Court File and Parties
COURT FILE NOs.: 16-59186 & 18-64213 DATE: September 6, 2018 ONTARIO SUPERIOR COURT OF JUSTICE
B E T W E E N:
Verge Insurance Brokers Limited, 172968 Ontario Inc., Marick Bros. Investments Inc. and Mark Sherk Plaintiffs
Stephen Gleave and Ian Dick, for the Plaintiffs
- and -
Richard Sherk, Daniel Sherk, Martin, Merry & Reid Limited and Cal Schulz Insurance Brokers Ltd., Andree Senn, Brenda French and Ruth Pluska Defendants
George Limberis, for the defendant Daniel Sherk
A N D B E T W E E N:
Deloitte Forensic Inc. and Deloitte LLP Applicants
Wade Morris, for Applicants
- and -
Daniel Sherk and Verge Insurance Brokers Limited Respondents
George Limberis, for the respondent Daniel Sherk; Stephen Gleave and Ian Dick for Plaintiffs
HEARD: August 7th, 2018
E N D O R S E M E N T
INTRODUCTION:
[1] There were three motions before me with regards to the above captioned matters. Two were resolved on the morning of the hearing; that being the motion by Deloitte as to the amount owing them which was unopposed and an appropriate endorsement to that effect has been crafted by counsel on consent. The second motion was by Verge to compel Daniel to produce a data stick from Digital Defence which Daniel has now agreed to produce, and it is agreed that once that is done, that motion will be withdrawn and the issue of who pays the costs of Digital Defence to prepare the stick will be left to the discretion of the trial judge.
[2] The main motion argued before me was brought by Daniel to have Verge pay the total costs of Deloitte for their work in recreating, preserving, and analyzing 79 various backup tapes of Verge’s electronic activities between 2011 and 2014 for production of relevant documents.
FACTS:
[3] The Defendant Daniel Sherk was an employee of Verge Insurance Brokers. In 2012, his father and co-defendant Richard Sherk retired from Verge, which continued operation with Mark Sherk, Richard’s brother and Daniel’s uncle, as principal. Shortly thereafter Verge became convinced that Richard was attempting to involve himself in a competitive insurance brokerage business and in the process was trying to lure customers from Verge. Not long after his father retired, the employment of Daniel Sherk was terminated by Verge. Daniel alleges he was wrongfully dismissed. He has asserted that claim in a counterclaim in this action. Verge, in this action, has claimed that Daniel has conspired with the other defendants to lure customers from Verge and cause it damage.
[4] In the course of these unbelievably lengthy, acrimonious and expensive proceedings, the plaintiffs brought a motion for production, and the defendants brought a cross motion in which the parties sought specific relief with respect to compelling further production by the opposing parties. This resulted in a series of orders issued by Quinn, J., who at the time was case managing this action. The order which is of greatest relevance to his motion is his order of March 19th, 2015.
[5] Paragraph 1 of that order provides as follows:
- This court orders that the plaintiffs shall produce a revised schedule A and a further and better affidavit of documents in a complete and unredacted form containing the following: (a) All internal and external communications of the plaintiffs and employees as defined below, which includes emails, texts, blackberry messages, faxes, letters, whether together or not, whether in printed or electronic form, between the current and former employees, directors and officers of Verge Insurance Brokers Limited, current and former clients contained in the defendant Daniel’s book of business and insurance companies’, specifically Intact Insurance, Aviva Insurance, Dominion of Canada General Insurance Company and Royal and Sun Alliance Insurance company, (“Insurance Supplier”), in the period of January 2011 to December 2014 (“the Additional Document”), regarding the following relevant matters:
Thereafter the order in very great detail requires production of such documents covering a broad range of issues related to the litigation.
