Court File and Parties

Court File No.: CV-08-361217 Released: 2018/11/27 Superior Court of Justice - Ontario

Re: Magnotta Winery Corporation et al. v. The Liquor Control Board of Ontario et al.

Before: Master Graham Heard: November 20, 2018

Counsel: Ian Roher and Eitan Kadouri for the plaintiffs (moving parties) Debra McKenna for the defendant Liquor Control Board of Ontario (“LCBO”)

Endorsement

(Plaintiff’s motion for leave to file an affidavit)

[1] There are three motions pending in this action, to be argued over three days from January 21 through 23, 2019, which could dispose of some or all of the issues in the action. These motions are:

1. A motion by the LCBO to stay or dismiss the action pursuant to s. 106 of the Courts of Justice Act, and rules 21.01(b), 21.01(3)(d) and 25.11(a), (b) and (c) of the Rules of Civil Procedure.
2. A motion by the defendant Alcohol and Gaming Commission of Ontario (“AGCO”) pursuant to rules 21.01 and 25.06 of the Rules of Civil Procedure to strike the plaintiffs’ pleadings without leave to amend on the basis that the plaintiffs have failed to disclose a reasonable cause of action, or in the alternative, pursuant to rule 20.02(3) of the Rules of Civil Procedure for summary judgment.
3. A motion by the plaintiffs (“Magnotta”) for partial summary judgment against the AGCO, including various declarations.

[2] The parties have served various affidavits in relation to these motions, including an affidavit of Tommaso Magnotta sworn May 20, 2015 on behalf of the plaintiffs. The parties also served summonses for examinations of various witnesses for the motion under rule 39.03 of the Rules of Civil Procedure. These summonses included a summons served by the plaintiff to examine Jason Hackbush, an LCBO employee.

[3] The parties agreed to a schedule for cross-examinations of the deponents of the affidavits and for the rule 39.03 examinations of witnesses, which included the following:

1. The cross-examination of the AGCO’s deponent Jeff Longhurst on his affidavit on April 12, 2017;
2. Magnotta’s rule 39.03 examination of Jason Hackbush on April 13, 2017;
3. The cross-examinations of the plaintiffs’ deponents Rosanna Magnotta and Tommaso Magnotta on their affidavits on April 24 and April 28, 2017 respectively.

[4] It is significant that the parties agreed that the rule 39.03 examination of Mr. Hackbush of the LCBO could proceed after the cross-examination of Mr. Longhurst of AGCO on his affidavit. Rule 39.02(1) of the Rules of Civil Procedure contemplates that rule 39.03 examinations be completed before any cross-examinations of deponents on their affidavits:

39.02 (1) A party to a motion or application who has served every affidavit on which the party intends to rely and has completed all examinations under rule 39.03 may cross-examine the deponent of any affidavit served by a party who is adverse in interest on the motion or application . [emphasis added]

[5] The transcript of Mr. Hackbush’s examination was provided to counsel on the afternoon of Friday, April 21, 2017. The cross-examination of Rosanna Magnotta was held as scheduled on Monday, April 24, 2017. Meanwhile, Tommaso Magnotta reviewed the Hackbush transcript, and he swore a supplementary affidavit (“the supplementary Magnotta affidavit”) on April 28, 2017 responding to evidence given by Hackbush at his examination. Magnotta’s counsel served this affidavit on counsel for the defendants on the morning of April 28, 2017 before the cross-examination of Tommaso Magnotta scheduled for that day. At the opening of that cross-examination, counsel for the LCBO referred to the supplementary Magnotta affidavit and stated that “the LCBO’s position on it is that there is not an entitlement to serve a further affidavit having already examined a Rule 39.03 witness” (i.e. Mr. Hackbush). Counsel stated further that “the LCBO is not asking questions on the supplementary affidavit at this point and reserves its right to do so, in the event that Magnotta obtains leave to file that affidavit”.

