bank account while setting up Prime Food. He has not produced receipts for the purchase of the parts.

[13] In my view, it is logical that if Stephen used money from his bank account to purchase parts, his bank statement would reflect the dates and amount of cash withdrawn to do so. Had Stephen produced receipts for the purchase of the parts, the receipts would set out the dates of the purchases and the amounts paid. Thus the receipt would be the source document. However, as Stephen has not produced the receipts, I find that his bank statements are the source documents with respect to his purchase of parts for Prime Food and they are directly related to the material issue in this action of whether the defendants misappropriated the business of HRD Toronto.

[14] Therefore, this question was a proper question and it was improperly refused. Thus, Stephen shall produce his bank statements for account number 3015165 and any other personal bank accounts from and including August 1, 2014 to March 31, 2015, the date of his examination.

[15] I have ordered production to commence on August 1, 2014 for the following reasons. Firstly, it is alleged in the amended statement of claim that Prime Food was incorporated in or around August 27, 2014. Secondly, Trevor Chadbourn corroborates the evidence of date of incorporation of Prime Food as set out in his affidavit sworn March 5, 2015, at paragraphs 41 to 43, including a copy of the corporate profile report (exhibit not included in his affidavit filed on this motion). Furthermore, Justice Diamond found that the defendants started up a competing business. Lastly, the date of incorporation of Prime Food is not disputed by Stephen or Jason Killeen in their sworn evidence filed in response to this motion.

[16] The bank statements may be redacted for personal information as the plaintiffs are seeking only to corroborate Stephen’s evidence that he paid for the parts with cash from his bank account.

Further and Better Affidavit of Documents

[17] The plaintiffs seek an order striking the statement of defence. In the alternative, they seek an order that the defendants produce a further and better affidavit of documents, including the financial disclosure as ordered by Justice Diamond on April 30, 2015, as more particularly set out in the amended notice of motion.

[18] Paragraph 2 of Schedule “A” of Justice Diamond’s order sets out the details of the defendants’ financial disclosure obligations. In particular, the defendants must deliver to the office of their lawyer of record by May 30, 2015, and monthly thereafter, on the last day of each month, financial disclosure of Prime Food, which includes copies of work orders, invoices rendered to customers and clients, purchase orders as they relate to any and all inventory, profit loss statements, general ledgers and bank statements. Upon receipt of the financial disclosure, defence counsel must provide confirmation to plaintiffs’ counsel, in writing, acknowledging the fact that the defendants have complied with the court ordered financial production. Lastly, the order provides that defence counsel shall maintain the financial disclosure until further court order or the agreement of the parties.

[19] However, despite the clear wording of the court order, the defendants failed to comply with the monthly disclosure term. Instead they delivered a joint affidavit of documents sworn by Stephen as president of Prime Food on September 1, 2015 which was followed by delivery of a supplementary joint affidavit of documents sworn by Stephen on September 30, 2015. The supplementary joint affidavit of documents contains a list of hundreds of documents, including work orders, sales invoices, bank statements, balance sheets, income statements and trial balances as at August 31, 2015. The Schedule A productions were produced by the defendants on a USB flash drive and are saved thereto in PDF format.

[20] Since delivery of the supplementary joint affidavit of documents, the defendants have made further production; however, the documents have not been produced in the form of an affidavit of documents and they have failed to make production beyond December 31, 2015. Furthermore, defence has not counsel confirmed with plaintiffs’ counsel receipt of monthly production by the defendants as court ordered.

[21] The examination of Stephen continued on November 18, 2015 when he was asked questions regarding the defendants’ lack of compliance with Justice Diamond’s production order. Stephen brought with him to the examination three boxes of documents. After discussion between counsel off the record, plaintiffs’ counsel noted on the record that Stephen undertook to take steps to look for and produce all work orders, invoices and other documents that support the purchase of inventory or parts as it relates to each of the invoices and work orders from September 2014 onwards.

[22] The plaintiffs take no issue that the documents exist. The only issue is the form in which the documents are to be produced and when.

[23] The following are the relevant rules.

[24] Rule 30.02(1) requires a party to disclose every document relevant to any matter in issue in the action that is or has been in the possession, control or power of a party in the action whether or not privilege is claimed in respect of the document.

