Court File and Parties

COURT FILE NO.: CV-08-355524 MOTION HEARD: 20180605 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Daniel Molinari, as Estate Trustee without a Will of the Estate of Remo Molinari, deceased, Plaintiff AND: Giancarlo Aloe, Rocco Chiappetta, Romina Pulcini and M.J.R. Canada Enterprises Inc., Defendant

BEFORE: Master P. Tamara Sugunasiri

COUNSEL: R. Lachmansingh, Counsel for the Plaintiff M. Greenglass, Counsel for the non-parties Nick and Gerry De Luca C. Reed, Counsel for Chiappetta, Pulcini and M.J.R. Enterprises N. Musclow for Law Society of Ontario K. James in person

HEARD: June 4 and 5, 2018

Reasons for Decision

[1] The Plaintiff brings a motion for an Affidavit of Documents and discovery of Aloe, further and better affidavits from the other Defendants, and an order to examine non-parties for discovery. Mr. Reed acts for all Defendants (except for Aloe) and has come to a form of consent order with the Plaintiff with respect to further affidavits and discovery. There shall be an order to go in that regard with the form of order reflecting the terms set out by Mr. Reed in his factum “concerning partial settlement of the plaintiff’s motion…”

[2] Mr. Aloe is self-represented, lives in Italy, has not participated in the litigation, and did not appear. Query what the utility is of requiring him to produce an Affidavit of Documents and attend for discovery. I see none and make no order against him until such time that it is realistic that he will participate in these proceedings. The Plaintiff has his remedies against a defendant who does not take the required steps under the Rules.

[3] The four remaining issues are:

a. Whether or not the Plaintiff should be permitted to conduct an examination for discovery of the non-parties Nick and Gerry De Luca, and their counsel, Mr. James, in relation to 121 Evans Avenue and whether James is required to disclose documents relating to the Evans property; b. Whether James has any outstanding disclosure obligations arising from previous court orders relating to 95 and 97 Evans, 7 Lloyd George, and whether he should make the same production with respect to 153 Jones Avenue pursuant to Rule 30.10; c. Whether the Defendants (other than Aloe) should be permitted to amend their defence to withdraw alleged admissions made in relation to paragraphs 14 and 16 of the Amended Statement of Claim; and d. Whether the Plaintiff ought to be compelled to produce an accounting of lost profits alleged in the now Amended Statement of Claim and as undertaken by the late Mr. Remo Molinari at his discovery in 2009.

[4] The Defendants bring a cross-motion to deliver an amended defence which withdraws admission made in relation to paragraphs 14 and 16 of the Amended Claim. They also seek an order compelling the Plaintiff to provide an accounting of lost profits and diverted assets as per an undertaken given at the late Molinari’s discovery in 2009.

[5] For the reasons that follow:

a. The Plaintiff is not permitted to conduct non-party examinations for discovery; b. James is not required to disclose any further information about Evans; c. James shall comply with the Brott order to the extent that it has not been fully complied with and will provide the same disclosure with respect to 153 Jones; d. The Defendants may deliver a Fresh as Amended Statement of Defence but may not withdraw the admissions made with respect for paragraph 14 of the Amended Claim except that it was Rocco who received all of the proceeds; and e. The Plaintiff is ordered to produce an accounting of diverted assets, and if unable to provide the basis of the allegation that profits were diverted and lost but only after discovery of the Defendants is complete.

Facts:

[6] This case has a long and tortured history which I need not recount for the purposes of these motions. Suffice it to say there is a pending summary judgment motion brought by the Defendants (except Aloe) which has been postponed to resolve these disclosure issues. The action relates to an alleged joint venture between the Plaintiff and the Defendants to develop land and sell them for a profit. The venture is said to be reflected in a Trust Agreement executed on December of 2007 which lists a number of properties purchased by the joint venture. The deceased, Remo Molinari is listed in the Trust Agreement as a 33% interest holder in the joint venture properties with the idea that he would recover his proportionate share from their proceeds of sale.

[7] Unfortunately the arrangement went south and the Plaintiff sued the Defendants for breach of trust and a declaration of ownership of the various properties. He issued his statement of claim on May 27, 2008 (“Claim”). The Plaintiff also seeks a full accounting of the acquisition, development and the disposition of the lands specified in a schedule attached to the original claim.

[8] What is missing from the Claim is any claim to a property municipally known as 121 Evans Avenue (which was later divided into 121A and 121B – hereinafter “Evans”). The Plaintiff claims that this property was part of the joint venture’s holdings and it was omitted through inadvertence. The Evans property at all times was in the name of Gerry De Luca, a non-party and the son of Nick De Luca. The Defendants and the De Lucas maintain that the Evans property was never part of the joint venture despite Nick’s participation in dealing with the other joint venture properties and Nick’s close connection with Remo Molinari and M.J.R.

