Court File and Parties
COURT FILE NO.: CV-18-26572 DATE: 20181207 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Lynne Marie Chibante, Plaintiff – and – Luis Chibante, 1797540 Ontario Inc., and Golden Acre Farms, Inc., Defendants
COUNSEL: Dante D. Gatti, for the Plaintiff Justin Safayeni, for the Defendants
HEARD: November 27, 2018
RULING ON MOTION
HEBNER J.:
[1] This motion was brought by the plaintiff, Lynne Chibante (“Lynne”), for an order compelling the defendant, Luis Chibante (“Luis”), to answer refusals given during his examination for discovery held on October 12, 2018.
Background Facts
[2] The background facts are contained in a ruling I made on August 31, 2018, on a motion brought by Luis to strike three paragraphs in Lynne’s statement of claim. That ruling is at 2018 ONSC 5740. I will repeat the salient background facts here for ease of reference.
[3] Luis and Lynne were married on August 18, 1990. They separated in March 2017. There is an outstanding action commenced by Luis bearing court file number FS–17–17997 dealing with spousal support and an equalization of net family properties (“the family law proceeding”).
[4] The subject of the civil proceedings is the parties’ business in Leamington. Luis and Lynne are equal shareholders, both directly and through a family trust, in Golden Acre Farms Inc. (“Golden Acre”), a greenhouse operating company in Leamington, Ontario. Golden Acre is in the business of growing and selling cucumbers.
[5] Both the civil proceedings and the family law proceeding are being case managed by the writer.
[6] The civil proceeding was commenced by way of two applications, one brought by Lynne and the other brought by Luis, for relief under the Business Corporations Act, R.S.O. 1990, c. B.16. In their respective applications, both parties claim the right to purchase the interest of the other at fair market value. It is common ground that one party should purchase the interest of the other; the question is which party ought to be the buyer and which party ought to be the seller.
[7] In addition, Lynne, in her application, has alleged that Luis breached his fiduciary duties to Golden Acre and engaged in conduct amounting to fraud to benefit himself. Lynne alleges that Luis was aided and abetted in doing so by Mastronardi Produce Limited (“Mastronardi Produce”).
The Allegations
[8] Luis runs the parties’ business. Lynne, throughout the parties’ marriage, was a stay-at-home mother and homemaker. Luis has always been in effective control of the business.
[9] Prior to August 2017, Golden Acre distributed its cucumbers using a company owned by Lynne’s brother. In August 2017, shortly after the parties separated, Luis unilaterally changed Golden Acre’s distributor from Lynne’s brother to Mastronardi Produce. The press release announcing the new relationship was made on August 14, 2017.
[10] Lynne’s allegation of wrongdoing is essentially that Luis caused Golden Acre to enter into an improvident agreement with Mastronardi Produce (the “improvident contract claim”) and then, acting in concert with Mastronardi Produce, engaged in fraud involving the misrepresentation of small or medium cucumbers as extra small cucumbers (the “alleged cucumber fraud”).
[11] At the case management conference on June 14, 2018, the parties agreed that there would be a trial of the improvident contract claim and the alleged cucumber fraud. Pursuant to my endorsement, the parties exchanged pleadings on those issues, with Lynne’s pleading being the statement of claim and Luis’ pleading being the statement of defence. Lynne’s statement of claim was issued June 28, 2018, and includes the following:
- The plaintiff states that Luis, with the assistance of a third-party, namely Mastronardi Produce Limited (“AccompliceCo”), breached his fiduciary duties to each of Golden Acre, and 179, the particulars of which are:
a. Luis terminated a 25 year relationship with Golden Acre’s distributor and subsequently appointed AccompliceCo as Golden Acre’s distributor and did so for no proper business purpose and did so to benefit Luis personally;
g. AccompliceCo made cash advances to Luis for hundreds of thousands of dollars in consideration for Luis’ breach of his fiduciary obligations;
h. AccompliceCo advanced hundreds of thousands of dollars in consideration for Luis providing demand promissory notes which AccompliceCo has never, and will never, make demand for;.
