Court File and Parties

Court File No.: CV-18-189 Date: 2018-09-06 Superior Court of Justice - Ontario

Re: PAUL McKERCHER, MARK McKERCHER, McKERCHER BROS. LTD., McKERCHER BROS. (BROCKVILLE) LTD., 956375 ONTARIO LTD., and 1034382 ONTARIO INC., Plaintiffs

And: CHRIS McKERCHER, McKERCHER HOLDINGS LIMITED, McKERCHER BROCKVILLE LIMITED, McKERCHER KINGSTON LIMITED, 2626927 ONTARIO INC., and CBHM LTD., Defendants

Before: Mr. Justice Graeme Mew

Counsel: Hari Nesathurai, for the Plaintiffs R. Steven Baldwin, for the Defendants

Heard: 31 August 2018, at Kingston

Endorsement (Request to Adjourn Return of Motion)

[1] The defendants seek to have set aside ex parte orders that I made on 14 June 2018 in which I granted leave to register certificates of pending litigation in respect of certain properties and appointed a monitor to monitor the business and financial affairs of Leon’s furniture store franchises located in Kingston and Brockville.

[2] The individual parties in this litigation are members of the same family. Three brothers, two of whom are plaintiffs, established, owned and operated the Leon’s franchises now in dispute. Earlier this year, the plaintiffs sold their interests in the franchises and certain real properties to Chris McKercher, who is the son of Peter McKercher and the nephew of the individual plaintiffs. Companies controlled by the individual parties were used to facilitate the transactions that are now the subject of this litigation.

[3] In essence, the plaintiffs say that the defendants made a number of misrepresentations which induced them to enter into the transactions. They express concerns that under the management of Chris McKercher, the businesses are in jeopardy. They want the defendants’ ability to dispose of the properties to be limited and, ultimately, seek an unwinding of the transactions.

[4] Based on a record placed before the court at the time the plaintiffs appeared ex parte, I granted the relief which the defendants now seek to set aside.

[5] The plaintiffs request an adjournment of the defendants’ motion, citing a number of grounds, including:

1. the return of motion was brought on the minimum amount of notice provided for in my earlier orders and was scheduled unilaterally and despite the expressed concerns of the plaintiffs;
2. the defendants’ motion materials were served late without the plaintiffs’ agreement and an in the absence of any explanation for an abridgement of the requirements of the Rules of Civil Procedure being provided;
3. the monitor was not served with the motion material and, when made aware of the motion date, was not available;
4. the plaintiffs wish to cross-examine the defendants Chris McKercher and Peter McKercher, each of whom swore affidavits on 24 August 2018 in support of the defendants’ motion.

[6] The defendants say there is no justification for an adjournment of their motion. They say that the evidentiary record presented by the plaintiffs on their ex parte motion failed to make full and frank disclosure of all relevant facts, including facts known to them which may explain the defendants’ position. That, they argue, should be fatal to the preservation of the orders obtained by the plaintiffs.

[7] The defendants also challenge the need for cross-examinations or the participation of the monitor on the motion.

[8] After I had heard submissions from counsel I advised the parties that I would be exercising my discretion to allow the requested adjournment, with written reasons to follow. These are my reasons.

Procedural History

[9] The procedural history of this matter provides some context for my decision.

[10] In granting the relief sought by the plaintiffs on an ex parte basis, I stipulated that any affected party was at liberty to move, on no less than 7 days’ notice, to vary, amend or rescind my orders.

[11] The defendants were served with the orders for certificates of pending litigation and for the appointment of a monitor on 19 June 2018.

[12] On 16 July 2018, the plaintiffs were served with a statement of defence and counterclaim.

[13] There was correspondence between the parties on 19 and 20 July in which the solicitors for the defendants wrote to the plaintiffs’ solicitors asking them to consent to lifting the certificates of pending litigation on two of the affected properties (the “Properties”) so that the defendants could close the sales of the Properties on scheduled closing dates of 1 August and 4 September 2018, respectively.

[14] After obtaining appraisals of the Properties, the plaintiffs’ solicitors wrote to the defendants’ solicitors on 25 July advancing the position that the Properties were being sold for substantially below market value and that, accordingly, the plaintiffs would not consent to the sale of the Properties.

[15] A reply and defence to counterclaim was served on 1 August 2018.

[16] For whatever reason (none was offered by the defendants in evidence or in argument), it was not until 21 August 2018 that steps were initiated to have my earlier orders set aside. On that day, the plaintiffs’ lawyer was copied on an email chain between the defendants’ solicitors and the trial coordinator Kingston which had started earlier that day when a request was made on behalf of the defendants to schedule a return of the motion to be heard by me at the earliest opportunity.

