COURT FILE NO.: CV-15-0694-00/ CV-18-1143-00
DATE: 2018 07 16
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
TSI International Inc.
Plaintiff
Robert Taylor, Counsel for the Plaintiff
- and -
John Formosa, Steffen Nielsen, iFarmLocal Inc., Richard Taylor, Great Life Group Inc. and John Masih, carrying on business as MSM Group
Tim Gleason, Counsel for John Formosa, Steffen Nielsen and iFarm Local Inc.
Defendants
AND BETWEEN:
John Formosa and Steffen Nielsen
Plaintiff
-and-
TSI International Group Inc., Titan Shield Inc., The Estate of Daniel Norman Lane, Deceased, and Brandon Aldon Lane in his personal capacity as administrator of the estate of Daniel Norman Lane
Defendants
Lindsay Beck, for the Defendants
HEARD: June 8th, 2018
REASONS FOR DECISION
LEMAY J
[1] I am case managing these matters, which have been proceeding slowly through the various preliminary stages of litigation. The first action started as an injunction application before Ricchetti J. in February of 2015 (see 2015 ONSC 1138). I became the case management judge in early 2016, and there have been a series of motions, including an appeal to the Court of Appeal since that time.
[2] There are now two related actions in this matter. A second action was started by some of the Defendants in the first action in late March of this year. I am also the case management judge in this second action. It is proceeding against the Plaintiff in the first action, as well as other related entities.
[3] A summary judgment motion is scheduled in the first action for December 10th and 11th, 2018. As a result, there are a number of matters that the parties have raised for determination in advance of the summary judgment motion. This decision addresses those issues.
Background Facts
a) The Parties
[4] The Plaintiff in the first action, TSI, is part of a group of companies that engages in land banking. The personal Defendants were all either employed by or retained by TSI to engage in various functions.
[5] The Defendant, IFarm Local Inc. is a company incorporated by Mr. Formosa and Mr. Nielsen in the summer of 2014. The Defendant, Great Life Group is a company that was incorporated by Mr. Richard Taylor in the summer of 2014.
[6] At this point, the Formosa parties, which include Mr. Formosa, Mr. Nielsen and IFarm Local, are represented by Mr. Gleason. The remainder of the Defendants in the first action, who I will refer to as the Masih parties, are represented by Ms. Beck. Mr. Robert Taylor is the counsel who represents all of the TSI Group parties, including the Estate of Daniel Lane and Mr. Brandon Lane as the Estate Trustee.
b) The Litigation Thus Far
[7] In February of 2015, TSI brought a motion for a temporary injunction restraining the Defendants from various conduct. That injunction was granted by Ricchetti J. on February 18th, 2015.
[8] The matter first came before me in December of 2015, when TSI brought a motion challenging the Statement of Defence. Ultimately, this motion proceeded under both Rule 21 and Rule 25. After discussion with the parties, I suggested the appointment of a case management judge. Daley R.S.J. duly appointed me the case management judge in the first action.
[9] I heard the Rule 21 and 25 motion in March of 2016, and struck out substantial portions of the Statement of Defence by way of a decision in June of 2016. This decision was appealed to the Court of Appeal by all of the Defendants in the first action. The Court of Appeal determined that the Defendants should be granted leave to amend their Statement of Defence, but otherwise did not address the merits of my decision (see 2017 ONCA 261).
[10] In the time period that the matter was pending in the Court of Appeal, I had the parties working on the documentary disclosure issues. In particular, there were a whole series of hard drives that had been seized by the Plaintiff pursuant to an Anton Piller Order issued by Ricchetti J. as part of the relief granted during the injunction hearing. There were a series of appearances and rulings that addressed the approximately million documents that were found in that search.
[11] I directed the parties to perform significant work in order to narrow these documents, and prepare the productions in this matter. This work included developing a document production protocol, and providing the parties with various orders. My goals were to ensure that confidentiality was preserved, have the litigation move forward and narrow the scope of the documents to be produced.
[12] Once the Court of Appeal had rendered its decision, I provided the parties with directions in order to ensure that pleadings closed promptly thereafter. The Defendants were given sixty (60) days in order to complete their Statement of Defence. This was to be done by May 26th, 2017.
[13] As part of that endorsement, I also directed that TSI was to determine whether it wished to bring a summary judgment motion, and whether it wished to bring that motion before discoveries were completed. TSI was given a deadline to decide this question, and confirmed on July 27th, 2017 that it was intending to bring a summary judgment motion.
[14] That motion was scheduled for March 27th and 28th, 2018. In the meantime, a timetable was established for the summary judgment motion. That timetable included directions to ensure that the materials were produced for the motion, as well as a timetable for any other preliminary motions that were necessary.
[15] In addition, I directed that documentary discovery was to be completed. The parties were to exchange Affidavits of Documents and Schedule “A” productions. I did not impose any limitations on my orders regarding this production. I expected it to be all of the production required for the trial of the matter.
