Court File and Parties

COURT FILE NO.: CV-17-571659 MOTION HEARD: 24 September 2018 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Tallman Truck Centre Limited, Plaintiff AND: K.S.P. Holdings Inc. and Secure Capital Advisors Inc., Defendants

BEFORE: Master Jolley

COUNSEL: Jeffrey E. Feiner, Counsel for the Moving Party Defendant K.S.P. Holdings Inc. Sean Dewart and Alex Kokach, Counsel for the Responding Party Plaintiff

HEARD: 24 September 2018

REASONS FOR DECISION

Overview

[1] The defendant K.S.P. Holdings Inc. (“KSP”) brings this motion for disclosure of certain documents referenced in an affidavit affirmed by plaintiff’s counsel, Marc Kestenberg 8 August 2018 (the “Kestenberg Affidavit”), filed on behalf of the plaintiff in response to a pending motion by KSP for a stay of this action.

[2] KSP argues that the documents are referred to in the Kestenberg Affidavit and are required to be produced under Rule 30.04(2) of the Rules of Civil Procedure. Alternatively, the documents are relevant and not privileged and should be produced on that basis. Lastly, if the documents are privileged, the plaintiff has waived that privilege by referencing them in its responding materials.

[3] The plaintiff takes the position that the documents are irrelevant to the upcoming stay motion. It further claims that the documents are subject to settlement privilege, which has not been waived.

Facts

[4] The plaintiff commenced this action against KSP and Secure Capital Advisors Inc. (“Secure”) claiming that it was entitled to exercise a right of first refusal to purchase certain property owned by KSP. It alleges that KSP and Secure concealed a material term of an agreement between them that granted Secure the right to purchase the lands. The plaintiff claims the right to exercise its right of first refusal for the purchase of those lands on the same terms that were offered and agreed to by Secure.

[5] The plaintiff scheduled a motion for summary judgment returnable December 12 and 13, 2018. In response to that motion, on 7 June 2018 Secure delivered an affidavit sworn by its managing director, David Ogden (the “Ogden Affidavit”). Secure took positions in the Ogden Affidavit that were inconsistent with what it had pleaded in its statement of defence.

[6] Some weeks after serving the Ogden Affidavit, on 27 June 2018 the plaintiff disclosed to KSP that it had reached a settlement with Secure. The Ogden Affidavit did not indicate that it was being served as part of a settlement. After the settlement was reached but before it was disclosed, on 8 June 2018, KSP was required to and did file its responding material for the plaintiff’s summary judgment motion.

[7] Broadly speaking, the plaintiff and Secure agreed that the plaintiff would discontinue its action against Secure on the condition that Secure would file a responding affidavit that would assist the plaintiff on its summary judgment motion and that it would support and cooperate with the plaintiff throughout the litigation. The plaintiff would also provide Secure with a full and final release to be delivered at the end of the litigation.

[8] Upon learning of this settlement agreement, KSP brought a motion under Rule 21.01(3) to stay the action as an abuse of process on the basis that the agreement was not disclosed as soon as possible. The stay motion is to be heard on 10 December 2018.

[9] In response to the stay motion, Kestenberg affirmed his affidavit. In respect of that affidavit, KSP seeks the following documents:

(1) the draft affidavit of David Ogden referred to in paragraph 23 and at Exhibit “A” of the Kestenberg Affidavit. Paragraph 23 states: “On April 12, 2018, following discussions with Mr. Resnick [Secure’s counsel], I provided him with a draft affidavit for his client’s consideration. A copy of my covering email is marked as Exhibit “A” to this affidavit.”

(2) the draft affidavit of David Ogden referred to in paragraph 26 and at Exhibit “C” of the Kestenberg Affidavit. Paragraph 26 states: “On May 14, 2018, Mr. Long sent the draft affidavit I had provided, with proposed changes that Mr. Ogden required in order for the affidavit “to be consistent with his recollection of events”. A copy of this email is marked as Exhibit “C” to this affidavit.”

(3) the emails referred to at paragraph 27 of the Kestenberg Affidavit, together with attachments. Paragraph 27 states: “On May 15, 2018, I exchanged emails and spoke with Mr. Long [Secure’s counsel], and discussed the proposed changes to the draft affidavit.”