[6] Paragraph 5 of Quinn, J.’s order of March 19th, 2015 provided as follows:
This court orders that the employees’ and Mark’s employees and Mark Sherk’s Identified Media Devices and Email Accounts be produced to Deloitte for a forensic inspection to be conducted at the cost of the defendant Daniel Sherk and further that Deloitte produce a report on the state of preservation of the media devices and email accounts, whether there is evidence of deletion or editing of the relevant metadata, and a description of the relevant documents that are recovered on the media devices and email account including any additional documents and to produce such documents to be included in a further and better affidavit of documents in accordance with paragraph 1 above. In order to facilitate the search, counsel shall agree within 15 days of receipt of this order on the terms of a key work search that is consistent with the categories described in paragraphs (1a) – (IX) above, failing which they will return to the court to settle the key word search. (Emphasis added)
[7] A further motion was brought before Turnbull J., who by then was case managing this file, regarding the production of backup tapes in Verge’s possession. It appears from the evidence before Turnbull J. (2016 ONSC 4007) that he found that there were 79 backup tapes for the period 2011-2014 containing hundreds of thousands of documents in Verges possession which they kept in the normal course of business. He further found that pursuant to the order of Quinn J., there was a positive obligation on Verge to produce all documents relevant to the litigation. Rule 30.02 of the Rules of Civil Procedure is specifically directed to that obligation.
[8] Turnbull J. found as follows at para. 25-30 of his endorsement:
[25] The fact that Verge chose, even after having received the “hold letter”, to simply store all its information on backup tapes without creating an archive file of relevant documents is the responsibility of Verge. The costs necessary to review those backup tapes and identify relevant documents and produce them in an accessible and legible form to the defendant lies upon Verge. Paragraph 1 of Justice Quinn’s order is clear in that respect. That is the first step that Verge was obliged to take in this litigation in fulfilling its duty to produce relevant documents.
[26] Daniel then, pursuant to paragraph 5 of Quinn J.’s order, would have the right at his expense to retain Deloitte to review any or all of the tapes to make certain that relevant documents had been produced. The cost of that audit was specifically ordered to be at his cost. (Emphasis added)
[27] In this particular case, Daniel did retain Deloitte to review thirteen of the tapes. Deloitte identified 144 documents which were deemed to be relevant on the thirteen backup tapes. These documents were not found on the Verge server as they had been deleted from the media devices of Verge employees in the ordinary course of business. These were preserved however on the backup tapes. Upon learning of these possibly relevant documents which had not been produced by Verge, Daniel was of the view that the backup tapes were likely not reviewed by the Plaintiffs to begin with. Hence, he believed that there are possibly relevant communications in the power, possession and control of the plaintiffs which have not been inspected or produced.
[28] In my view, Verge had and still has a positive duty to identify the documents in the 66 backup tapes which may be relevant and to place them in an archive folder. The parties had earlier agreed upon search words to be used in searching for relevant documents and they should be used by Verge in undertaking this task.
[29] Once the documents have been identified, Verge is required, pursuant to the order of Quinn J. to produce an affidavit of documents in compliance with the provisions of paragraph 1 of his order of March 19, 2015.
[30] At that time, Daniel can then exercise his rights under paragraph 5 of the order to retain Deloitte to audit the tapes at his own costs. (Emphasis added)
[9] Turnbull J. ordered that Verge and Mark Sherk shall forthwith restore the remaining 66 backup tapes and produce an amended and full affidavit of documents listing all documents which are relevant to the litigation between the plaintiffs and all defendants in this action.
[10] The decision of Turnbull, J. was appealed by Verge to the Divisional Court. The Divisional Court dismissed the appeal with lengthy reasons on March 20th, 2017, (2017 ONSC 1597).
[11] The plaintiff Verge then sought leave to appeal the Divisional Court order to the Court of Appeal. Leave was not granted.
[12] A further motion was brought before me, now the case management judge, by Daniel seeking a declaration that the plaintiffs had not complied with the order of Quinn, J. dated March 19th, 2015 or Turnbull, J.’s endorsement dated June 7th, 2016. He sought an order in that motion that the plaintiffs were to restore and review all backup tapes for 2011 to 2012, to identify relevant documents and then provide a better affidavit of documents pursuant to the order of Turnbull, J. and Quinn, J. My reasons on that motion were released on November 8th, 2016, (2016 ONSC 6917). It should be noted that that motion and those reasons were released after the Turnbull, J. order but prior to the decision of the Divisional Court.