[16] As the parties worked through the timetable to reach a summary judgment motion, it became clear that they would have issues over production of documents. As a result, I scheduled a production motion for January 8th, 2018. That motion ultimately did not proceed.
[17] Shortly before the January 8th, 2018 motion, I was advised that Mr. Daniel Lane had become critically ill, and that Mr. Taylor (counsel for TSI) was not certain if he would be remaining as counsel. As a result, the summary judgment motion was adjourned.
[18] In March of 2018, Mr. Gleason, on behalf of the Formosa parties, commenced a second action. It is a claim against a group of companies related to TSI, as well as against the Estate of Daniel Lane, and against Brandon Lane (Daniel Lane’s son) in his capacity as the Estate Trustee. I am also managing this action, and will refer to the Defendants in the second action as the TSI Group. Where I refer to the Plaintiff in the first action, I will refer to it simply as TSI.
[19] This second action is for special and general damages against the TSI Group. The claim is based in conspiracy. The Formosa parties allege that TSI gave an undertaking for damages when Ricchetti J. granted the original injunction back in 2015. Then, the Formosa parties allege that various parties in the TSI Group caused TSI to transfer its assets and operations to a different entity for the purposes of avoiding TSI’s obligations pursuant to the undertaking that TSI gave to obtain the injunction.
[20] In April of 2018, it was confirmed that Mr. Taylor would continue to represent TSI as well as coming on the record for all of the other related parties (including Mr. Lane’s estate) in both actions. Once the representation issues were resolved, the summary judgment motion in the first action was re-scheduled for December of 2018.
[21] In response to this new action, Mr. Taylor brought a motion before the close of pleadings, seeking to have the new action dismissed. In support of this position, Mr. Taylor alleges that the action is statute barred (by the Limitations Act), that it breaches my Order of June 8th, 2016, and on a number of other grounds.
[22] The Formosa parties have responded to the events in this case by seeking to bring a motion for security for costs. The TSI Group objects to this motion given its timing.
[23] In an appearance on May 7th, 2018, the parties advised that they had a number of issues that they wished to have addressed in advance of the motion for summary judgment. Included in the list of matters I had to address were the production issues that had not been dealt with in January. The matters that I am required to dispose of at this point were argued before me on June 8th, 2018.
The Issues
[24] Based on the foregoing, there are three issues that I am required to determine:
a) Should the Formosa parties be entitled to proceed with a motion for security for costs?
b) Is the new claim of the Formosa parties statute barred by the Limitations Act or barred by my Order requiring the Defendants in the first action to commence an action against Mr. Daniel Lane by May 26th, 2017?
c) What further production should be ordered in advance of the summary judgment motion?
[25] I will address each issue in turn.
Issue #1- The Security for Costs Motion
[26] The Formosa parties seek to bring a motion for security for costs. I have advised the parties that the first question to be determined is whether I should permit that motion to be heard before the summary judgment motion. As a result, at the appearance on June 8th, I only heard argument over whether the security for costs motion should be heard.
[27] The Formosa parties argue that I should hear the motion for security for costs because there is prejudice to them if I do not hear it, any delay in bringing this motion is explained by the fact that new information has only recently come to their attention, and TSI would not be prejudiced if I heard the motion.
[28] TSI argues that I should not hear the costs motion because there has been a significant delay in bringing the motion forward, the motion is based on a false premise, and TSI would be prejudiced by the fact that Mr. Lane has passed away. In addition, TSI argues that they have a strong case on the merits.
[29] At this stage, I am not prepared to hear the costs motion before the summary judgment motion for three reasons. First, I accept TSI’s view that there has been a significant delay in bringing this motion forward. Mr. Gleason points out, correctly, that a delay in bringing a motion for security for costs is not always fatal to the party bringing the motion. Indeed, in Pelz v. Anderson (2006 CarswellOnt 7842 (Ont S.C.J- Master)), Master Graham observes that a party can still bring a motion as long as the delay can be explained. It is only if the delay is unexplained that the motion will fail.
[30] Similarly, in Kawkaban Corp. v. Second Cup Ltd. ([2005] O.J. No. 4197 at paragraph 27), the Divisional Court stated that when determining the issue of delay, the judge hearing the motion must look at the whole record and consider when the moving party had good reason to believe that the responding party had insufficient funds to pay the award of costs.
[31] I agree with that principle, but the delay is a factor that the Court can consider in declining to address this motion at this time. In my view, the delay is a relevant factor in this case because we are very close to a summary judgment motion that has the potential to resolve many of the issues in this case.
[32] Mr. Gleason also argues that there is a good explanation for the delay in bringing the motion. This argument may very well succeed. However, it is problematic at this point for two reasons. First, addressing this argument would require a weighing of the credibility of Mr. Formosa. Second, addressing this argument would also require cross-examinations on the Affidavit of Mr. Formosa. It might require other materials from TSI or the TSI Group as well, which would inevitably require additional resources to be expended on this case prior to the summary judgment motion.
