Evidentiary Ruling Pursuant to Rule 39.02(2)

Court File No.: CV-16-2685 Date: 2018-10-16

Ontario Superior Court of Justice

Between:

Correct Group Inc. and Correct Building Corporation Plaintiffs

And:

George Cameron and HGR Graham Partners LLP Defendants

Counsel: John Finnigan and James P.E. Hardy, for the Plaintiffs Michael R. Kestenberg and Aaron Hershtal, for the Defendants

Heard: September 26, 2018

Before: Daley, RSJ.

Introduction

[1] The defendants have brought a summary judgment motion seeking an order dismissing the plaintiffs’ action on several grounds, including the passage of a limitation period.

[2] I was appointed the case management judge pursuant to Rule 37.15 of the Rules of Civil Procedure in respect of this action and two other actions, namely, Correct Group Inc. v. The City of Barrie and Correct Building Corporation et al v. Lehman et al, all of which arise from the same events.

[3] Counsel in this action and the two related actions agreed that, in addition to the judicial duties outlined in Rule 37.15, including hearing of motions in these actions, I would be the pretrial conference judge for all actions.

[4] In accordance with my case management endorsement of April 20, 2018, a pretrial conference in respect of all actions was scheduled before me for June 29, 2018 and the defendants’ summary judgment motion was scheduled returnable for September 26, 2018.

[5] In advance of the return date of the within summary judgment motion, counsel for the plaintiffs sought leave to bring a cross-motion pursuant to Rule 39.02(2), on the return of the summary judgment motion, seeking leave to introduce into evidence a supplementary affidavit of Alan Furbacher sworn September 7, 2018.

[6] The motion for leave to submit the supplementary affidavit was argued at the outset and after hearing submissions from both counsel, I determined that I would not rule on the motion summarily, but rather I would adjourn to consider the motion record and the submissions of counsel and then release my written reasons on this motion.

[7] These are my reasons in respect of the plaintiffs’ motion under Rule 39.02(2).

[8] The supplementary affidavit of Alan Furbacher provides evidence on two distinct issues, namely, it purports to be responsive to the cross-examination evidence of the defendant George Cameron on his affidavit in this motion, where he testified that he had an in-person conversation with Mr. Furbacher confirming that Mr. Cameron was not representing the plaintiffs.

[9] Additionally, the supplementary affidavit includes as Exhibit “B” a report dated April 6, 2017 from MNP LLP an accountancy firm, which sets out calculations of the plaintiffs’ financial losses allegedly suffered as a result of the failure of the land development plan and related transactions which are the subject of the three pending actions.

[10] It is submitted on behalf of the plaintiffs that the supplementary affidavit should be admitted in evidence on this summary judgment motion as the evidence qualifies for admissibility under the requirements of Rule 39.02(2) and the justice of the case requires its admission.

[11] Counsel for the defendants urged that the plaintiffs’ motion should be dismissed on several grounds, including on the basis that the plaintiffs are essentially endeavoring to reopen and supplement their evidentiary case on the summary judgment motion, in response to what is analogous to a non-suit motion by the defendants, in violation of Rule 39.02(2) and the jurisprudence.

Analysis

[12] The legal framework for the determination of this evidentiary motion starts with the consideration of Rule 39.02(2) which provides as follows:

39.02

(2) A party who has cross-examined on an affidavit delivered by an adverse party shall not subsequently deliver an affidavit for use at the hearing or conduct an examination under rule 39.03 without leave or consent, and the court shall grant leave, on such terms as are just, where it is satisfied that the party ought to be permitted to respond to any matter raised on the cross-examination with evidence in the form of an affidavit or a transcript of an examination conducted under rule 39.03. R.R.O. 1990, Reg. 194, r. 39.02 (2).

[13] The Divisional Court in First Capital Realty Inc. v. Centrecorp, set out the basis upon which a party may be granted leave to file a responding affidavit after having conducted cross-examination. The court stated as follows at para 9 and 10:

[9] The case law under rule 39.02 confirms the criteria to consider in determining whether a party should be granted leave to respond to a matter raised on cross examination:

1. Is the evidence relevant;

2. Does the evidence respond to a matter raised on the cross-examination—not necessarily raised for the first time;

3. Would granting leave to file the evidence result in non-compensable prejudice that could not be addressed by imposing costs/terms/an adjournment

4. Did the moving party provide a reasonable or adequate explanation for why the evidence was not included at the outset?

[10] Courts have said that even where the factors are not met, the court has residual discretion under rule 1.04 to permit the evidence if it is in the interests of justice to do so.

[14] In a more recent decision, which I brought to the attention of counsel on this motion, Perell J outlined at paras. 10 – 19 all of the considerations to be examined on a motion under Rule 39.02 in Johnson v. North American Palladium Ltd, 2018 ONSC 4496.