[9] On May 11, 2009, Master Haberman allowed the Plaintiff to amend his Claim to include Evans and to seek an order for rectification of the Trust Agreement such that Evans is identified as subject to the trust at the time it was sold (“Amended Claim”). At paragraph 18 of the Amended Claim (as it then was; it has since been further amended by my order), the Plaintiff pleads that Gerry De Luca has provided the Plaintiff with some of the documents relating to the sale of Evans including copies of the reports received from James and Associates, a statement received from the Defendant Rocco Chiappetta, and the cheques paid to Rocco from the sale.

[10] At the time of amendment, the Plaintiff did not seek to add Nick and Gerry De Luca as parties even though he was claiming relief in respect of property owned by them. His theory of the case continues to be that the Defendants put the various properties, including Evans, in other people’s names but that ultimately they were all part of the joint venture. Although neither pleaded in the Claim nor the Amended Claim, the intersection between the De Lucas and the Defendants seem to be through Nick, who knew the late Mr. Remo Molinari, and M.J.R. who did the work in reference to the development of the property and the construction of the homes after Evans was subdivided into two lots. In addition, the Defendant Rocco was the real estate agent on the sale transaction of Evans A and B.

[11] On April 10, 2015, Master Brott ordered that James produce files sought by the Plaintiff in the motion before her. I believe they related to 95 and 97 Evans, 34 Evans and 7 Lloyd George. The Plaintiff claims that some of these documents are outstanding.

[12] The Plaintiff has some of the documents related to the disposition of Evans. According to affidavits of Daniel Molinari sworn August 14, 2017, and Mr. Juriansz sworn January 23, 2017, The Plaintiff now seeks to examine Nick, Gerry and their lawyer, James on the following issues:

a. The source of funds used to purchase Evans and how the construction mortgage proceed on that property were distributed (Molinari, para. 128); b. How proceeds from Evans were distributed (Juriansz, para .62); c. Why Nick De Luca received substantial proceeds from joint venture properties when we was not a joint venture (Juriansz, para .62); d. Why a company controlled by the De Lucas received proceeds from Evans (Juriansz, para .62); and e. How did Gerry De Luca purchase Evans and obtain a mortgage on it (Juriansz, para. 62).

Law and Analysis:

Issue #1 – Should the Plaintiff be permitted to examine the non-parties for discovery and should James be required to disclose documents relating to Evans?

[13] The Plaintiff moves under Rule 31.10 of the Rules of Civil Procedure:

31.10 (1) The court may grant leave, on such terms respecting costs and other matters as are just, to examine for discovery any person who there is reason to believe has information relevant to a material issue in the action, other than an expert engaged by or on behalf of a party in preparation for contemplated or pending litigation.

Test for Granting Leave

(2) An order under subrule (1) shall not be made unless the court is satisfied that,

(a) the moving party has been unable to obtain the information from other persons whom the moving party is entitled to examine for discovery, or from the person the party seeks to examine; (b) it would be unfair to require the moving party to proceed to trial without having the opportunity of examining the person; and (c) the examination will not, (i) unduly delay the commencement of the trial of the action, (ii) entail unreasonable expense for other parties, or (iii) result in unfairness to the person the moving party seeks to examine.

[14] I am guided by Master Muir’s decision in Hopkins v. Robert Green Equipment Sales Ltd., 2018 ONSC 998 which provides an excellent summary of the law in this area at paragraph 6:

• the requirements of Rule 31.10 are cumulative and a party seeking such relief must satisfy both Rule 31.10(1) as well as each of the requirements in Rule 31.10(2);
• there must be good reason to believe that the non-party has information relevant to a material issue;
• before being entitled to an examination of a non-party, the moving party must establish that he has been unable to obtain the information he seeks from the other parties to the action as well as from the non-party he wishes to examine;
• there must be a refusal, actual or constructive, to obtain the information from the other parties to the action, and the non-party, before the moving party will be able to meet the onus under Rule 31.10(2)(a); and,
• if that onus is met the court may then look to Rule 1.04 to determine whether the court's discretion, as set out in Rule 31.10(1), should be exercised on the facts of each particular case.