[33] To that end, I also note that, if TSI is successful on its summary judgment motion, then the second action might become moot, and the Formosa parties would have a difficult time advancing a claim for costs or security for costs. Mr. Gleason acknowledged as much during his argument.
[34] Second, the reason that the Formosa parties wish to bring the security for costs motion is, in part, because of the costs that have already been expended on this matter. However, most of the proceedings in this matter have already been the subject of costs orders. For example, the costs of the original Rule 21 and 25 motion, including the appearance before the Court of Appeal, have been addressed. Similarly, the costs of this motion will be addressed through a costs Order that will be made promptly after this endorsement is released.
[35] As a result, the costs that are likely to be incurred between the time that this decision is released and the hearing of the summary judgment motion are more limited. To put this in perspective, the total costs incurred by Mr. Formosa to date are $523,838.60. The steps that are required to get to summary judgment are the production of updated materials, the conducting of cross examinations and the preparation of factums. Given that the parties have most of the relevant documents, and given that they have already spent considerable amounts of money, the prejudice to the Formosa parties in not awarding security for costs at this point is limited.
[36] I acknowledge that the estimate that the Formosa parties have provided of the costs that will be required to bring this matter to trial is nearly $1 million. However, I am not prepared to put any significant weight on that number for two reasons. First, there was no detailed analysis to support that number in the materials before me. Second, this is the alleged cost to proceed to trial. The next step is only the summary judgment motion.
[37] Finally, Court resources are scarce in Brampton. As a result, it will be difficult to find a date in which to address the security for costs motion prior to the summary judgment motion in December of this year. As the case management judge, I am of the view that it is more convenient to address this motion after the summary judgment motion.
[38] In the result, I am not persuaded that hearing the motion for security for costs before the summary judgment motion is either reasonable or an efficient use of Court resources. Therefore, the motion will not be heard before the summary judgment motion.
[39] I should note that my view on this point might very well change if circumstances change. For example, if the summary judgment motion cannot proceed for a second time because of a change in circumstances, or if there were additional motions required before I was able to hear the summary judgment motion, the second and third reasons for not hearing the motion would not have the same force. As a result, if circumstances change in a significant way between now and the hearing of the summary judgment motion, Mr. Gleason may renew his request to have the security for costs motion heard prior to the summary judgment motion.
[40] I also note that, once a decision on the summary judgment motion is made, the motion for security for costs will be heard if the Formosa parties desire it to be heard.
[41] Finally, on this point, I note that the parties both spent some time arguing about the credibility of the various Affiants, especially Mr. Formosa. I am expressly not making any findings regarding the credibility of any of the Affiants.
Issue #2- The Limitations Act Claims
[42] The TSI Group seeks to have the claim brought by the Formosa parties dismissed on the following grounds:
a) That the claim is statute barred under the Limitations Act.
b) That the claim against the Estate of Daniel Lane and Brandon Lane as Estate Administrator should be barred because the Formosa parties did not follow my directions respecting bringing a claim against them.
c) The claim seeks to improperly pierce the corporate veil.
d) There is another proceeding pending between the same parties for the same relief.
e) The action brought by the Formosa parties is frivolous, vexatious and/or an abuse of process.
[43] I start with the Limitations Act argument. In essence, the TSI Group argues that the claim against them relates to the injunction that they sought in February of 2015. The claim was not brought until March of 2018, which is well beyond the 2 year limitations period set out in the Limitations Act. As a result, the TSI Group argues that this action should be dismissed.
[44] There are two problems with this argument. First, the Formosa parties have raised discoverability as the reason that this action was not brought within the two years after the injunction was granted. As a result, the Formosa parties state that the limitations period is an issue that cannot be determined under a Rule 21 motion.
[45] It must be remembered that the TSI Group has brought its motion under Rule 21. This rule prohibits the Court from considering evidence. In light of the provisions of Rule 21, the Court of Appeal has addressed the issue of Limitations Act defences in Salewski v. Lalonde (2017 ONCA 515). In that decision, the Court stated (at paragraph 45):
However, the basic limitation period established by the Limitations Act, 2002, is now premised on the discoverability rule. The discoverability rule raises issues of mixed fact and law: Longo v. MacLaren Art Centre, 2014 ONSC 526, 2014 ONCS 526, 323 O.A.C. 246, at para. 38. We therefore question whether there is now any circumstance in which a limitation issue under the Act can properly be determined under rule 21.01(1)(a) unless pleadings are closed and it is clear the facts are undisputed. Absent such circumstances, we are sceptical that any proposed limitation defence under the Act will involve “a question of law raised by a pleading” as required under rule 21.01(1)(a).
[46] In this case, there is a clear discoverability argument. The Formosa parties are arguing that the TSI Group transferred assets surreptitiously to avoid the undertaking that TSI gave at the original injunction. The Formosa parties allege that they were not aware of the transfer of assets or the changes to TSI.