[15] In addition to applying the principles outlined in First Capital, Perell J also considered case-splitting by reply evidence as a concern arising on a motion under Rule 39.02 as distinct from case-splitting in a trial.

[16] Perell J. made the following comments in Johnson at para 12 – 15:

[12] Although there is no specific rule of civil procedure that applies, with some modifications, the law against case-splitting regulates the delivery of the reply affidavit and the rule against case-splitting also regulates the argument at the hearing of the motion or the application. [8] Where the parties or the court set a timetable for the exchange of affidavits for a motion or application, the reply evidence should generally be limited to proper reply; i.e., with evidence that complies with the rule against case splitting. [9]

[13] The rule against case-splitting that applies at hearings and trials restricts reply evidence and reply submissions to matters raised by the defendant or responding party and does not permit the plaintiff or applicant to deliver new evidence. The rationale is that the defendant or respondent is entitled to know and to respond to the case being made against him or her, and, therefore, the plaintiff or applicant should not split his or her case and take the opponent by surprise and without an opportunity to respond. It is intrinsically unfair for a plaintiff, applicant, or moving party to add new evidence or new argument after the defendant, respondent, or responding party has completed his or her evidence and argument. [10] Reply evidence is admissible only when defendant, respondent, or responding party has raised a new matter that could not be reasonably anticipated by the plaintiff, applicant, or moving party or where the reply evidence is in response to an issue enlarged by the opponent in a manner that could not have been reasonably foreseen. [11]

[14] The standard for permissible reply evidence, however, is less strict for motion and application procedure than the standard applied at trial. When the reply evidence for a motion or application is introduced before the cross-examination and the hearing on the merits, a less rigorous standard applies. [12] Once cross-examinations begin, the admission of reply evidence is governed by rule 39.02 (2) of the Rules of Civil Procedure, discussed below, and the standard for admitting reply evidence is higher, but still not as strict as the standard at trial. [13]

[15] On motions and applications, in appropriate circumstances, the court has a discretion to admit the improper reply evidence and to allow the opponent to respond with a sur-reply affidavit. [14] Ultimately, it is a balancing exercise, with the goal of ensuring that each party has a fair opportunity to present its case and to respond to the case put forward by the other party. [15]

[17] As noted in this case, the standard for the admission of reply evidence is less strict for a motion and application procedure than would otherwise be the case at trial. Notably, it was urged by counsel for the defendant that by their motion, plaintiffs are simply anticipating what is in the nature of a non-suit motion and trying to fill the evidentiary gaps by the admission of the supplementary affidavit. Counsel for the defendant argued that is essentially a non-suit situation, and as such the plaintiffs should be completely foreclosed from adducing any reply evidence, having completed the presentation of their case by affidavit and having conducted cross examination of the defendant Cameron.

[18] For the reasons outlined above by Perell J in Johnson, I disagree with the submission of counsel for the defendant on this point. While the evidentiary threshold for the admission of reply evidence under Rule 39.02 is high, it is not as high as the threshold at trial and as such the non-suit analogy as argued by defence counsel is not apt to this situation.

[19] Counsel for the defendant stated in argument that if the supplementary affidavit were admitted, he would not seek to cross-examine Furbacher on it. Nor was a request made to file a sur-reply affidavit either, in the event the plaintiffs’ motion was granted in whole or in part.

[20] The proposed supplementary affidavit addresses two separate matters, firstly the dispute as to whether or not Cameron was acting as a lawyer on behalf of the plaintiffs and secondly the issue of the damages alleged to have been suffered by the plaintiffs. I will consider each of the two proposed aspects of the reply affidavit evidence separately.

[21] In his cross-examination on his affidavit Cameron testified that he had an in person conversation with Furbacher where he confirmed that Cameron was not representing the plaintiffs in the negotiations and transactions which are the subject of the action. Cameron’s affidavit makes no mention of any such discussions.

[22] Applying the four criteria set out in First Capital, in a contextual approach having regard to the principles in Rule 1.04, I have concluded that leave should be granted to the plaintiffs to deliver the supplementary affidavit as it relates to Cameron’s testimony that he had in-person conversations with Furbacher regarding as to whether or not he was retained by the plaintiffs.

[23] The proposed evidence on this point is relevant, especially in the context of this case, where in other evidence Furbacher had given under oath evidence that Cameron was not representing the plaintiffs. A full evidentiary record on this question should be available on the pending summary judgment motion.

[24] Notably, Cameron’s evidence on this point was not included in his affidavit and this evidence came forth during his cross-examination for the first time. As such, the plaintiffs should be permitted to respond to Cameron’s evidence on this point.