[15] It is in light of these factors that I deny the Plaintiff’s request to examine the De Lucas and James. The fundamental problem in this case is that property formerly belonging to the De Lucas is the subject of litigation without them being parties. It is hotly disputed whether or not Evans was a part of the joint venture that is the subject matter of the Amended Claim. Much of the record put before me addressed this issue. I agree with Mr. Greenglass that this issue is not one that I should decide in the context of this motion. I am not the trier of fact nor am I tasked with making such a final determination on the merits of the action. This makes a determination of this motion challenging. As an aside, it is also unclear to me how the Plaintiff will be able to obtain a binding order for an accounting of Evans’ profits or a redistribution of the proceeds of sale when the De Lucas are not a party. It is debatable whether or not the Plaintiff is out of time to add the De Lucas as parties but also puzzling why they were not added in 2009 when Evans was added as one of the joint venture properties.

[16] With respect to the first part of the test, do the De Lucas and James have information pertinent to a material issue in the action? On the one hand, yes, because the Plaintiff alleges that Evans was part of the Trust Agreement entered into by the parties. On the other hand, requiring disclosure from them prior to a determination of whether or not Evans was part of the joint venture seems to put the cart before the horse. Evans is the only property that is being contested as not being part of the joint venture. It is the only one, according to the Amended Claim (para. 14) that was not taken into the names of the Defendants or their relatives. The issue for the rest of the properties is whether or not there is a profit that ought to have been shared with the Plaintiff as a 33% interest holder.

[17] In my view it is unjust to compel the De Lucas to divulge what may be private information totally unrelated to the litigation to satisfy the Plaintiff’s hunch. Presumably, the Plaintiff had an evidentiary basis to add Evans to the list of joint venture properties. Some of that evidence appears in the voluminous record put before me. The onus is on the Plaintiff to prove that Evans is part of the joint venture, not on the non-parties to prove that it is not.

[18] Further, I am not persuaded that the Plaintiff is unable to obtain the information from the Defendants themselves. The Plaintiff pleads in paragraph 14 of the Amended Claim that it is Rocco that managed the properties. In fact the Plaintiff’s allegation is so important to him that he is vehemently opposing a defence motion to withdraw an admission of that fact. If Rocco is the one who controlled and managed the transactions, it follows that he is the one who can answer questions about whether Evans was part of the joint venture and how the property was obtained and disposed of. Rocco has agreed to provide a further and better affidavit on Evans and the other properties. At the very least, discovering the De Lucas and James about Evans is premature.

[19] If Rocco cannot produce purchase documents for Evans on the basis that Evans was not part of the joint venture and that the transaction was private to the De Lucas, the appropriate response is not to require the De Lucas to submit to examination and for James to open his filing cabinets to allow the Plaintiff to verify that assertion. They are not parties and have no obligation to the Plaintiff.

[20] I might also add that having dragged the De Lucas and James into this litigation, the Plaintiff has used the opportunity to cross-examine them on the very issues that they seek to explore at a discovery of them. Throughout this lengthy and rigorous process, the De Lucas have maintained that Evans was not part of the joint venture between the Plaintiff and Defendants and that they ought not be required to divulge their personal financial information. Rocco’s unequivocal evidence on the record before me is that the joint venture could not afford Evans and so it was offered to Nick to purchase as his own investment. Again, it is not for me to decide one way or the other. However, I can say that the Plaintiff has already had significant disclosure of information that at the end of the day, he may never have been entitled to.

[21] It is clear to me that the justice of the case favours protecting the privacy rights of the non-parties. Having not been added to the action and it now possibly being too late, the Plaintiff is trying to do indirectly what it cannot do directly. The Plaintiff gave up his right to examine the De Lucas for discovery when he failed to add them to the action. He now wishes to do just that by seeking leave to examine them as non-parties. If as the Plaintiff states, the De Lucas’ and James’ evidence is so critical and they are not out of time to add the De Lucas as parties, then why has the Plaintiff not so moved? In my view, it is because there may be indeed be a serious limitations barrier and the Plaintiff is attempting to side step it by seeking non-party discovery. This is neither the purpose nor the spirit of Rule 31.10. The De Lucas were not added to the action and should have some peace of mind that they do not have to go to the time and expense of responding to it. That is the purpose of limitation periods and the luxury of non-party status. Burying them in paper and requiring them to prove a negative at this late date is unjust. At some point, the Plaintiff must live with his tactical choices which may, in hindsight, be regrettable ones.