[25] Rule 30.03 requires that a party shall serve an affidavit of documents that discloses 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.

[26] Rule 30.06(b) grants the court discretion to order that a party serve a further and better affidavit of documents 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.

[27] Rule 30.07 establishes a duty of continuing disclosure on every party to an action. It provides that where a party, after serving an affidavit of documents, comes into possession or control of or obtains power over a document that relates to a matter in issue in the action and that is not privileged; or discovers that the affidavit is inaccurate or incomplete, the party shall forthwith serve a supplementary affidavit specifying the extent to which the affidavit of documents requires modification and disclosing any additional documents.

[28] Rule 30.08 sets out the court’s discretion if a party fails to disclose a document in an affidavit of documents, where a party fails to serve an affidavit of documents or where a party fails to comply with an order of the court under rules 30.02 to 30.11. The court’s discretion includes striking out the statement of defence and making such other order as is just.

[29] The jurisprudence provides guidance with respect to actions that involve high volume documentary production.

[30] In Solid Waste Reclamation Inc. v. Philip Enterprises Inc. (1991), 1991 7369 (ON SC), 2 O.R. (3d) 481 (Ont. Gen. Div.), Dennis Lane J. set out detailed requirements for document identification in a case involving a large quantity of documents. That decision has been followed by the courts over the years. Master MacLeod, as he then was, stated in Mirra v. Toronto Dominion Bank, [2002] O.J. No. 1483, 2002 CarswellOnt 1019, at paragraph 5, that the general principle derived from Solid Waste Reclamation Inc. is that counsel must devise a system of document production which satisfies the spirit and intent of the rule and which contributes to efficient resolution of the litigation. He went on to state that the system is to accomplish the following:

(1) enable swift and sure retrieval at trial or discovery;

(2) enable counsel examining the documents of another party to relate each document to its reference on Schedule A and to satisfy himself that all documents listed are actually in the collection he is examining;

(3) enable counsel at trial to ascertain swiftly that a document which is tendered to become an exhibit is in fact a document produced in Schedule A;

(4) be compatible with computer retrieval systems;

(5) be implemented before copies of the documents are made, so that the copies in the hands of all parties bear the identifier.

[31] Master MacLeod went on to discuss at paragraph 6 the obligation of the parties and their counsel to organize the productions before discovery and to do so in a manner which permits the litigation to proceed as efficiently as possible. He went on to suggest that in complex cases, the purpose of rule 30.03(1)(2) can be better accomplished through a system of unique identifiers on the original documents than by verbal descriptions of documents in a schedule, which leaves some doubt, as to whether or not a description of a document matches the copy produced. He found that this will be necessary when there are multiple versions of documents.

[32] The onus of complying with the obligation of documentary production rests with the party responsible for producing the document. However, as Master MacLeod stated at paragraph 7, the court expects that counsel will collaborate to ensure the proper ends of documentary production are met. He stated further that “Counsel as officers of the court and legal professionals are obligated to maintain a civil and working relationship on procedural issues.” He went on to state in paragraph 8 that:

It is in the best interests of both parties and of the administration of justice to devise an efficient and effective means of documentary identification and retrieval. A party reviewing an affidavit of documents is expected not to make unnecessary technical objections while a party producing an affidavit is expected to respond seriously and in good faith to concerns about the adequacy of documentary production and identification.

[33] In the within action, the plaintiffs do not take issue with the manner in which the defendants listed and described their documentary production in Schedule A of their supplementary joint affidavit of documents in compliance with rule 30.03(1)(2). By way of example, the sales invoices are listed as document number 4 and are described as “Sales invoices from September 10, 2014 to August 31, 2015, commencing with invoice 0901 to 2015-0887,” which is followed by an enumerated list of 878 invoices including the invoice number, date and name of customer.

[34] However, the key issues in this action and likely in all actions where there are continuing financial production obligations, are what method of production ought to be adopted and the frequency of production.

[35] In my view, in this action there are several considerations that lead me to conclude that it is now necessary to establish a system of documentary production by the defendants. In doing so, several factors must be considered, including the terms of Justice Diamond’s order as follows:

(1) monthly financial production by the defendants to defence counsel of the enumerated documents at paragraph 2 of the order;

(2) monthly requirements by defence counsel to confirm to plaintiffs’ counsel receipt of the defendants’ productions; and

(3) obligations on defence counsel to maintain the defendants’ documentary production at their offices.