[47] This is clearly the type of case that raises factual issues. The Formosa parties might very well be able to successfully resist the Limitations Act defence raised by the TSI Group if the Formosa parties can show that the alleged transfers of assets and business took place, and if they can show that they did not know that these transfers had taken place in a timely way.
[48] This is not the sort of claim where it is clear that the Formosa parties cannot succeed. There is a factual dispute between the parties and, if the Formosa parties can prove the allegations in the Statement of Claim, then their claim would probably succeed. As a result, this action cannot be disposed of under Rule 21.
[49] Second, the cases that the TSI Group relies upon do not assist them. The decision in Khan v. Canada (Attorney General) (2009 ONCA 737) is not a case where there was a factual dispute between the parties about a question of discoverability. Similarly, the cases that follow the principle in Joseph v. Paramount Canada’s Wonderland ((2008) 2008 ONCA 469, 90 O.R. (3d) 401) deal with the doctrine of special circumstances (see, for example, Tupling Farms Produce Inc. v. Chahal 2009 CarswellOnt 3139 at paragraph 8). They do not deal with any issues of discoverability. Indeed, discoverability was not raised in Joseph.
[50] This brings me to the argument that the claim should be barred, at least as against the Estate of Daniel Lane and the Estate Administrator. As I have described above, the pleadings in the original claim took more than two years to finalize. As part of confirming what issues would be proceeding in me, I provided the parties with a series of directions.
[51] Those directions required, inter alia, that the Defendants in the original action to bring a claim against Mr. Lane personally by May 26th, 2017. No claim was brought in that time period.
[52] Counsel for the TSI Group argues that, since the Formosa parties failed to bring this claim within the time I gave them to do so, it is barred as a result of my order. As a result, he seeks to have the claim dismissed against Mr. Lane’s estate, and against the Estate Trustee.
[53] Mr. Gleason opposes this position because he states that the claim had not been discovered at the time that the Formosa parties were required to comply with my Order. As Mr. Gleason correctly observes, it is open to the Formosa parties to argue that they were not aware of the facts underlying their claim at the time that I made my Order. Again, this is a factual dispute, and should not be resolved on a Rule 21 motion.
[54] On this point, I note that the TSI Group factum state that “it is the Plaintiff’s evidentiary burden to prove that the claim was issued within the limitations period.” There are two obvious problems with this statement. First, on a Rule 21 motion, the Court does not consider evidence. Second, the Formosa parties have clearly put the issue of discoverability into play. This brings me back to the principle in Salewski, supra.
[55] The TSI Group then argues that the claim improperly seeks to pierce the corporate veil. In support of this argument, the TSI Group argues, inter alia, that the Formosa parties have failed to meet the high threshold of showing that there are exceptional circumstances that warrant piercing the corporate veil.
[56] This argument fails for two reasons. First, this is a Rule 21 motion. As a result, evidence is not considered by the Court. Instead, I am to review the pleadings to determine whether the claim could succeed as pled. In this case, the Formosa parties have pled facts that, if accepted, could result in the Court piercing the corporate veil.
[57] Second, as a question of law, the Ontario Court of Appeal has determined that the corporate veil can be pierced when those in control of the corporation direct the doing of a wrongful thing. On this point see Mitchell v. Lewis 2016 ONCA 903 at paragraph 18 as well as Shoppers Drug Mart Inc v. 6470360 Canada Inc 2014 ONCA 85 at paragraph 43.
[58] In this case, the Formosa parties allege an unlawful act conspiracy, and have pled the factual and legal elements of this claim. As a result, there is no basis in law for disposing of their claim under Rule 21.
[59] Specifically, the Formosa parties have pled that several of the corporate defendants and Mr. Lane unlawfully transferred assets in order to defeat any claim that the Formosa parties have as a result of the undertaking that TSI gave. If made out, these facts could support the unlawful act conspiracy that the Formosa parties allege.
[60] This brings me to the TSI Groups’ argument that the parties are the same in both actions. I reject this argument, as it misses the point of the second action. The reason that the second action has been brought is that, according to the Formosa parties, there are multiple parties involved. On a reading of the Statement of Claim in the second action, it is clear that parties in addition to TSI are named. The purpose behind the second action is to advance a claim against these other entities in the event that the undertaking that TSI gave is not enforceable because TSI is (or has become) a shell company.
[61] Finally, the TSI Group argues that this action is an abuse of process. It is clearly not an abuse of process. Contrary to the TSI Group’s assertion, the second action does not name the same parties as are involved in the first action. The TSI Group is made up of a number of different entities, and they are all only parties to the second action.
[62] The TSI Group’s motion to dismiss the new claim brought by the Formosa parties is without merit, and the motion is dismissed.