[22] Finally, I cannot conclude that it would be unfair for the Plaintiff to proceed to trial without examining the De Lucas and Mr. James for discovery. I have already alluded to the extensive cross-examinations conducted on the affidavits delivered by the De Lucas and James. The De Lucas’ position is well established including some of the ins and outs of what payments were made with respect to Evans, and to whom. Further, the Plaintiff has not completed discovery of the actual parties who have agreed to provide all documents in their possession in relation to Evans. If the De Lucas are needed as witnesses at trial, the Plaintiff will call them as his own or as hostile witnesses, or he will receive a witness statement or a summary of their anticipated testimony if they are to be witnesses for the Defendants. The Plaintiff will then have an opportunity to cross-examine the De Lucas with the benefit of already having vetted them in these motions. Witnesses are generally not pre-examined under oath before trial.

Issue #2 – Should James be required to produce documents relating to 95 and 97 Evans, 153 Jones, 7A Lloyd George and 121 Evans?

[23] The Plaintiff seeks disclosure from James pursuant to Rule 30.10 for the documents referred to in subparagraphs 5(a-d), (h) and (i) of the Third Supplementary Notice of Motion. These paragraphs refer to 95 and 97 Evans, 153 Jones and 7A Lloyd. As I understand it, these properties (except 153 Jones) were already the subject of an order made by Master Brott. To the extent that her order has not been complied with, it should be, forthwith. In particular I refer to what Daniel Molinari refers to as the outstanding documents in paragraph 40 of his August 14, 2017 affidavit.

[24] Since the time that the Brott order were made, James’ files have been seized by the Law Society and are subject to a Trusteeship order. Ms. Musclow for the Law Society advises that the documents ordered by Master Brott have already been provided. The parties have now also agreed for the Defendants to provide these documents by way of further and better affidavits.

[25] To the extent that any information from that order is outstanding and still available, the Law Society and James can provide the information to the Defendants such that it can be included in their further and better affidavit of documents. I also make the same order with respect to James’ accounting ledger, fund summary and trust cheques in regard to the mortgage of 153 Jones Street as I see no difference between this property and the others, nor is there any real opposition to it.

[26] Overall, these documents, except for those relating to 153 Jones, have already been addressed in previous motions and have been ordered to be disclosed. It may be that some or all have already been provided but it would be immensely helpful to the litigation if Defendants, James and/or the Law Society could provide them again or pinpoint when they were provided and in what format.

Issue #3 – Should the Defendants (except Aloe) be permitted to amend their defence in response to the Amended Claim?

[27] There are two paragraphs in the Amended Claim that are in issue. The first is paragraph 14 which alleges that Rocco was the person who controlled the sale and purchase of the joint venture properties. The second is paragraph 16 which alleges that the parties retained an accountant to assist Rocco. The Plaintiff argues that originally, the Defendants admitted those paragraphs.

[28] The Defendants (except Aloe) now wish to file what is essentially a Fresh as Amended Statement of Defence which withdraws the admissions made in the original defence. The Plaintiffs object on the basis that they have not met the test for withdrawing admissions as set out in Antipas et al. c. Coroneos et al., 1988 CarswellOnt 358. I was provided with no other jurisprudence on the test other than a 2011 case which adopts and explains it (Kostruba&Sons Inc. v. Pervez, 2011 ONSC 4894). To withdraw and admission the party must pass three tests: i) that the proposed amendment raises at triable issue; ii) that the admission was inadvertent, and iii) that the withdrawal will not result in any prejudice.

[29] With respect to paragraph 16, the Amended Claim alleges that the parties retained an accountant to assist Rocco. The Defendants have admitted this and continue to do so in the proposed amended defence. However, with Evans now being added to the action, they wish to plead that the accountant was not retained to assist on Evans although retained to assist on the other properties. I agree with the Defendants that this is not a withdrawal of an admission. It is a response to a new allegation.

[30] With respect to paragraph 14, there are several admissions that the Defendants propose to withdraw:

a. That title to the joint venture properties were taken in the names of the various Defendants and/or their relatives; b. That Rocco was the individual who handled all of the financial decisions for the parties and was the person who dealt with the purchases and sales; and c. That it was Rocco who received all of the proceeds from the various sales.

[31] The Defendants have not provided evidence nor written argument to address the Antipas test noted above. At the hearing Mr. Reed argued that point c is contradicted by paragraph 18 of the Amended Claim which alleges that all of the Defendants received part or all of the net proceeds of sale from the joint venture properties. Given this internal inconsistency in the claim, I allow the Defendants to withdraw this part of paragraph 14. There is no basis to allow a withdrawal of the other parts of paragraph 14.

[32] The proposed amended defence also seeks to respond to the addition of the Evans property to the Amended Claim. The Plaintiff takes no issue with this.

[33] In sum, the Defendants (except Aloe) are granted leave to deliver their Fresh as Amended Statement of Defence in accordance with my direction above, within 20 days of today’s date. Aloe’s original defence remains as is.