[13] I concluded that the orders of Quinn, J. and Turnbull, J. regarding disclosure by the plaintiff to Daniel Sherk had been complied with. I further ordered that the 66 backup tapes, which the plaintiff had restored, be made available to the defendant Daniel for his review if so requested, as had the Turnbull J. and Quinn J. orders. Daniel did request those backup tapes and passed them on to Deloitte for their review and analysis at a cost of approximately $280,000.00. It is that cost that he now wants the plaintiffs to be responsible for.
POSITION OF THE PARTIES:
[14] The plaintiff argues that Quinn, J.’s order of March 19th, 2015 is clear at paragraph 1(a) and 5 that there is an obligation on Verge to restore the backup tapes, review them, and produce documents that are relevant to the litigation by way of producing a new affidavit of documents. Turnbull, J. confirmed in his endorsement, such an obligation on the plaintiff. The plaintiff further argues that the Quinn, J.’s order is clear that once the tapes were backed up and restored and reviewed, and relevant documents produced, the defendant Daniel, at his expense, would have the right to retain Deloitte to review any and all of those tapes to make sure that all relevant documents had been produced. Turnbull, J. in his endorsement emphasizes the cost of that audit specifically ordered to be at Daniel’s expense. The plaintiff goes on to argue that Daniel did indeed retain Deloitte to review 13 of the tapes and a report was produced. Turnbull, J. specifically ordered that the cost of Deloitte for reviewing the 13 tapes should be reimbursed by Verge to Daniel because Verge had not fulfilled their obligations under the Quinn, J. order and had increased the costs significantly of Deloitte in analyzing those 13 tapes. He never ordered that the balance of 66 tapes be reviewed by Deloitte unless Daniel requested such a review. He never ordered that such a review, if requested by Daniel, would be at the plaintiffs cost and indeed specifically endorsed that it would be at Daniels expense.
[15] The plaintiff therefore urges the court to find that its only obligation was to pay Deloitte for the cost of analyzing the 13 backup tapes specifically mentioned in the Turnbull, J. order. In fact, Verge has paid Deloitte for what it says was the cost of analyzing those 13 tapes being $67,613.99. Deloitte confirms in the record before me that to the best of their ability they believe that was their cost for analyzing the 13 tapes.
[16] The position of the defendant Daniel is that Turnbull, J.’s order, and the order of the Divisional Court indicated that the total cost of analyzing all 79 backup tapes by Deloitte should be borne by Verge because it did not fulfill its production duties pursuant to the Quinn, J. order.
ANALYSIS:
[17] The Quinn, J. order in my view at paragraph 5 is clear where it states “the court orders that the employees and Mark’s employees and Mark Sherk’s identified immediate devises and email accounts be produced to Deloitte for a forensic inspection to be conducted at the cost of the defendant Daniel Sherk and further that Deloitte produce a report…”. Certainly it appears from that wording that the Deloitte inspection was to be at Daniel Sherk’s expense.
[18] At paragraph 26 of the Turnbull, J. endorsement he is equally clear, where he emphasizes the Quinn, J. order by stating “Daniel then, pursuant to paragraph 5 of Quinn, J.’s order, would have the right at his expense to retain Deloitte to review any or all of the tapes to make certain that relevant documents have been produced. The cost of that audit was specifically ordered to be at his cost.”
[19] To that end, the defendant Daniel did indeed retain Deloitte to review 13 of the tapes and found documents that had not been produced.
[20] Turnbull, J. stated at paragraph 27 of his endorsement “In my view, Verge had and still has a positive duty to identify the documents and the 66 backup tapes which may be relevant and to place them in an archive folder.” Turnbull, J. went on to say at paragraph 28 that once those documents have been identified, Verge was required to produce an affidavit of documents to comply with Quinn, J.’s order. At paragraph 29 Turnbull, J. indicated that Daniel could then exercise his rights under paragraph 5 of Quinn, J.’s order to retain Deloitte to audit the tapes at his own costs.
[21] Turnbull, J. concluded by ordering that Verge would forthwith review the remaining 66 backup tapes and produce an amended and full affidavit of documents listing all the relevant documents to the litigation as had been the order of Quinn, J. The endorsement did not state that those 66 tapes were then to be reviewed by Deloitte and an analysis produced at the expense of Verge. That of course was still an option for the defendant Daniel pursuant to the Quinn, J. order but at his expense.