[63] In terms of the requests for particulars, I have determined that they do not need to be addressed until the summary judgment motion is determined in December. I reach this conclusion for two reasons. First, there has been a great deal of information exchanged between these parties over the course of this litigation. As a result, it is likely that most of the information that is being sought by the TSI Group is already available to them. Second, nothing is going to happen in the Formosa action until the summary judgment motion in the first action is determined.
[64] Once the summary judgment motion is determined, the TSI Group can, if necessary, revisit its demands for particulars. However, in revisiting that motion, the TSI Group should be cognizant of both my observation that much of this information is already available, and that I am becoming increasingly concerned with the length of time that it is taking to move this action forward.
Issue #3- Production
[65] In the materials that were filed, it is clear that there were a number of issues that had to be decided, including claims of privilege and other disclosure. A number of issues were either agreed between the parties as they completed their materials, or in the course of argument before me. I start with the items that were agreed-upon.
[66] First, the TSI parties had originally claimed that privileged communications between Mr. Gleason’s firm and his clients should be produced. That claim is now no longer being pursued.
[67] Second, because of the injunction that Ricchetti J. granted, there is a concern that both the Formosa and Masiah parties have about whether they can serve their Affidavits of Documents on the other parties. On a technical reading of that injunction, it is arguable that they might be prohibited from serving their Affidavits of Documents on each other. It was also clear from the correspondence that was filed that this had been an issue for Mr. Taylor, counsel for the TSI Group.
[68] However, I am of the view that any limitation that the injunction places on the serving of the Affidavit of Documents and related productions should be waived, and I so order. I also note that the TSI parties are protected because of the deemed undertaking rule, which prohibits the use or dissemination of the documents received for any reason other than addressing the issues in this litigation.
[69] Third, the parties have agreed that there may be communications in the possession of one or more of the Formosa parties that passed between various people at TSI and their counsel prior to the departure of Mr. Formosa and Mr. Nielsen from TSI. The parties have agreed that these documents will not be included in Mr. Formosa’s Affidavit of Documents, and will not be referred to in this proceeding.
[70] However, if issues relating to the state of mind of TSI and/or its officers and directors are put into play in a way that engages the contents of these documents, Mr. Gleason is free to advance a claim of waiver of privilege, and I will hear that claim.
[71] This brings me to the items in dispute. In order to ensure that I addressed all of the disclosure issues that remained between the parties, counsel were directed to write to me and provide the specific documents that they were still seeking production of.
[72] The TSI parties are seeking copies of all bank statements, either personal or corporate, to which Mr. Formosa, Mr. Neilson and/or IFarm Local had access to during the period between June of 2014 and February 18th, 2018, showing deposits equal to or more than $1,000.00.
[73] The basis for this request is that income received by the Defendants in this time period could be relevant to showing whether they were competing with TSI during this time period. I agree with counsel for the TSI parties that these deposits could be relevant. However, I am of the view that the amount of $1,000.00 will catch transactions that are de minimis. As a result, I am directing Mr. Formosa, Mr. Neilson and/or IFarm Local to disclose all deposits of $5,000.00 or more for the period June 1st, 2014 and February 18th, 2018.
[74] The Formosa Defendants are seeking the following documentation:
a) The audited (or unaudited) financial statements, general ledger and income tax returns for the plaintiff for the years 2014 to 2017;
b) Bank statements recording cashflow of the plaintiff for the period from January 1, 2014 to present;
c) The plaintiff’s minute book and shareholder register;
d) Server logs from the device which the plaintiff claims John Masih tampered with to prevent backups from taking place;
e) Minutes, notes and correspondence relating to meetings and discussions between the estate of Stephen Huggins, the plaintiff’s founder, and its advisors during the key period of January 1, 2014 and January 31, 2015;
f) Copies of the minutes of meetings of the plaintiff’s board of directors between January 1, 2014 and January 31, 2015;
g) Copies of invoices, accounts statements and time dockets submitted by Mr. Formosa to the plaintiff during the period January 2012 to December 31, 2012;
h) Copies of correspondence, notes, meeting minutes and other documents relating to the employment agreement that the plaintiff alleges existed between itself and Mr. Formosa and Mr. Nielsen;
i) Copies of correspondence from Daniel Lane and/or Robert Taylor to the plaintiff regarding a proposed employment agreement between Mr. Lane and the plaintiff, prior to Mr. Lane’s taking control of the plaintiff;
j) Copies of all expense reports and claims submitted by Mr. Formosa to the plaintiff in 2014;
k) Copies of all expense reports and claims submitted by Mr. Lane to the plaintiff in 2013 and 2014; and
l) Copies of the documents listed in Schedule C of the affidavit of documents of Steffen Nielsen.
[75] Not all of these production requests are opposed by the TSI Group. However, there are a significant number of production requests that remain opposed by the TSI parties. An overarching argument that the TSI parties advance in opposing this request is that the information is not necessary for the summary judgment motion as they are irrelevant to the issues to be determined on the summary judgment motion. The TSI parties also argue that the documents sought by the Formosa parties are overly broad, and requiring the TSI parties to produce those documents would be contrary to the principles of proportionality.