[17] I pause to note that I had not seised myself of any aspect of this matter when I made my 14 June 2018 orders.

[18] The trial coordinator, having ascertained that a two hour appointment was being requested, informed the defendants’ solicitors that their return of motion could be heard on 31 August 2018. She advised that I would be standing down another matter which had been scheduled for hearing that day in order to accommodate them.

[19] On 22 August, the plaintiffs’ solicitors, while indicating their availability on 31 August, responded, writing:

… will you be filing responding materials? If so, we would need to review them prior to agreeing the date. If you are not filing any material, August 31, 2018 is agreeable. Please confirm as it may not be prudent to return on August 31, 2018.

[20] On behalf of the defendants, a responding email later that day stated:

We expect to deliver our affidavit materials by noon on Friday [24th August] for the motion to be heard on August 31. As you are aware, Justice Mew endorsed the record that the motion was returnable on 7 days notice. Further, Justice Mew re-scheduled his court day given his availabilities and specifically provided the date of August 31, 2018. It is imperative that the motion proceed on August 31 as scheduled.

[21] The plaintiffs’ solicitors responded promptly asking who would be swearing the affidavit on behalf of the defendants, and the proposed contents of that affidavit, adding:

We may need to file responding materials and/or cross-examine on the affidavit depending on the content.

[22] Copies of the affidavits of Peter McKercher and Chris McKercher, as well as a notice of return of motion, were sent to the plaintiffs’ solicitors by email on Friday 24 August; hard copies arrived on 27 August 2018.

[23] On 27 August 2018, the plaintiffs’ solicitors advised the defendants’ solicitors that they had neglected to serve the court appointed monitor with their materials and that neither the monitor nor her lawyer were available on Friday, 31 August 2018. That letter also recorded the fact that the plaintiffs were, at the time, out of the country. The defendants were asked to agree to an adjournment of the motion.

[24] There was further correspondence on 28 August 2018, enclosing notices to cross-examine Peter McKercher and Chris McKercher on their affidavits and objecting to the late service of the defendants’ motion materials and their failure to comply with the provisions of Rule 42.02 which require that on a motion to discharge a certificate of pending litigation, a factum should be served and filed seven days prior to the hearing.

[25] Ultimately, the defendants would not agree to the plaintiffs’ adjournment request. I was asked to resolve that issue.

Positions of the Parties

[26] In seeking an adjournment of the hearing of the return of motion, the plaintiffs emphasised that they had not agreed to the return date, that their non-agreement was reasonable, that they have a prima facie right to cross-examine the deponents of the defendants’ affidavits and that the court should have the benefit of a report, or the very least input of some sort, from its court-appointed-monitor.

[27] The defendants point out that the return date was the only date that was offered by the court and repeated their assertion that the record now before the court was more than sufficient to demonstrate the failure of the plaintiffs to make full and frank disclosure.

Discussion

[28] The efficient management of commercial litigation and the associated utilisation of the court’s resources is heavily dependent upon counsel resolving procedural and timetable issues in a collaborative way.

[29] Lawyers who have had cases on the Commercial List in Toronto are familiar with the governing canons of former Mr. Justice Farley’s “Three ‘Cs’”: communication, cooperation and common sense (see generally Fred Myers, “Justice Farley in Real Time”, Annual Review of Insolvency Law, 2006 (Carswell, JP Sarra, ed.).

[30] In many respects, the Three ‘Cs’ were the precursors of a more general culture shift in civil litigation: Hryniak v. Mauldin, 2014 SCC 7. Part of that culture shift is a reduced tolerance for an unreasonable failure to communicate and cooperate with opposing counsel: see, generally, Bosworth v. Coleman, 2014 ONSC 6135.

[31] I do not share the view propounded by the plaintiffs that the defendants effectively unilaterally and tactically selected a motion date which was designed to ensure that there would be no opportunity for cross-examination of the defendants on their affidavits and no participation by the monitor, who might offer her observations and findings.

[32] That said, because the court offered the defendants a return date that was just 10 days (eight working days) hence, the date was only ever going to be viable if there was some measure of agreement on the timing and extent of the materials to be delivered.

[33] In that regard, by no later than 22 August it could have been predicted with some confidence by counsel on both sides – counsel who, I should add, are both highly experienced in matters of commercial litigation - that there was likely to be a dispute over cross-examination and, hence, the ability of the parties to be ready to argue the merits of the defendants’ return of motion on 31 August. And at that point, the plaintiffs had not even anticipated that the monitor would not have been served by the defendants.