[36] Other considerations are methods of inspection by plaintiffs’ counsel and how to determine what documents are relevant.

[37] Regarding methods of inspection by plaintiffs’ counsel, it appears there is no dispute that plaintiffs’ counsel is entitled to inspect the defendants’ documents produced to their counsel to date. However, I do not believe that inspection has occurred.

[38] Regarding relevancy, the preservation order set out at Schedule A to Justice Diamond’s order is clear that the documents the defendants are obligated to preserve are “potentially relevant” documents. Paragraphs 7 and 8 of Appendix A set out the steps to identifying potentially relevant documents which includes, searching for documents, suspending ordinary course document destruction, copying and segregating of electronically stored information and timing.

[39] The defendants produced in Schedule A to their affidavit of documents a list of documents that they do not object to produce, in essence, relevant documents. In that respect, documents such as Prime Food’s general ledgers, work orders, bank statements, sales invoices, balance sheets, income statements and trial balances, must continue to be produced. However, there are other documents listed in the preservation order that are not included in the defendants’ affidavit of documents, such as purchase orders as they relate to any and all inventory, profit and loss statements, electronic documents including the metadata and backup media. (It is uncertain at this point whether the plaintiffs are or will be satisfied with production of the balance sheets, income statements and trial balances for profit and loss statements as set out in the preservation order.)

[40] In this motion, the plaintiffs request that the defendants produce a further and better affidavit of documents which includes the documents listed in the preservation order at paragraph 2, as well as the following documents: financial statements for Prime Food, tax returns and notices of assessment, and the general ledgers, profit and loss statements and balance sheets for Prime Food in native format. I will address this relief in the following groups.

Further and Better Affidavit of Documents – Frequency of Production

[41] Keeping in mind that the last affidavit of documents produced by the defendants was sworn on September 30, 2015, and their ongoing obligations under the preservation order and disclosure under the rules, the frequency of the defendants’ production must be determined.

[42] In determining the frequency of production of an affidavit of documents, the court must also consider the interests of the opposing party in receiving regular production and to avoid being bombarded with annual production. This is essentially what occurred when the defendants delivered their most recent affidavit of documents as the listed documents covered one year in most instances and over 1500 documents.

[43] This issue was not addressed in the parties’ factums. In my view, this is an important and necessary issue particularly because the plaintiffs have sought an order that the defendants produce a further and better affidavit of documents and considering the defendants’ ongoing disclosure obligations.

[44] I am adjourning this portion of the plaintiff’s motion and ordering that if the parties are unable to agree on the frequency of production of the defendants’ affidavit of documents, the plaintiffs shall schedule a date for oral submissions of 45 minutes in total on one of my regular motion dates. The parties may file supplementary material on this issue only including case law in accordance with the timelines under the rules.

[45] In the meantime, the defendants shall serve a Second Supplementary Joint Affidavit of Documents of Prime Food Equipment Services Ltd. and Stephen Chereshnevsky within 45 days of the date of this decision. I make this order for several reasons; namely, the defendants have not produced a supplementary affidavit of documents for over a year, their ongoing preservation obligations under the Order and their ongoing disclosure obligations under the Rules of Civil Procedure. This supplementary affidavit of documents shall include the categories of documents that were included in the last affidavit of documents which I find to be relevant documents.

Further and Better Affidavit of Documents – Production of Financial Statements, Tax Returns and Notices of Assessment

[46] The financial statements, tax returns and notices of assessments were not listed specifically in the preservation order as Prime Food had been incorporated less than a year prior in August 2014. Therefore, at the time Justice Diamond made the preservation order on April 30, 2015, those documents had not been prepared or filed.

[47] In their supplementary responding motion record, the defendants produced a Balance Sheet and Income Statement for the period September 1, 2014 to November 30, 2015.

[48] As for tax returns, as of June 10, 2016 when Stephen swore his affidavit, tax returns had not been filed.