[76] First, there is the argument that the information sought is irrelevant because it is not necessary for the summary judgment motion. In support of that position, Mr. Taylor pointed me to the following passages from Natural Resource Gas Ltd. v. IGPC Ethanol Inc (2011 ONSC 3529 paragraphs 13 to 16):
In my view, the rationale that the parties must deliver an affidavit of documents in all cases including where a motion for summary judgment is brought is premised on the need for disclosure of all relevant documents so that the opposing party has all relevant information and is in a position to put forward all its relevant evidence in order to defend the motion. The cases cited about recognize this principle. However, where the motion for summary judgment is brought to determine the application of a limitation period, the circumstances may dictate otherwise.
In Business Development Bank of Canada v. Van Wyk, [2002] O.J. No. 3742, 116 A.C.W.S. (3d) 834 (Ont. S.C.J), at paragraph 24, Cullity J. considered the circumstances in which the court may exercise its discretion to dispense with the requirement in Rule 30.03 to serve an affidavit of documents. Those circumstances include where the party refusing to serve an affidavit of documents demonstrates some hardship or prejudice if production is ordered or there is some other good reason related to the conduct of the party seeking production or that production is not relevant to the issues raised in the particular motion. I agree with the factors he outlined as well as his view that the party refusing to provide the affidavit of documents bears the onus of satisfying the court that there is good reason to dispense with the requirement under Rule. 30.03.
In the case before me, where the issue is whether a limitation period for libel applies, I find it would cause hardship to the defendants to require all documentary evidence in their possession or control be produced prior to arguing the motion for summary judgment. There would be unnecessary delay and expense caused to the defendants in a situation where the documents being sought are not relevant to the motion. Further, in considering the conduct of the parties since the action was commenced, I find there is good reason to not require an affidavit of documents at this time. Should the motion fail, the plaintiff will be in a position to receive the defendants’ affidavit of documents as they proceed on the road to a trial of the action.
The Rules of Civil Procedure require that the principle of proportionality be applied. This case is one where it is necessary and in the interests of justice that I exercise my discretion under Rule 2.03 and order that the serving of an affidavit of documents be deferred at this time.
[77] A similar approach was adopted in Stantec Consulting Ltd v. Altus Group Ltd. (2014 ONSC 6111). In my view, the approach adopted by the Court in Natural Resource and Stantec would often be the most appropriate course to adopt prior to a summary judgment motion. However, it is not the appropriate course in this case for three reasons.
[78] First, and most importantly, I have already made directions with respect to the completion of the Affidavit of Documents in this case. Specifically, I directed that the Affidavits of Documents be completed by November 15th, 2017. Indeed, the TSI parties have moved in order to obtain a further and better Affidavit of Documents from a number of the defendants in the first action. This action has taken too long to proceed, and I am not prepared to further delay the completion of the documentary discovery phase of the action.
[79] As a result, this case is distinguishable from the decisions cited to me by counsel for the TSI Group. This is not just a motion to compel production for a summary judgment motion. Instead, it is a motion to compel the completion of the Affidavit of Documents, something that was to be done by the middle of last November.
[80] Second, the documents sought in this case are substantially less voluminous than the documents that have already been produced. As a result, while the principle of proportionality is engaged, it does not bar most of the discovery sought by the Formosa parties.
[81] The importance of the principle of proportionality has been explained by Perrell J. in Ontario v. Rothmans (2011 ONSC 2504 at paragraph 162) as follows:
162 In adopting this approach, the Master departed from his own views, with which I agree and would endorse, expressed in Warman v. National Post Co., 2010 ONSC 3670 (Ont. Master), where he stated at paras. 84-86:
[84] The time has come to recognize that the “broad and liberal” default rule of discovery has outlived its useful life. It has increasingly led to unacceptable delay and abuse. Proportionality by virtue of the recent revisions has become the governing rule. 84. To the extent that there remains any doubt of the intention of the present rules I see no alternative but to be explicit.
Proportionality must be seen to be the norm, not the exception – the starting point, rather than an afterthought. Proportionality guidelines are not simply “available”. The “broad and liberal” standard should be abandoned in place of proportionality rules that make “relevancy” part of the test for permissible discovery, but not the starting point.
If embraced by the courts, parties and their counsel, such proportionality guidelines offer hope that the system can actually live up to the goal of securing for the average citizen “a just, speedy and inexpensive determination” of his or her case.
[82] In this case, the damages claim advanced in the Statement of Claim is in excess of $500,000.00. In addition, the documents that have already been considered and produced by the parties amount to in excess of 1 million electronic records. As a result, this is a case where it will be easier for individual requests for documents to meet the proportionality threshold.
