Court File and Parties

COURT FILE NO.: CV-16-547529 MOTION HEARD: 20180613 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Akelius Canada Inc., Plaintiff AND: 2436196 Ontario Inc. and B’nai Fishel Corporation, Defendants

BEFORE: Master P.T. Sugunasiri

COUNSEL: Calina, V., Counsel for the Plaintiff/Moving Party Clark, S., Counsel for the Defendants

HEARD: June 13, 2018

Reasons for Decision

[1] The Plaintiff and Defendants are sophisticated parties to a commercial real estate contract involving eight properties in Toronto (“Properties”). The transaction was set to close on January 7, 2016. However, due to what the Plaintiff characterizes are breaches on the part of the Defendants, the transaction did not close. The crux of the claim is that the Defendants failed to convey good title to certain properties by failing to discharge mortgages, thereby scuppering the deal. As a result of this alleged breach of contract, the Plaintiff claims damages that are specified in paragraph 45 of the Statement of Claim (“Claim”) but not limited to lost income and the difference between the market value of the Properties at closing and the purchase price.

[2] The Defendants’ explanation for failing to discharge the mortgages was that they were closed mortgages and could not be discharged. They plead that they made all reasonable efforts to discharge the mortgages before the closing date, but were unable to do so through no fault of their own.

[3] The dispute in this motion arises from the examination for discovery of the Defendants’ representative, Mr. Wynn. In particular, two groups of documents have been refused. Refusals Group A seeks information to establish the Plaintiff’s measure of damages. The information sought is:

a. The financial statements of the defendant corporations, to the extent they exist, from 2010 to 2015. b. Whether any corporate entities aside from B’nai Fishel obtained revenue from the properties; c. Any financial statements from any companies that obtain revenue from the Properties. d. To advise of all of the revenue that was earned by the Wynn Group with respect to the Properties from 2010 to present; e. To the extent that there is no individual financial statements that related only to the Properties, to advise of the total EBITDA and the net income for the Properties for the period from 2010 to present; and f. To produce any appraisals that have been done on the Properties subsequent to January 2016.

[4] Refusals Group B explores the steps taken by the Defendants to discharge the offending mortgages. In particular, the Plaintiff seeks:

a. Whether, by the end of 2015, Mr. Wynn had sought legal advice with respect to the ability to discharge any of the mortgages. b. The substance of any legal advice that was provided to Mr. Wynn with respect to the ability to discharge the mortgages. c. Whether any advice was requested or received with respect to commencing the defeasing process or the ability to defease the mortgages.

[5] In or around April of 2018, the Wynn Group of Companies, of which the Defendants are members, entered into an asset purchase agreement with Timbercreek Asset Management to sell more than $1 billion worth of Toronto properties including some of the properties at issue in the litigation (“Timbercreek APA”). The Plaintiff seeks disclosure of the Timbercreek APA on the basis that it is relevant to the measure of damages suffered by the Plaintiff.

[6] For the brief reasons that follow, I order the Defendants to provide answers to all of the questions in Refusals Group A. For item a, only the Defendants’ financial statements relating to the Properties need to be disclosed. For items b and c, the production order only applies to companies in the Wynn Group and only to financial statements related to the Properties.

[7] In Refusals Group B, the Defendants shall answer whether they sought advice about their ability to discharge the mortgages and the defeasing process. Finally, the Defendants shall make the Timbercreek APA available for inspection by counsel for Plaintiff and one instructing officer from Akelius.

Refusals Group A

[8] The test for disclosure at the discovery stage of a proceeding is one of relevance. I agree with the Plaintiff that the scope of discovery is broader than the documents that may be found to be probative at trial. Proportionality is also a factor in determining the scope of discovery. In the present case, the Plaintiff seeks financial information that it says are relevant to its measure of damages. In particular, it argues that the revenue generating history of the Properties is relevant to establishing or determine lost income.

[9] The Defendants argue that the revenue enjoyed by the Defendants and/or the Wynn Group of Companies is irrelevant to the question of how much the Plaintiff would have made if the sale had closed. That figure, they submit, is driven by two numbers. The first is the amount of rents paid by the tenants. The Plaintiff is already in possession this information. The second is operating cost of the buildings. According to the Defendants, this is entirely dependent on how a landlord chooses to run the buildings. In turn, those projected costs are entirely within the knowledge of the Plaintiff and has nothing to do with how the Defendants chose to operate the buildings. Finally, the Plaintiff already has information from 2015 from its due diligence process for the transaction.

[10] In my view, the Defendants’ arguments are better left for trial or summary judgment. It may be that the profits enjoyed by the Defendants ultimately have no probative value in establishing damages, or that there is a better method of their calculation. This is a triable issue. At this stage, how much income the Properties have historically derived, is relevant. The fact that the Plaintiff already has the financial information from 2015 does not preclude it from obtaining the information from prior years.

[11] Having said that, proportionality must also come into play and tempers the Plaintiff’s broad request. If the goal is to understand what income may have been lost, the Defendants need only to provide financials in relation to the Properties, or if not available, disclosure of the revenue earned and/or net income. They need not open up all of their books and records from any other lines of business. Further, the disclosure order only applies to companies in the Wynn Group that derived income from the Properties. If there is a company outside of the Wynn Group that derived income from the Properties, it is premature and procedurally unfair to order disclosure of that company’s financial records without notice of such a request to the company.