[22] Turnbull, J. did order that the cost of the 13 tapes that were analyzed by Deloitte at Daniel’s request should be paid for by Verge because he found that Verge had not fulfilled its duties under the Quinn, J. order to review all the backup tapes with regards to its productions, nor had it archived relevant documents and had imposed conditions on Deloitte making the analysis of the 13 tapes far more expensive than it needed to be. He therefore ordered Verge to be responsible for those costs of the 13 tapes.
[23] There was no finding of fact by Turnbull, J. in the motion before him as to what the cost of analyzing the 13 backup tapes actually was other than figures in the $200,000.00 range was stated by Daniel to be an invoice his counsel had received from Deloitte. See paragraph [22] of Turnbull J’s endorsement where he stated “…he (Daniel) would have disputed the costs that he has incurred (apparently these exceed $200,000.00) to restore and review 13 of Verge’s backup tapes during the production motion.”
[24] It was not until the matter came before me and the issue of Deloitte’s costs became problematic that I ordered, as the case management judge, that Deloitte produce an analysis as to what they estimate their cost was to analyze the 13 tapes versus their cost to analyze all of the tapes.
[25] I accept the evidence that has been produced by Deloitte on this motion that the cost to analyze the 13 tapes was $67,613.99 and the balance of their bill was not attributed to an analysis of the 13 backup tapes in question.
[26] The motion before me, with reasons released on November 8, 2016, was brought by Daniel seeking a declaration that Quinn, J.’s order and Turnbull, J’s. order had not been complied with and a further and better affidavit of documents was required. There is no indication in that motion seeking direction as to any analysis by Deloitte of the further 66 backup tapes.
[27] In essence the plaintiffs before me on that motion argued that all the further disclosure had been complied with while the defendant Daniel submitted and argued that the further disclosure ordered by Turnbull J. had not been complied with.
[28] I concluded in my endorsement that a further 996 documents were produced as a result of those 66 backup tapes finally being reviewed on behalf of the plaintiffs. I concluded further at paragraph 15 that the orders of Quinn, J. and Turnbull, J. regarding disclosure by the plaintiff to Daniel Sherk has been complied with. I further ordered that the 66 backup tapes, which had been restored by Verge, were to be made available to the defendant Daniel for his review if so requested. However, I never ordered that the costs of Deloittte reviewing those 66 tapes be at the plaintiff’s expense. That issue was never raised before me by Daniel at that time. Daniel so requested a review and had Deloitte analyze those additional 66 backup tapes which in my view was to be at his expense pursuant to the order of Quinn, J. and Turnbull, J. and upheld by the Divisional Court.
CONCLUSION:
[29] The motion by the defendant Daniel seeking an order that the costs of Deloitte over and above the $67,613.99 for the 13 backup tapes be paid by the plaintiffs is dismissed without prejudice to those costs being reargued before the trial judge as disbursements of the litigation at the conclusion of the trial depending no doubt on the success of the petitioning party.
[30] Deloitte argues that interest is owed on the $67,613.99 paid by Verge to them from the date of payment to the present. I disagree.
[31] Once the analysis was done, as to what was owing for the 13 backup tapes, Verge shortly thereafter issued a cheque for the amount indicated by Deloitte being $67,613.99. For reasons that are totally unclear to me, Deloitte elected to not cash the cheque presented to them, nor did they seek any consent from the parties that the funds could be used to offset their account. There was nothing presented to Deloitte by Verge or its counsel that by cashing the cheque would somehow prejudice their right to collect on the balance they said was owing.
[32] Deloitte charges 16% interest per annum. They should have cashed the cheque when it was received so that interest would stop running. They elected not to do so, but that interest charge should not be an expense borne by Verge, or any other party, who in good faith offered and forwarded funds to settle the amount of the account it owed.
[33] It is ordered that there will be no interest payable to Deloitte on the $67,613.99 by any of the parties once the amended cheque was issued to them through Verge’s counsel.
[34] If the parties are unable to agree on costs of this motion, they may make brief written submissions of no more then 3 – 4 pages double spaced, plus any draft bills of costs and dockets within 30 days of the release of this decision.
Arrell, J. Released: September 6, 2018