[83] Finally, counsel for the TSI Group argues that TSI is not seeking damages as part of its summary judgment motion. That is all well and good. However, the Statement of Claim, which is what the production obligations are based on, still advances significant claims for damages. As a result, there is no narrowing of what is relevant in this case. Anything that is relevant to damages is to be produced, as long as it also meets the principle of proportionality.
[84] With these observations in mind, my decision on each of the production requests made by the Formosa parties is as follows:
a) The audited (or unaudited) financial statements, general ledger and income tax returns for TSI for the years 2014 to 2017. I am of the view that all of this information is relevant. However, I am not prepared to order production of the general ledger as I view that as being potentially too onerous. The information that the Defendants seek should be able to be gleaned from the financial statements and the income tax returns, and I order their production. Once they are reviewed, if the Formosa parties are of the view that there is additional information in the ledgers that they require, they can bring a further motion and explain how it is relevant.
b) Bank statements recording cashflow of TSI from the period January 1, 2014 to the present. This may also be arguably relevant, but it is also potentially too onerous. Again, the information that the Defendants seek should be able to be gleaned from the financial statements and the income tax returns, and I order their production. Once they are reviewed, if the Formosa parties are of the view that there is additional information in the bank statements that they require, they can bring a further motion and explain how it is relevant.
c) The Minute Book and Register of TSI. This was one of the requests that counsel for TSI did not seem to dispute. I am of the view that it is relevant and should be disclosed back to the date that Mr. Formosa first became a director of TSI, or 2010, whichever is earlier.
d) Server Logs from the device which TSI claims John Masih tampered with to prevent backups from taking place. Again, this was one of the requests that counsel for TSI did not seem to dispute. I am of the view that this is clearly relevant, and should be disclosed. The state of the equipment is relevant to both sides in determining what Mr. Masih did.
e) Minutes, notes and correspondence relating to meetings and discussions between the estate of Stephen Huggins and TSI’s advisors during the period between January 1, 2014 and January 31, 2015. In their argument, the Formosa parties allege that these documents are relevant to address the competing claims over whether the IFarm business was rejected by Huggins and his estate. This is an issue in dispute between the parties. However, the request as framed by the Formosa parties is overly broad. This request should be limited to documents relating to the IFarm business, and I so order.
f) Copies of the minutes of meetings of TSI’s Board of Directors between January 1, 2014 and January 31, 2015. Given the allegations in the Statement of Claim that Formosa had fiduciary obligations to TSI, it would seem clear to me that the directions being provided to him, his involvement in Board business, and the overall affairs of the company would be relevant. In addition, it should not be particularly onerous to obtain these documents. They are to be produced.
g) Copies of invoices, account statements and time dockets submitted by Mr. Formosa to TSI during the 2012 calendar year. I am not clear on why these documents are relevant, and I am declining to Order their disclosure. If counsel for the Formosa parties wishes to renew his request for these documents, he may do so, but he must specifically explain the relevance of these documents.
h) Copies of correspondence, notes, meeting minutes and other documents relating to the employment agreement that TSI alleges existed between itself and Mr. Formosa and Mr. Nielsen. This is also one of the requests that counsel for TSI did not oppose. Again, I am of the view that these documents are clearly relevant and are to be produced.
i) Copies of correspondence from Daniel Lane and/or Robert Taylor to TSI regarding a proposed employment agreement between Mr. Lane and TSI prior to Mr. Lane taking control of TSI. The Formosa parties allege that this information is relevant because any employment agreements that they were going to execute were contingent on Mr. Lane also executing an employment agreement. It is clear that any employment agreement executed by Mr. Lane prior to taking control of the company is relevant, and must be produced, although I understand that one was not signed. However, it is not clear to me that the communications over that agreement are relevant, except to the extent that they address the specific allegation made by the Formosa parties. As a result, production of any materials leading up to the negotiation of Mr. Lane’s employment agreement (if one was ever signed) are limited to any information about and/or discussions of Mr. Lane’s agreement being contingent on Mr. Formosa and/or Mr. Nielsen signing an employment agreement.
j) Copies of all expense reports and claims submitted by Mr. Formosa to TSI in 2014. This is also information that is arguably relevant. This information is directly relevant to the allegations made in paragraphs 88 to 92 of the Statement of Claim. This information is to be produced.
k) Copies of all expense reports and claims submitted by Mr. Lane to TSI in 2013 and 2014. Given that TSI has alleged that some or all of the Formosa parties improperly completed expenses, and expensed excessive amounts, it appears to me that this information is also relevant. It is to be produced.
l) Copies of the documents listed in Schedule “C” of the Affidavit of Documents of Steffen Nielsen. I had requested that the parties list the documents that they were seeking specifically in a post-hearing e-mail. Unfortunately, while I was able to find the Schedule “C” to the Supplementary Affidavit of Documents of Mr. Nielsen, I could not find the Schedule “C” in question. As a result, the parties are to discuss the documents in this list, and agree upon whether they should be disclosed. I will address any issues relating to this outstanding request if necessary.