[6] Magnotta now moves for leave to file the supplementary Magnotta affidavit. The LCBO brings a cross-motion to strike the portions of Magnotta’s factum responding to its upcoming motion that refer to this affidavit. Given the motions returnable January 21-23, 2019, I have endeavoured to prepare this ruling as promptly as possible.

[7] Magnotta seeks leave to file the supplementary Magnotta affidavit pursuant to rule 39.02(2) of the Rules of Civil Procedure. The LCBO relies on the same rule in support of its position that Magnotta should be precluded from filing that affidavit and relying on it in its factum. Rule 39.02(2) of the Rules of Civil Procedure states:

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 .

[8] The LCBO now opposes the filing of the supplementary Magnotta affidavit on the basis that Magnotta, having cross-examined the AGCO deponent Longhurst on his affidavit, is precluded from delivering a further affidavit without leave, and further, that leave should not be granted. This position is different than that stated by the LCBO’s counsel at Tommaso Magnotta’s cross-examination, which was that the obstacle to Magnotta filing the affidavit was its examination of Hackbush as a rule 39.03 witness.

[9] I note that Rule 39.02(2) states that the court shall grant leave to a party to file a further affidavit “where it is satisfied that the party ought to be permitted to respond to any matter raised on the cross-examination ” [emphasis added]. Magnotta’s motion is for leave to file the supplementary Magnotta affidavit to respond to matters raised, not on a cross-examination, but on the rule 39.03 examination of Hackbush.

[10] No rule specifically addresses the seeking of leave by a party to deliver a further affidavit for the purpose of responding to a matter raised on a rule 39.03 examination. In the absence of a specific rule applicable to this motion, I rely on rule 1.04(2) of the Rules of Civil Procedure:

1.04(2) Where matters are not provided for in these rules, the practice shall be determined by analogy to them.

[11] The absence of any substantive difference between the seeking of leave to deliver a further affidavit to respond to a matter raised on a rule 39.03 examination, as opposed to a matter raised on a cross-examination, justifies the use of the analogy contemplated by rule 1.04(2). This is particularly the case where the LCBO did not argue that Magnotta could not move under rule 39.02(2) for the leave that it is seeking.

[12] The case law applicable to a party’s motion for leave to deliver a further affidavit after conducting a cross-examination is summarized by Master Jolley in Nexim Healthcare Consultants Inc. v. Yacoob, 2018 ONSC 91, at paragraph 9:

9 The four part test for granting leave is set out in First Capital Realty Inc. v. Centrecorp. Management Services Ltd., 2009 ONSC 5600 (Div. Ct.): (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 or an adjournment; and (4) did the moving party provide a reasonable or adequate explanation for why the evidence was not included at the outset. A flexible, contextual approach is to be taken in assessing the criteria relevant to rule 39.02(2) having regard to the overriding principle outlined in Rule 1.04 that the rules are to be interpreted liberally to ensure a just, timely resolution of the dispute. An overly rigid interpretation can lead to unfairness by punishing a litigant for an oversight of counsel. As stated by Master Muir in Mars Canada Inc. v. Bemco Cash and Carry Inc., 2015 ONSC 8078 at paragraph 10, "In my respectful view, the court should avoid a rigid interpretation of Rule 39.02. The flexible, contextual approach is to be preferred." As noted in P.M. Perell & J.W. Morden, The Law of Civil Procedure in Ontario , commenting on First Capital Realty and quoted in Shah v. LG Chem, Ltd., 2015 ONSC 776, "the Divisional Court held that all the criteria should be weighed and no one criterion was determinative."

[13] Also relevant to the issues on this motion is the further comment of the Divisional Court in First Capital Realty Inc., at paragraph 27:

27 The Rules of Civil Procedure are meant to promote both fairness and the search for truth. They are not meant to encourage the adversarial game of cat and mouse, with technical but impractical arguments.

[14] I will consider each of the parts of the test in First Capital Realty.