[49] The defendants do not oppose production of these documents. Therefore, in their Second Supplementary Joint Affidavit of Documents the defendants shall include the complete financial statements (not merely the balance sheet and income statement), all annual tax returns if and when filed, and all notices of assessment if received.

Financial Production in Native Format

[50] The plaintiffs seek an order requiring the defendants to produce the general ledgers, profit loss statements and balance sheets of Prime Food in native format.

[51] The preservation order required the defendants to preserve certain financial information of Prime Food including, inter alia, general ledgers, purchase orders, income statements, balance sheets, invoices and work orders.

[52] The defendants have produced its general ledgers, balance sheets, income statements and trial balances to specified dates in paper and PDF format. It is the defendants’ evidence that Prime Food used the Sage 50 Simply Accounting software program to produce its invoices.

[53] The case law has held that a party is entitled to production of electronic documents in the form in which they were created and stored; in other words, in native form. (Gamble v. MGI Securities Inc. [2011] O.J. No. 1928, at para. 22; Camino Construction Inc. v. Matheson Constructors Ltd. [2015] O.J. No. 2862, at para. 27; Ravenda Homes Ltd. v. 13722708 Ontario Inc. 2011 ONSC 4277, [2011] O.J. No. 3181)

[54] The defendants’ factum does not address this issue nor did defence counsel make submissions on this issue.

[55] It is my view that the plaintiffs are entitled to production of the Sage 50 Simply Accounting program and the financial information entered in that program by or on behalf of Prime Food for the financial year ending November 30, 2015 up to and including trial, which shall include the general ledgers, profit and loss statements and balance sheets. In the event that the profit and loss statements and balance sheets were prepared using a different software program than the Sage 50 Simply Accounting program, the above order applies to that program.

Re-Attendance at Examination for Discovery

[56] The plaintiffs request an order that Stephen, on behalf of Prime Food, and in his personal capacity, re-attend at his own expense to answer the questions arising out of the outstanding undertakings and refusals.

[57] The plaintiffs made no submissions on this issue and it was not addressed in their factum. The right to re-examine a party is not automatic and the court must be satisfied on proper evidence that there is a basis for a further examination. As none has been provided, this relief is dismissed without prejudice to the plaintiffs’ right to seek this relief at a later date given the ongoing production obligations of the defendants.

Proposed Amendments to Amended Statement of Claim

[58] The plaintiffs seek to amend their amended statement of claim in the form attached as Schedule “C” to the notice of motion contained in the moving parties’ motion record.

[59] Rule 26.01 is mandatory in nature which provides that an amendment shall be allowed unless it would cause prejudice that cannot be compensated for by costs or an adjournment. The onus is on the responding party to demonstrate prejudice on a balance of probabilities.

[60] In Marks v. Ottawa (City), 2011 ONCA 248, the Ontario Court of Appeal held that as a general rule amendments are presumptively approved; however, there is no absolute right to amend pleadings and the court has a residual right to deny amendments where appropriate. The Court of Appeal went on to state that the proper factors to be considered are as follows:

(1) an amendment should be allowed unless it would cause an injustice not compensable in costs;

(2) the proposed amendment must be shown to be an issue worthy of trial and prima facie meritorious;

(3) no amendment should be allowed which, if originally pleaded, would have been struck;

(4) the proposed amendment must contain sufficient particulars.

[61] The tenability of a proposed claim is to be assessed with reference to the principles developed under the rule 21.01(1)(b) analysis in the context of a motion to strike.

[62] The court in Reyes v. CMN Global Inc. 2015 ONSC 4463, at para. 16, cited the law in relation to rule 21.01(1)(b) that was succinctly summarized by Himmel J. in Mcintyre v. Connolly, 2008 12496 (Ont. S.C.J.), at paras. 15 and 16:

The test to be applied on a motion to strike a pleading under rule 21 is, assuming that the facts as stated in the statement of claim can be proved, whether it is “plain and obvious” that the pleading discloses no reasonable cause of action: see Hunt v. Carey, 1990 90 (SCC), [1990] 2 S.C.R. 959. Only if the action is certain to fail because it contains a radical defect should it be struck. On such a motion, no evidence is admissible. The motions judge is to read the pleadings generously with allowance for inadequacies due to drafting deficiencies: Toronto-Dominion Bank v. Deliotte Haskins & Sells (1991), 1991 7366 (ON SC), 5 O.R. (3d) 417 at 419 (Gen. Div.). If there is a chance that the plaintiff might success [sic], then the plaintiff’s claim should not be struck out: see Datile Financial Corp. v. Financial Corp. v. Royal Trust Corp. of Canada (1991), 1991 7310 (ON SC), 5 O.R. (3d) 358 at 368 (Gen. Div.).