[25] There is no evidence nor any assertion on the part of the defendants that the admission of this evidence regarding alleged discussions between Cameron and Furbacher would result in non-compensable prejudice.

[26] As to the plaintiffs’ explanation as to why this proposed evidence regarding these alleged conversations was not introduced into the record earlier, the un-contradicted evidence is that the plaintiffs were not aware of such an assertion prior to Cameron’s evidence on cross-examination.

[27] As to the second aspect of the proposed supplementary affidavit evidence from Furbacher, namely the evidentiary basis for the plaintiffs’ claim for damages, the same four criteria from First Capital must be considered as to the admissibility of this affidavit.

[28] It is submitted on behalf of the defendants that the absence of evidence with respect to damages on the pending summary judgment motion is fatal to the plaintiffs’ response to the motion and as such summary judgment should be granted dismissing the plaintiffs’ action.

[29] Without having to determine that issue at this stage, it is clear that this is a significant assertion on behalf of the defendants.

[30] The plaintiffs proposed to introduce as part of the Furbacher supplementary affidavit at Exhibit “B”, an accounting opinion outlining the damages allegedly sustained by the plaintiffs as a result of the alleged negligence and breaches of the defendants in this action as well as in the companion actions.

[31] As noted above, a pretrial conference was conducted by me in all of the actions in June 2018 and at that time the accounting opinion was included in the pretrial conference material submitted on behalf of plaintiffs. Thus, the information contained in the accounting opinion is of no surprise to the defendants in this action, it simply was not included in the responding motion material submitted by the plaintiffs in answer to the pending summary judgment motion.

[32] With respect to the criteria in First Capital, I have concluded that the evidence in the form of the accounting opinion is relevant, however it does not respond to a matter arising from the cross-examination of Cameron. There is no evidence that granting leave to the plaintiffs for the filing of the supplementary affidavit including the accounting opinion would result in non-compensable prejudice that could not be accommodated by costs, terms or an adjournment.

[33] As to whether a reasonable or adequate explanation has been offered as to why the evidence was not put forward in Furbacher’s first affidavit, in response to the summary judgment motion, Furbacher states in the supplementary affidavit that as the defendants did not seek summary judgment on the basis that damages had not been proven and there was no mention of damages in the Cameron affidavit, the additional evidence on damages as set out in the accounting opinion was only necessitated as a result of the position taken by the defendants upon the return of the motion.

[34] In Furbacher’s first affidavit sworn July 23, 2018, at paragraph 71, the deponent states that had he known of the existence of certain reports that are in question he would “have spared myself significant time and expense in attempting to negotiate the sale and development of the Lands with Barrie until late 2011.” He continues in the same paragraph to state that he devoted significant resources of the plaintiffs to negotiating the development of the project and that the plaintiffs did not pursue other opportunities that were available at that time.

[35] While the accounting evidence included in the supplementary affidavit may not necessarily meet the second branch of the First Capital test in that it may not respond to a matter arising from the cross-examination of Cameron, I have concluded that on applying a flexible and contextual approach the evidence should be admitted in accordance with the principles set out in Rule 1.04(1) and (1.1).

[36] Rule 1.04(1) and sub-rule (1.1) provide as follows:

General Principle

1.04 (1) These rules shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits. R.R.O. 1990, Reg. 194, r. 1.04 (1).

Proportionality

(1.1) In applying these rules, the court shall make orders and give directions that are proportionate to the importance and complexity of the issues, and to the amount involved, in the proceeding.

[37] Considering the proportionality called for with respect to the interpretation of the Rules of Civil Procedure, namely with the goal that the Rules be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits, I have concluded that the very directions contained in subsection (1.1) of the Rule are engaged in the circumstances of this case.

[38] The issues at stake in this action and in the companion actions involving the City of Barrie and the other defendants are complex, controversial and involve potentially multi-million dollars in losses and damages. The accounting opinion has been in the possession of parties to all of these actions, including the defendants in the within action for several months and there is no evidence or submission that these defendants have been taken by surprise by the accounting opinion being proffered through the supplementary affidavit.

[39] As the overarching purpose of Rule 1.04 is to ensure that a just determination of the matter is achieved on its merits, to exclude the accounting opinion evidence would be an injustice to the plaintiffs and it would preclude this court from properly adjudicating all of the issues at stake on the summary judgment motion on a full record of relevant evidence. As such, I have concluded that the justice of this case requires the admission into evidence of the supplementary affidavit in respect of both aspects of the evidence relating to the alleged conversations between Cameron and Furbacher as well as with respect to the accounting opinion evidence.

[40] Costs of this evidentiary motion will be determined at the conclusion of the pending summary judgment motion.

Daley RSJ. Released: October 16, 2018