Issue #4 – Should the Plaintiff provide an accounting of lost profits and diversion of assets?

[34] The Plaintiff should provide an accounting of diverted assets but not lost profits. The Defendants allege that at his examination for discovery, counsel for the Plaintiff agreed to provide an accounting of lost profits and amounts that the Plaintiff says were diverted from the joint venture partnership. I have been provided with a short excerpt of that transcript. I agree with the Plaintiff that all that is undertaken is to provide counsel for the Defendants an accounting of diverted assets. The Plaintiff deposed that he believed that it was largely Rocco who used funds for his own use. His counsel stated “We’ll let you know as soon as we’ve got the information, believe me.”

[35] The Plaintiff argues that it cannot put together such information until he has received full disclosure from the Defendants. I agree that since the Plaintiff did not handle the day to day finances of the joint venture, he has to rely on information received from the Defendants to provide an accounting of what he is claiming as diverted assets or misappropriated funds. The Plaintiff needs to provide this information once discovery of the Defendants is complete.

[36] With respect to an accounting of lost profits, I have not been provided evidence of whether or not this was canvassed at discovery and whether it was undertaken. As such, I am unable to make such an order. Clearly the Plaintiff is asking for an accounting of profits because he alleges that information is not in his hands.

[37] In sum, the Plaintiff shall comply with the undertaking given by his then counsel with respect to the diversion of assets within 30 days after the Defendants’ further discovery is complete. As I understand it the Defendants have already served their further and better affidavits as per their partial settlement of that part of the Plaintiff’s motion. The Plaintiff may convene a case conference with me and Mr. Reed if further time is needed to answer the undertaking, keeping in mind the pending summary judgment motion. If further discovery on the point is needed, the Plaintiff shall submit to a further 2 hours of discovery solely on the issue of diverted assets.

[38] I also urge the Plaintiff to take a pragmatic approach to his discovery obligation. If after reviewing all the documents, he is able to explain what profits he believes he lost as a result of the conduct of the Defendants, he should do so. There is no reason or benefit to withholding that information if one has it. Trial by ambush is neither welcome nor tolerated.

Disposition:

[39] Given the foregoing, I order as follows:

a. The Defendants Rocco, Romina and M.J.R. shall provide a further and better affidavit as set out in their factum on partial settlement; b. Rocco Chiappetta on his own behalf and on behalf of M.J.R. shall attend for further discovery of no more than two hours; c. Romina Pulcini shall attend a further discovery of no more than 2 hours; d. The Defendants (except Aloe) shall pay the Plaintiff costs of the motion in the all-inclusive amount of $1000; e. The motion with respect to discovering the De Lucas and Mr. James is dismissed; f. The motion to compel Mr. James to provide documents relating to Evans is dismissed; g. The motion to compel Aloe to deliver an Affidavit of Documents and submit to discovery is dismissed without prejudice to seeking that relief again once there is evidence that Aloe will realistically participate in these proceedings. Otherwise the Plaintiff may exercise its remedies for Aloe’s failure to comply with the Rules. h. If needed, James/the Law Society of Ontario shall disclose to the Defendants all outstanding information ordered by Master Brott on April 10, 2015 regarding 95 and 97 Evans and 7A Lloyd George forthwith; i. James/the Law Society of Ontario shall disclose the parallel documents for 153 Jones forthwith; j. The Defendants (except Aloe) are permitted to deliver a Fresh As Amended Statement of Defence with restrictions as discussed in paragraph 31 above; and k. The Plaintiff shall provide an accounting of what he believes to be diverted assets within 30 days of the completion of the discovery of the Defendants and/or submit to further discovery on that point of no more than 2 hours.

Costs:

[40] Costs of the motion for further and better affidavit and further discovery of the Defendants have been resolved by the parties.

[41] If the parties cannot resolve costs related to the motion to discover the non-parties and to require documentary disclosure from James, the parties may attend on one of my regular motions days to argue costs.

[42] With respect to amending the defence, both parties provided costs outlines. In my view the result was mixed and the parties shall bear their own costs.

[43] With respect to compelling the Plaintiff to provide an accounting, the Plaintiff was correct in principal that the motion was premature and expanded the undertaking beyond the one given. I believe the Plaintiff took a very reasonable position in attempting to resolve the matter ahead of the motion. The order that I have made is simply for case management purposes to move this dated matter along. The Plaintiff is therefore entitled to his costs in the all-inclusive amount of $2000 payable by the Defendants (except Aloe) within 30 days of today’s date.

Master P.T. Sugunasiri Date: October 5, 2018