Rule 21 is designed to eliminate claims at the earliest stage. However, neither the length nor the complexity of the issues, the novelty of the cause of action, nor the potential of a strong defence should prevent the plaintiff from proceeding. The court should not at this stage of proceedings dispose of matters of law that are not fully settled in the jurisprudence: see R.D. Belanger & Associates Ltd., v. Stadium Corp. of Ontario Ltd. (1991), 1991 2731 (ON CA), 5 O.R. (3d) 778 at 782 (C.A.). On the other hand, if a claim is not legally sufficient in that the allegations do not give rise to a recognized cause of action or the necessary legal elements of the cause of action are not pleaded, it should be struck out: see Deep v. Ontario [2004] O.J. No. 2734 at para. 33 (S.C.J.), aff’d [2005] O.J. No.1294 (C.A.). The absence of necessary elements of a cause of action constitutes a radical defect. (emphasis added)

[63] The defendants are not opposed to the proposed amendments set forth in paragraphs 141 to 151 of the proposed amended amended statement of claim (“proposed pleading”) including the subheading entitled “Misrepresentation/Fraud/Deceit/Breach of Fiduciary Duty and Conspiracy of Killeen and Key Employees.”

[64] However, the defendants oppose the following proposed amendments.

Declaration that Employment Ceased and Claim for Set Off

[65] At paragraph 18 of the proposed pleading, the plaintiffs seek to add a claim for a declaration that the employment of the individual defendants, except Stephen, with HRD Toronto ceased by December 12, 2014. In addition, at paragraphs 131 to 140 of the proposed pleading, the plaintiffs seek to add a claim for set off of any amounts ordered due and payable by the Ontario Labour Relations Board by the plaintiff with respect to wages for December 2014 and/or January 2015.

[66] The defendants oppose this amendment on the basis of the doctrines of res judicata and issue estoppel. They argue that this issue was determined by an Employment Standards Officer who ruled that the employees were entitled to be paid wages up to and including the first week of January 2015. They submit further that there is no justification for a claim of set off and there is no cause of action pleaded in the proposed pleadings for a claim of set off.

Proposed Claim for Set Off

[67] The background facts are that the individual defendants and former employees of the plaintiffs made a claim to the Ministry of Labour claiming that they were entitled to unpaid wages, holiday pay and vacation pay from the plaintiffs up to and including January 5, 2015 which was alleged to have been their last day of work. They were successful as the Employment Standards Officer ruled on December 4, 2015 that they were employed with HRD Toronto up to their resignation on January 5, 2015. The specific finding of the Officer was that “the claimants did in fact work for HRD, up to the date of resignation, January 5, 2015.” The plaintiffs sought a review of that decision to the Ontario Labour Relations Board which is pending; however, they were required to deposit certified cheques in the total amount ordered with the Director of Employment Standards in trust in the amount of $35,546.24.

[68] The plaintiffs have set out in their Factum the relevant principles and the law governing equitable set-off.

[69] The law is well established that a claim for set off is an equitable remedy and while it is typically invoked as a response to a claim, a party need not be defending a claim in order to invoke set off. (Ferrum Inc. v. Three Dees Management Ltd., [1991] O.J. No. 208, at p. 13.) Equitable set off has been described as “a substantive right held by a debtor that constitutes a charge against a chose in action for his debt . . .” (Cactus Restaurants Ltd. v. Morison, 2010 BCCA 458, at paras 11-12)

[70] The defendants submit that there is no justification for a set-off claim and there is no cause of action as pled for set off in the proposed claim.