1. Is the evidence relevant?

[15] The LCBO submits that, as it is moving under rule 21.01(b) of the Rules of Civil Procedure to strike out all paragraphs in the statement of claim relating to allegations that the LCBO acted improperly in discharging its auditing function, and as rule 21.01(2)(b) of the Rules of Civil Procedure states that no evidence is admissible on a motion under rule 21.01(b), there is no evidence in the supplementary Magnotta affidavit that could be relevant to its motion.

[16] The main problem with this submission is that, as indicated above, the LCBO’s motion is also brought pursuant to s. 106 of the Courts of Justice Act, and rules 21.01(3)(d) and 25.11 of the Rules of Civil Procedure, under all of which evidence is admissible. The motion under rule 21.01(3)(d) is based on the contention that “the action is frivolous or vexatious or is otherwise an abuse of the process of the court”, and under rule 25.11(b) that various pleadings in the statement of claim are “scandalous, frivolous or vexatious”. Given the LCBO’s position that the entire action or parts of it are “scandalous, frivolous or vexatious”, evidence with respect to the conduct of the LCBO and its auditors in relation to Magnotta is relevant to the motion, whether given by the LCBO’s employee Mr. Hackbush on his rule 39.03 examination or by Tommaso Magnotta in the supplementary Magnotta affidavit.

[17] In addition, the LCBO has filed two affidavits of its deponent Patrick Ford so it must require some evidence for some aspect of the motion. Also, the fact that counsel for the LCBO elected to lead a significant amount of evidence from Hackbush (Qs. 639-705 covering 29 pages of transcript) flies in the face of the LCBO’s submission that none of the responding evidence in the supplementary Magnotta affidavit would be relevant.

2. Does the evidence respond to a matter raised on the cross-examination, or in this case, the [rule 39.03 examination](https://www.ontario.ca/laws/regulation/900194) of Mr. Hackbush?

[18] The evidence of Mr. Hackbush with respect to Magnotta’s conduct is summarized in paragraph 63 of Magnotta’s factum on the upcoming motions and highlighted in paragraph 39 of its factum on this motion.

[19] The supplementary Magnotta affidavit sets out three categories of evidence given by Mr. Hackbush at his examination and then provides Tommaso Magnotta’s responding evidence.

[20] The first category is “J-10 Forms”, which are Ontario wine manufacturer monthly statement forms provided by Magnotta to the LCBO in the course of the LCBO’s audits. Mr. Hackbush’s evidence (Qs. 674-690), given in response to questioning by LCBO’s counsel, was to the effect that Magnotta provided either insufficient or inaccurate information to the LCBO on its J-10 monthly statements. Tommaso Magnotta’s responding evidence addresses Magnotta’s practice with respect to completing and submitting these forms, the fact that the forms were all provided to Mr. Hackbush and his auditing team, and Mr. Hackbush’s contention that Magnotta failed to report sales of wine to the LCBO. This evidence is therefore responsive to Mr. Hackbush’s evidence on his examination.

[21] The second category is “Transfers of Bulk Product”. Mr. Hackbush’s evidence was that there was a disproportionate and suspicious quantity of bulk wine transferred amongst the Magnotta manufacturing sites in the fall months of each year. Tommaso Magnotta directly responds to this evidence with his own evidence explaining the reason for the increased amount of product transferred by Magnotta during the fall months. This evidence is therefore responsive to Mr. Hackbush’s evidence.

[22] The third category is “Fermentation in Plastic Totes”. Mr. Hackbush’s evidence was that Magnotta’s practice of fermenting wine in plastic containers or “totes” would have resulted in them selling spoiled wine. Further, Magnotta’s practice in this regard was only “for show” and the liquids that he observed in the totes during his audit were not undergoing fermentation and were not being moved by Magnotta to various locations. Tommaso Magnotta deposes in response that it is common practice in the wine industry to use plastic totes for transportation and fermentation, and Magnotta has done so for 20 years. He also deposes that information from a Magnotta employee contradicts that of Mr. Hackbush with respect to the frequency of transportation of plastic totes. Finally, in response to Mr. Hackbush’s evidence to the effect that Magnotta would not have the capability of moving all of the plastic totes that it claimed to be transporting, Tommaso Magnotta provides evidence with respect to Magnotta’s trucking capacity. Once again, the supplementary Magnotta affidavit contains evidence with respect to this third category that responds to the evidence given by Mr. Hackbush on his examination.