(4) the further revised draft affidavit of David Ogden referred to in the email located at page 18 of the plaintiff’s motion record, which is at Exhibit “D” to the Kestenberg Affidavit. Exhibit “D” contains, among other things, an email from counsel for Secure to Kestenberg as follows, “Further to your discussion yesterday with Jeff, attached please find a further revised draft of the affidavit with tracked changes. The bulk of the changes were accepted. Please review and call us to discuss.” It also contains the responding email from another lawyer in Kestenberg’s office to counsel for Secure which states: “We are fine with all these changes. Please have the affidavit sworn.”

(5) the draft letter referred to in paragraph 34 and at Exhibit “G” of the Kestenberg Affidavit. Paragraph 34 states: “When I returned to the office on June 4, 2018, I sent Mr. Long an email attaching ‘a draft of [a] letter that we think makes sense to evidence our agreement’, and asked for his comments. A copy of this email is marked as Exhibit “G” to this affidavit.”

(6) the revised letter and a copy of the proposed release referred to in paragraph 35 and at Exhibit “H” of the Kestenberg Affidavit. Paragraph 35 states: “On June 5, 2018, Mr. Long responded, with proposed modifications to the letter. Correspondence concerning the terms of the letter evidencing the settlement agreement and the terms of a full and final release continued throughout that day and on the following day. A copy of the email exchange is marked as Exhibit “H” to this affidavit.”

(7) the correspondence concerning the terms of the letter evidencing the settlement and the terms of a full and final release referred to in the second sentence of paragraph 35 of the Kestenberg Affidavit; and

(8) any attachments to the 6 July 2018 settlement letter, noting that the form of release has not been produced. (I believe the reference is meant to be to 6 June 2018.)

Legal Analysis

A. Are the documents relevant?

[10] The plaintiff does not dispute that the Kestenberg Affidavit refers to the documents in question. Its position is that the documents were only referenced to demonstrate that it and Secure remained in discussions toward a settlement until 6 June 2018 when the settlement was ultimately reached. It argues that the draft settlement documents, including the various drafts of the Ogden Affidavit, are subject to settlement privilege that has not been waived. It notes that the Kestenberg Affidavit does not refer to or rely on the contents or draft versions of the settlement documents in explaining the chronology of the settlement discussions. The drafts were referred to only to establish the fact of their existence and to develop a timeline for the negotiations.

[11] KSP argues that it is entitled to those documents to test whether in fact that settlement was reached on 6 June 2018 or was reached earlier. It argues that the date that Secure and the plaintiff started to cooperate is the crux of its upcoming stay motion. As noted in Handley Estate v DTE Industries Limited, 2018 ONCA 324, at paragraph 29, the date when parties ceased to “maintain adversity” is a relevant issue on a motion to stay.

[12] Kestenberg references the various drafts of the Ogden Affidavit in support of the conclusion he asks the court to draw on the stay motion that “For the reasons set out above, I feel that I took the required steps to ensure that the change of the relationship between Tallman and Secure, from an adversarial relationship to one that was cooperative, was disclosed to KSP immediately upon the settlement being agreed to.”

[13] It argues that as long as changes were being made to the Ogden Affidavit, there was no settlement. It has disclosed the email chains demonstrating that changes were being made and that there was no settlement on the content of the Ogden Affidavit and the related settlement documents until 6 June 2018.

[14] In my view, KSP does not have to accept that assertion of the settlement date at face value. It is entitled to test that statement by reviewing the changes negotiated to the Ogden Affidavit by the plaintiff and Secure and argue that the relationship between those parties changed at an earlier date. This may be particularly so where the Ogden Affidavit was sworn 22 May 2018 purportedly pursuant to a settlement with the plaintiff that was not reached until 6 June 2018.

[15] I also accept that by referencing the drafting and negotiating exercise and the various versions of the Ogden Affidavit throughout the Kestenberg Affidavit, the plaintiff is deemed to admit the relevance of the drafts on the stay motion. (Corporation of the City of Kawartha Lakes v. Gendron, 2018 ONSC 3498, at paragraphs 43, 44 and 47)

B. Are the documents privileged?

[16] While the court has not seen the documents, it is likely they were subject to settlement privilege as they are represented in the Kestenberg Affidavit to be the efforts between the plaintiff and Secure to settle the action as between them.