[12] In a similar vein, any appraisals of the Properties would be relevant to damages. I do not agree with the Defendants that the Plaintiff has limited damages in paragraph 45 to the difference in the value of the Properties from the date of closing and the purchase price. Paragraph 45 enumerates heads of damages but preserves the Plaintiff’s right to pursue other damages. Much time was spent on the jurisprudence relating to what the appropriate valuation date is for the Properties in a transactional case such as this. It is not appropriate in the context of this motion to choose one over the other. The jurisprudence offered by the parties simply confirms that this is a triable issue to be determined at a later date. Therefore any valuation of the Properties after the failed closing date is at this point relevant.

The Timbercreek APA

[13] This takes me to the Timbercreek APA. The Defendants urge that the Timbercreek APA is not relevant to assessing the value of the Properties in this action because of the uniqueness of the bundling of properties in each transaction and because this transaction occurred after the failed closing date. Again, this is a triable issue. It may be that with the assistance of experts, the trier of fact will conclude that the value assigned to some of the properties in the Timbercreek APA may not be an appropriate measure of damages in this action. At this early stage of discovery however, it is relevant to the issue of damages. To balance the privacy rights of any non-parties to this litigation, however, I do not order disclosure of the APA but rather grant counsel for the Plaintiff and one representative an opportunity to inspect it.

Refusals Group B

[14] This group of questions seek whether or not the Plaintiff received legal advice on the discharge of the offending mortgages and what that the substance of the advice was. In making this request, the Plaintiff argues that this information should be disclosed because it is either not covered by solicitor-client privilege or the Defendants have waived the privilege. In defending the Claim, the Defendants plead that they could not have removed the mortgages prior to closing because the mortgages were closed and that even if open, discharge required the consent of third parties who were holders of certain mortgaged back security instruments. They also plead that they took all reasonable steps to discharge the mortgages. In so pleading, the Plaintiff submits that the Defendants have put their legal knowledge in issue which implicitly waives any privilege.

[15] With respect, I disagree with the Plaintiff’s characterization of the Defendants’ pleading. I do not read the defence as putting into issue their knowledge of the law such that privilege is waived. The Plaintiff asks that I draw the inference that knowledge of the law of mortgages and how they are discharged lies beneath the statement that the Defendants were “unable” to discharge the mortgages. This makes any legal advice a material part of the defence. I am not prepared to make such an inference such that solicitor-client privilege is waived. As noted by Justice Perell in Creative Career Systems Inc. v. Ontario, 2012 ONSC 649, materiality of legal advice is not sufficient to justify its compelled disclosure (see para. 29). Rather, to justify a party being required to answer questions of the content of advice, the party must utilize the presence or absence of legal advice as a material element of the defence.

[16] In this case, the Defendants do not do so, neither in the pleadings, nor at discovery. Mr. Wynn was asked questions about these paragraphs of the defence at discovery and at no time did he indicated that his failure to discharge the mortgage was as a result of reliance on legal advice or even his legal knowledge of open and closed mortgages. In fact, Mr. Wynn spoke about his understanding to be derived from reading the mortgage documents and from discussing the issue with the mortgagee.

[17] Based on the foregoing, I deny the Plaintiff’s request to obtain disclosure of any legal advice that the Defendants received about the mortgages.

[18] Whether or not the Defendants received any advice is a different issue. I was not provided any jurisprudence to suggest that the fact of obtaining advice falls within the scope of solicitor-client privilege. Given that the Defendants allege that they took all reasonable steps and made diligent efforts to discharge the mortgages, it is a relevant question whether or not they sought legal advice as one of the steps. Answering this question in no way waives the privilege over the substance of the advice (see Justice Corbett’s comments in Guelph (City) v. Super Blue Box Recycling Corp., [2004] OJ No 4468 (SCJ) at para. 88).

Conclusion

[19] For the foregoing reasons, the Defendants shall provide answers to all of the questions in Refusals Group A. For item a, only the Defendants’ financial statements relating to the Properties need to be disclosed. For items b and c, the production order only applies to companies in the Wynn Group and only to financial statements related to the Properties.

[20] Second, the Defendants shall make the Timbercreek APA available for inspection by counsel for Plaintiff and one officer of the Plaintiff.

[21] Third, with respect to Refusals Group B, the Defendants shall answer whether they sought advice about their ability to discharge the mortgages and the defeasing process.

Costs

[22] Some costs submissions were made at the hearing. However, given the result, I urge the parties to come to an agreement on costs failing which they may make brief submissions. If the parties cannot agree on costs by October 26, 2018, the Plaintiff may make costs submissions of no more than three-pages, double-spaced in addition to its costs outline. Those submissions shall be served on the Defendants and emailed to my Assistant Trial Coordinator at Christine.Meditskos@ontario.ca by November 5, 2018. The Defendants shall serve and file their submissions by email to Ms. Meditskos by November 13, 2018 with the same page and line restriction. I have the Defendants’ costs outline but they may submit an updated one if they so desire.

Original Signed Master P. Tamara Sugunasiri Date: October 13, 2018