3. Would granting leave result in non-compensable prejudice?

[23] The only possible prejudice that could result from the granting of leave would be the LCBO’s inability to cross-examine Tommaso Magnotta and Rosanna Magnotta on the evidence in the supplementary Magnotta affidavit before the hearing of the motions. However, any such prejudice can be eliminated by allowing the LCBO’s counsel to conduct further cross-examinations before the motions, and Magnotta’s counsel has agreed to make the Magnotta deponents available in a timely manner. Given this concession by Magnotta, granting the requested leave would not result in non-compensable prejudice to the LCBO.

4. Does the moving party have an adequate explanation for not including the evidence at the outset?

[24] The evidence in the supplementary Magnotta affidavit is in response to the evidence given by Hackbush at his rule 39.03 examination on April 13, 2017. The LCBO submitted at the hearing of this motion that Magnotta could have made itself aware of Hackbush’s evidence before examining him and also that much of the evidence in the supplementary Magnotta affidavit is in response to questions asked by Magnotta’s counsel rather than by the LCBO’s counsel.

[25] Neither of these arguments have any merit. First, Hackbush is an employee of the LCBO, a party to the action represented by counsel, and Magnotta’s counsel has no right to speak with him. The only way in which Magnotta could have obtained Hackbush’s evidence is by way of the rule 39.03 examination that it conducted, without knowing what evidence he would give. Second, as Magnotta had no way of ascertaining what Hackbush’s evidence would have been before conducting their examination of him, it is immaterial whether the evidence in the supplementary Magnotta affidavit is in response to evidence elicited by Magnotta’s counsel or by the LCBO’s.

[26] Based on all four of the considerations in First Capital Realty, I conclude that Magnotta should be granted leave under rule 39.02(2) of the Rules of Civil Procedure to file the supplementary Magnotta affidavit to respond to various matters raised on the examination of Mr. Hackbush. Given that the evidence to which Magnotta seeks to respond is that of a witness with whom Magnotta’s counsel is prohibited from speaking, and was elicited at least in part by the LCBO’s counsel, the LCBO’s opposition to the request for leave was essentially tactical and amounts precisely to the “adversarial game of cat and mouse” that the Divisional Court sought to discourage in paragraph 27 of First Capital Realty.

[27] For these reasons, I order that the plaintiffs be granted leave to file the affidavit of Tommaso Magnotta sworn April 28, 2017. The plaintiffs shall make Tommaso Magnotta available to be cross-examined on that affidavit, and shall make Rosanna Magnotta available for further cross-examination limited to matters raised in that affidavit, by December 14, 2018, subject to counsel agreeing to a later deadline. The LCBO’s motion to strike portions of the Magnotta factum is dismissed.

[28] Magnotta filed a costs outline at the conclusion of the hearing and the LCBO provided their costs outline on November 23, 2018, before I completed this endorsement. My preliminary comment based on the costs outlines filed is that the fees of $15,540.00 in the LCBO’s outline exceed the approximately $10,400.00 in fees in Magnotta’s outline, so the LCBO will have difficulty arguing that Magnotta’s costs are unreasonable. However, if the parties cannot agree to the disposition of the costs of the motion, they may arrange to make written submissions, Magnotta by December 20, 2018, and the LCBO by January 11, 2019. If the parties resolve the issue of costs, I would appreciate counsel for Magnotta notifying the court. If I do not receive a written submission from Magnotta by December 20, 2018, I will assume that the parties do not require a ruling on costs.

Master Graham November 27, 2018