[71] As described in the passages above, an equitable claim of set off is a substantive right in which the plaintiffs herein (the debtors by virtue of the decision of the Employment Standards Officer) seek to set off against any judgment the plaintiffs may obtain against the same defendants who obtained an order against the plaintiffs that arose out of the same set of facts that gave rise to the decision of the Employment Standards Officer. The facts are that the individual defendants resigned from employment with the plaintiffs on January 5, 2015. At the time the notice of action was issued in this action on February 26, 2015, the parties did not have the decision of the Employment Standards Officer which was issued on December 4, 2015. As such, the material facts that would have formed the basis for a set-off claim were unknown and not ascertainable to the plaintiffs on February 26, 2015. The plaintiffs served the Motion Record herein on April 25, 2016, less than five months after the decision of the Employment Standards Officer was issued. For the above reasons, I am also satisfied that the proposed claim for set off is not a new claim made against the defendants.

[72] I am satisfied that the plaintiffs have properly pled the proposed claim of set off at paragraph 140 of the proposed amended claim, as well as the current pleadings of the material facts to support the claims including breach of contract, breach of fiduciary duty and conspiracy.

[73] The defendants submit that issue estoppel applies in these circumstances such that the proposed amendment ought not to be granted.

[74] The plaintiffs must establish an equitable ground for seeking to add a claim for set off.

[75] The Supreme Court of Canada held that the rules governing issue estoppel should not be mechanically applied and the underlying purpose is “to balance the public interest in the finality of litigation with the public interest in ensuring that justice is done on the facts of a particular case.” (Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44, [2001] 2 SCR 460, at para. 33)

[76] In determining whether the doctrine of issue estoppel applies, the court must undertake a two-step analysis. Firstly, the party seeking to invoke the doctrine of issue estoppel must satisfy the court that:

(a) the same question has been decided. The proposed claim at paragraph 18 seeks a declaration that the defendants’ employment with H.R.D. ceased by December 12, 2014. The Employment Standards Officer decided that the same defendants were employed with HRD up to their resignation on January 5, 2015. I find that the claim that the plaintiffs seek to add at paragraph 18(a) of the proposed amended claim is the same question decided by the Employment Standards Officer.

(b) the judicial decision which is said to create the estoppel was final. I find that the decision of the Employments Standards Officer was final in that it was a determination of the issue raised by the defendants that the plaintiffs contravened the Employment Standards Act, 2000.

(c) the parties to the judicial decision were the same persons as the parties to the proceedings in which the estoppel is raised. There is no dispute that the parties involved in the defendants’ claim with the Ministry of Labour are the same parties to this proceeding.

[77] The second part of the analysis in determining whether issue estoppel applies involves the court’s discretion to not apply issue estoppel when its application would work an injustice.

[78] It has been held that the principle underpinning this discretion is that a judicial doctrine developed to serve the ends of justice should not be applied mechanically to work an injustice. (Penner v. Niagara, 2013 SCC 19, at para. 29)

[79] In view of my discretion, I have considered that the decision of the Employment Standards Officer is under appeal brought by the plaintiffs which decision is pending and which could reverse the original decision. In my view, there is a serious potential for injustice if the original decision is not overturned and the plaintiffs are not permitted to add a claim of set-off in their Statement of Claim. In that scenario, if the plaintiffs are successful in obtaining judgment against the individual defendants in this action, it would be highly unjust to the plaintiffs to have to pay the defendants their unpaid wages while at the same time have to attempt to collect on a judgement in this action and possibly fail to do so.

[80] In conclusion, although the defendants have satisfied the first part of the test in determining whether issue estoppel applies, in my view, if the court where to apply issue estoppel, it would create an injustice to the plaintiffs that, if applied, would bring the administration of justice into disrepute. Therefore, I find that these are appropriate circumstances for the court to use its discretion to not apply the doctrine of issue estoppel.

[81] As the defendants have put forth no evidence that they would suffer prejudice if the proposed amendment of a claim of set off were allowed, the proposed amendments at paragraphs 18 and 131 to 140 are permitted.

[82] For all of the above reasons, the proposed amendments to add a claim of set off at paragraphs 18 and 131 to 140 are hereby granted.

Proposed Claim – Declaration that Employment Ceased

[83] Given my ruling at paragraph 76(a) above, the proposed amendment at paragraph 18(a) of the proposed pleading is dismissed.