C. Has that privilege been waived?

[17] If the documents were privileged, I find that privilege has been waived by the continued reference to them in the Kestenberg Affidavit. The Kestenberg Affidavit discloses extensive details regarding the back and forth of the settlement negotiations, including the fact that Ogden made changes to the Ogden Affidavit so that it was consistent with his recollection of events.

[18] The plaintiff proposes to tender the Kestenberg Affidavit and its references to the ongoing drafts of the Ogden Affidavit not only for the timeline, but also to support its position that there was no settlement before June 6 as the parties were not ad idem. Surely, unlike the situation in Sable Offshore Energy v. Ameron International Corp., 2013 SCC 37, the documents in question are now relevant to the position advanced by the plaintiff before the court, namely whether it and Secure became ad idem on June 6 or whether settlement was reached – and the relationship between the plaintiff and Secure changed from adversarial to cooperative - on an earlier date. KSP is entitled to test the veracity of that position as to when the landscape of the litigation changed between the plaintiff and Secure. I find that it would be unfair for the plaintiff to tender its version of the negotiations and ask the court to accept its interpretation of when a settlement was reached and then shield itself from disclosing the relevant documentation on the basis of privilege. That privilege has been waived.

[19] In City of Kawartha Lakes, supra, the plaintiff brought a motion to approve a settlement it had reached with certain of the defendants. In support of that motion it tendered an affidavit to demonstrate that the settlement was reasonable. The plaintiff refused to produce the settlement agreement itself, claiming privilege. As the court noted at paragraph 71, “Because the Affidavit describes all meetings, negotiations, offers, and discussions leading to the alleged partial agreement, the Affidavit alone is sufficient to permit these questions [on the terms of the settlement] to be answered. Once information is contained in an affidavit, realizing that affidavit’s purpose, that information becomes relevant and producible.” Here the purpose of the Kestenberg Affidavit is to demonstrate that the settlement was disclosed as soon as possible after it was reached. Noting that purpose, I find the documents sought will shed light on the negotiations between the plaintiff and Secure and the date their relationship changed from adversity to cooperation and are therefore relevant and producible on the pending motion.

D. Are the documents subject to inspection under Rule 30.04(2)?

[20] KSP argues that it is entitled under Rule 30.04(2) to inspect any document in another party’s possession, control or power that is referred to an affidavit served by the other party.

[21] Rule 30.04 provides as follows:

30.04(1) A party who serves on another party a request to inspect documents (Form 30C) is entitled to inspect any document that is not privileged and that is referred to in the other party’s affidavit of documents as being in that party’s possession, control or power.

(2) A request to inspect documents may also be used to obtain the inspection of any document in another party’s possession, control or power that is referred to in the originating process, pleadings or an affidavit served by the other party.

[22] Rule 30.04(2) requires a party to produce for inspection, when requested, any document that it has referred to in an affidavit. Unlike Rule 30.04(1), Rule 30.04(2) does not confine the inspection obligation to non-privileged documents. One might infer that, if a party has chosen to specifically refer to a document in its affidavit, the document is either not privileged or that the privilege has been waived by the reference to the document.

[23] While the documents in question are not appended to the Kestenberg Affidavit and their contents are not set out, they are referred to over multiple paragraphs. I find on a plain reading of Rule 30.04(2) that each of the documents requested by KSP are referred to in the Kestenberg Affidavit and are subject to inspection under Rule 30.04(2).

Conclusion

[24] I find that the documents requested are producible both by virtue of Rule 30.04 and because they are relevant to the issues on the stay motion. Further, any claim to settlement privilege over the documents has been waived by the express and continued reference to them and to the progress of their negotiation in the Kestenberg Affidavit.

[25] I order that the plaintiff produce the documents listed in paragraph 1 of KSP’s notice of motion and as set out in paragraph 9 herein to KSP.

[26] Having succeeded on the motion, KSP is entitled to its costs on a partial indemnity scale payable within 30 days. Reviewing the costs submissions of both parties, I find the sum of $7,000 inclusive of costs, disbursements and HST to be fair and reasonable in the circumstances.

Master Jolley Date: 4 October 2018