[85] All of the production that I have ordered from each party must be disclosed to the other party within thirty (30) calendar days. This deadline is firm, and may not be extended (even on consent) without my leave. I have provided a firm deadline for two reasons. First, there is a summary judgment motion scheduled for December. I do not want a delay in providing this disclosure to result in a delay in the hearing of that motion. Second, in my view, most of this documentation should have been disclosed last November. This action must be moved forward.
[86] So the parties are aware, the thirty days that I have provided to them takes the fact that people are on summer vacation into account. Had this been during a non-peak vacation period, I would have ordered the disclosure to be completed within fourteen (14) days.
Conclusion- Order and Costs
[87] Based on the foregoing, I order as follows:
a) The motion for security for costs will be heard after the summary judgment motion scheduled for December of this year.
b) Notwithstanding paragraph (a), in the event that the summary judgment motion is delayed, then the Formosa parties may renew their request to have the security for costs motion heard.
c) The motion brought by the TSI Group to dismiss the action in Court File No. 18-1143-00 pursuant to Rule 20 of the Rules of Civil Procedure is dismissed.
d) Any prohibition on the exchange of Affidavits of Documents that flows from the injunction of Ricchetti J. is hereby waived, but the parties are reminded that the deemed undertaking rule applies to these productions.
e) The privileged TSI documents in Mr. Formosa’s possession will not be referred to in this case.
f) Notwithstanding paragraph e), if TSI puts the state of mind of itself or its officers or directors into play in a way that engages the contents of the privileged documents described in paragraph e) then the Formosa parties may advance a claim of waiver of privilege.
g) Mr. Formosa, Mr. Nielsen and IFarm Local are to produce records of all deposits of $5,000.00 or more during the period between June 1, 2014 and February 28th, 2018 to all bank accounts controlled by them.
h) TSI is to produce its financial statements (audited or unaudited) for the years from 2014 to 2017.
i) TSI is to produce its minute book and register from 2017 back to the earlier of 2010 or the date when Mr. Formosa first became a director of TSI.
j) The server logs from the device that TSI claims that Mr. Masih tampered with is to be produced.
k) Minutes, notes and correspondence relating to discussions and meeting between the estate of Stephen Huggins and TSI’s advisors addressing the issue of the IFarm business in the period between January 1, 2014 and January 31, 2015 are to be produced.
l) TSI is to produce the minutes of its Board of Directors meetings between January 1, 2014 and January 31, 2015.
m) TSI is to produce copies of correspondence, notes, meeting minutes and other documents relating to the employment agreements that TSI alleges existed between itself and Mr. Formosa and Mr. Nielsen.
n) TSI is to produce any employment agreement executed by Mr. Lane prior to his assumption of control over the company.
o) TSI is to produce any documents or other materials flowing from the negotiation of Mr. Lane’s employment agreement that relate to any discussions and or information about Mr. Formosa and Mr. Nielsen’s employment agreement being contingent on Mr. Lane signing an agreement.
p) TSI is to produce copies of all expense reports and claims submitted by Mr. Formosa to TSI in 2014.
q) TSI is to produce copies of all expense reports and claims submitted by Mr. Lane to TSI in 2013 and 2014.
r) The parties are to agree on the production of the Schedule “C” documents in Mr. Nielsen’s Affidavit of Documents.
[88] Then, there is the subject of costs. Each party is to provide their costs submissions within twenty-one (21) calendar days of the release of these reasons. Those submissions are not to exceed three (3) double-spaced pages, exclusive of bills of costs, case law and offers to settle.
[89] Reply submissions are due seven (7) calendar days thereafter, and are not to exclude one (1) double-spaced page.
[90] There are to be no extensions on the deadline for providing costs submissions without my leave. In that regard, I note that I have considered the fact that parties are likely to be on vacation in the summer.
[91] The motion date to hear the security for costs motion is vacated, without prejudice to the Formosa parties’ right to bring this motion on again once disclosure is completed.
[92] The dates for summary judgment remain, and the parties will be contacted by my judicial assistant to confirm a further case management conference date in this matter.
LEMAY J
Released: July 16, 2018
COURT FILE NO.: CV-15-0694-00/ CV-18-1143-00
DATE: 2018 07 16
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
TSI International Inc.
Plaintiff
- and -
John Formosa, Steffen Nielsen, iFarmLocal Inc., Richard Taylor, Great Life Group Inc. and John Masih, carrying on business as MSM Group
Defendants
AND BETWEEN:
John Formosa and Steffen Nielsen
Plaintiffs
-and-
TSI International Group Inc., Titan Shield Inc., The Estate of Daniel Norman Lane, Deceased, and Brandon Aldon Lane in his personal capacity as administrator of the estate of Daniel Norman Lane
Defendants
REASONS FOR JUDGMENT
LEMAY J
Released: July 16, 2018