Proposed Claim of Tort of Deceit

[84] The plaintiffs seek to amend the claim to add a claim for deceit at paragraph 141 to 151. The defendants do not oppose the proposed amendments at those paragraphs except for the claim of deceit.

[85] The defendants submit that no material facts are pled to claim the tort of deceit.

[86] The plaintiffs must establish that they have pled all of the constituent elements of the tort of deceit which are as follows:

(a) the defendant has made a false representation or statement;

(b) the false representation or statement was knowingly false;

(c) the false representation or statement was made with the intention to deceive the plaintiffs;

(d) the false representation or statement materially induced the plaintiffs to act; and

(e) the false representation or statement resulted in damages to the plaintiffs.

[87] Upon review of the proposed pleading, it is my view that proposed amendments at paragraphs 145 and 147 (a) through (d) are proper pleadings of the material facts to support a claim for deceit.

[88] As the defendants have put forth no evidence that they would suffer prejudice if the proposed amendment of the tort of deceit were allowed, the proposed amendments at paragraphs 141 to 151 are granted.

Conclusion

[89] For the above reasons, the following orders shall issue:

(a) Refusal by Stephen Chereshnevsky at Question 536, Page 75, shall be answered;

(b) Refusal by Stephen Chereshnevsky at Question 36, Page 7 and Question 650, Page 84, shall be answered. Stephen shall produce his redacted bank statements for account number 3015165 and for any other personal bank accounts from and including August 1, 2014 to March 31, 2015;

(c) the defendants shall serve a Second Supplementary Joint Affidavit of Documents of Prime Food Equipment Services ltd. and Stephen Chereshnevsky within 45 days of the date of this decision, which shall include the complete financial statements, all annual tax returns if and when filed, and all notices of assessment if received of Prime Food.

(d) this motion is adjourned with respect only to the frequency of production of the defendants’ affidavit of documents. If the parties are unable to agree on the frequency of production, the plaintiffs shall schedule a date for oral submissions of 45 minutes in total on one of my regular motion dates. The parties may file supplementary material on this issue only including case law in accordance with the timelines under the Rules.

(e) the defendants shall produce the general ledgers, profit loss statements and balance sheets of Prime Food in native format.

(f) the relief that Stephen re-attend for examinations for discovery is hereby dismissed without prejudice to the plaintiffs’ rights to seek this relief at a later date;

(g) the plaintiffs are granted leave to amend the amended statement of claim in the form attached at Schedule “C” to the notice of motion, with the exception of paragraph 18(c).

Case Management

[90] The defendants seek that this action be assigned to case management under rule 77 which is opposed by the plaintiffs.

[91] In considering the circumstances of this action and the criteria for case management under rule 77.05, in my view this action does not warrant case management. This action was commenced in 2015 and examinations for discovery have been completed for the most part and documentary production is ongoing and subject to a prior court order. Thus, there has not been substantial delay. There are only two counsel involved despite the number of parties. Immediately after the action was commenced, there was judicial intervention; however, there has been no intervention by the court until this motion. In my view, it appears that counsel and the parties have conducted themselves responsibly, with some exceptions that gave rise to this motion. There are no related actions. The issues of fact and law in this action are not complex.

[92] In addition, I have taken into consideration the scarce resources available by the Case Management Masters to case manage actions. This is particularly so given the two recent retirements of Masters Dash and Haberman, the upcoming retirement of Master Hawkins and the fact that no replacements for those three Masters have been appointed to date.

[93] For the above reasons, I decline to grant the defendants’ request that this action be assigned to case management.

Costs

[94] The plaintiffs have been substantially successful on this motion. The only relief they were not granted was the amendment at paragraph 18(a) of the proposed pleading and an order requiring Stephen to re-attend for examinations for discovery; however, they have the right to seek that relief at a later date. Therefore, in these circumstances, it is my view that it is fair and reasonable that the plaintiffs receive their costs of this motion on a partial indemnity basis.

[95] If the parties are unable to agree on the quantum of costs, they may make short submissions in writing of no more than two pages double spaced and size 12 font, as well as Costs Outlines within 14 days. The submissions shall be filed with my ATC, Christine Meditskos, on the 6th floor at 393 University Avenue.

(original signed)___

January 25, 2017 Master Lou Ann M. Pope