[34] Further, I do not accept the argument of the defendants that anything beyond the existing record before the court should be regarded as extraneous to the issue to be dealt with on the return of motion. The present case is not, as the defendants argued, analogous to the circumstances in Merker v. Leader Terrazzo Tile Mosaic Ltd. (1983), 43 O.R. (2d) 632 (H.C.J.). There, the plaintiff had obtained an ex parte order based on an affidavit sworn by a law student upon information and belief when, in fact, on cross-examination, it turned out that the law student had never spoken to the individual identified as the source of his information and belief. On grounds of what amounted to expediency, the Master declined to dismiss the application, there being evidence that emerged during the cross-examination of the student that what he had said in his affidavit was nevertheless an accurate reflection of what the source of the information and belief would have said had the student spoken to him before his affidavit was sworn. On appeal, Reid J. held that notwithstanding that the cross-examination of the student might have revealed a basis for the making of the order, independent of the student’s affidavit, no order should have been made except the dismissal of the application. He continued, at para. 9:

The affidavit not only amounted to a failure of disclosure, it was deficient in another aspect. It purported to be based upon information received from a named person, whereas none had in fact been received. It was misleading and a violation of the duty to be forthright and candid on an ex parte application.

[35] It can readily be seen that in Merker, there was an obvious and fundamental violation of the duty to be forthright and candid. It was of such magnitude that Reid J. concluded that the deficiency was fatal in its effect.

[36] By contrast, the defendants’ criticism of the plaintiffs is that, in bringing an ex parte motion, they did not place before the court all of the evidence which they say should have been included given the obligation of the plaintiff to be forthright and candid. In support of this position, the defendants, through the deponents of the two affidavits they have filed, seek to demonstrate the inadequacies of the plaintiffs’ disclosure with reference to additional evidence. Yet they say that, having supplemented the record which was before the court on the ex parte motions, the deponents of their affidavits should be shielded from cross-examination and that the court should not have the benefit of a report or other input from the monitor who was appointed by the court for the very purpose of obtaining information which would assist the court in determining whether the plaintiffs’ expressed concerns are meritorious.

[37] A motions court judge does have discretion to refuse to permit cross-examination on affidavits in cases of urgency, or where the party wishing to examine has not acted with reasonable dispatch: Re Ferguson and Imax Systems Corp. (1984), 47 O.R. (2d) 225, 11 D.L.R. (4th) 249 (Div. Ct.), at para. 28 (D.L.R.). In the present case, the defendants say that urgency arises from the fact that the closing dates for the sale of the Properties, while they have been extended, are still fast approaching.

[38] I do not accept that position. The defendants have had since 19 June 2018, the date they were served with my previous orders, to do something about them. Yet a court date was not sought until 21 August. To the extent that there is now any urgency it is largely because the defendants waited for two months before asking for a court date and then were offered a date which, perhaps, was a little sooner than they might have expected, given the usual time-out for obtaining long motion dates.

[39] Certainly, the circumstances are not such that the plaintiffs in this case should be deprived of the ability to cross-examine the defendants.

[40] Nor does it make any sense for the court to be deprived of the benefit of any insight that might be offered by the monitor who, of course, is an officer of the court and, thus, indifferent to the positions taken by the parties.

[41] Finally, although extensive oral submissions were made by the defendants, and the court had the benefit of reviewing the correspondence between the parties leading up to the scheduling of the motion (albeit that such correspondence was placed on the record by way of a supplementary motion record filed by the plaintiffs), there was no evidence before the court to explain why it was necessary to short-serve the plaintiffs.

[42] Absent agreement between the parties concerning the abridgement time periods provided for in the Rules, I share the view expressed by J.W. Quinn J. in Thomas v. Thiessen, at para. 47 that:

The discretion available under rule 3.02(1) to abridge a prescribed time under the rules cannot be exercised without evidence of why compliance with the prescribed time was impossible. It must never be assumed that abridging time periods as a routine exercise. An indulgence is being sought. The court cannot be expected to exercise its discretion in a vacuum.

[43] Given these circumstances, the plaintiffs’ request for an adjournment is granted.

[44] After discussion with counsel and the trial coordinator, the parties selected 31 October 2018 as the return date for the motion. Counsel for the parties should use their best efforts to agree a schedule for the examination of witnesses under Rule 39.02 and the cross-examination of the deponents of affidavits. If there are any difficulties in this regard which counsel are unable to resolve through agreement, they may request a telephone case conference with me via the trial coordinator.

[45] Costs of today’s attendance will be reserved until the adjudication of the return of motion.

Graeme Mew J. Date: 6 September 2018