The Issue
[12] The issue on this motion is whether Luis ought to be compelled to answer refusals given during his examination for discovery held on October 12, 2018. The questions that Lynne seeks answers to are as follows:
- Luis’ evidence on the examination for discovery was that he borrowed a total of $1,000,000 from Mastronardi Produce by way of demand promissory notes between October 6, 2017 and September 26, 2018. It was later disclosed that the amount borrowed is actually $1,400,000. There were seven promissory notes in total, each for the sum of $200,000. All of the notes are payable on demand and attract an interest rate of 3 percent per annum. In addition, Luis said he borrowed a further sum of $400,000 from his sister. Luis was asked how the loans came about. His answer was that he needed money for his legal fees. He said that the entire amount of $1,400,000 (being $1 million from Mastronardi Produce and $400,000 from his sister as was then disclosed) was used for legal fees. Luis was then asked to provide a solicitor’s trust statement to confirm his evidence. He refused this request.
- Luis was asked a series of questions about any business ventures he may have pursued with individuals associated with Mastronardi Produce. These questions were refused.
Analysis
[13] The parties are agreed on the governing principles. They are summarized by Perell J. in CIBC v. Deloitte and Touche, 2013 ONSC 917 at para. 65, as follows:
(a) the scope of the discovery is defined by the pleadings;
(b) the examining party may not go beyond the pleadings in an effort to find a claim or defence that has not been pleaded;
(c) the question is relevance to any matter in issue;
(d) the extent of discovery is not unlimited and the court has the right to keep discovery within reasonable and efficient bounds.
[14] The principle of proportionality applies and r. 29.2.03 of the Rules of Civil Procedure requires the court to determine whether “(c) requiring the party or any person to answer the question or produce the document would cause him or her undue prejudice”.
[15] Keeping these principles in mind, I will address the two areas of questioning objected to by Luis.
Borrowed Monies
[16] Counsel for the parties are agreed that the disclosure of a trust statement setting out only those amounts billed to Luis and paid by Luis would not violate solicitor and client privilege. Counsel for Lynne expresses some disbelief at the amount claimed to be borrowed to pay for legal fees. Counsel for Luis points out that Luis is involved in several court cases, both in Ontario and in the United States.
[17] Given the allegations made in the statement of claim, in my view, Luis’ use of the funds borrowed from Mastronardi Produce is relevant. That fact was conceded when the question was answered at Luis’ examination for discovery. Lynne is entitled to test the veracity of that answer. Accordingly, in my view, Luis must provide the requested trust statement.
Related Business Interests
[18] Luis takes the position that any business interests he might have with any individuals, whether connected to Mastronardi Produce or not, is his personal business and not relevant to the issues in dispute in this action. Luis points out that the decision to switch from the former distributor to Mastronardi Produce was made in June 2017. Accordingly, Luis suggests that any business ventures he pursues after that date with individuals associated with Mastronardi Produce could not have had any impact on his decision to make the switch.
[19] Lynne points out that Golden Acre does not have a fixed term distributor contract with Mastronardi Produce. Accordingly, the decision to use Mastronardi Produce as a distributor is an ongoing one. She suggests that any business ventures pursued after the switch was made could therefore be relevant to the continued use of Mastronardi Produce as distributor for Golden Acre’s cucumbers. Lynne further points out that her whole case is based on the premise that Luis changed distributors to Mastronardi Produce to benefit himself personally as opposed to Golden Acre. Lynne’s expert, Federica Nazzani of Capital Assist Valuation Inc., has provided her report wherein she opines that the change in distributors “resulted in a loss of revenues of $774,836 for Golden Acre for the period August 2017 to September 2018”.
[20] Given the allegations made in the statement of claim, Luis’ relationship with individuals associated with Mastronardi Produce is relevant. Lynne’s entire case is based on an inappropriate relationship between Luis and Mastronardi Produce. In my view, limiting the questions to those business ventures that were pursued prior to the decision to make the switch would be parsing the issue too finely. Lynne is entitled to test Luis’ evidence on his reasons for the switch by asking when he entered into such business ventures and with whom. However, the concept of proportionality must be considered. Currently, the trial of the issue is scheduled to take place March 11, 2019, for three weeks. The parties need to be focused on the issues raised in the statement of claim in order to ensure that the trial takes place as scheduled. Accordingly, I intend to control the extent of the questioning into Luis’ further business interests.
[21] At the hearing of the motion, I asked Lynne’s counsel to specify exactly the questions he would like to have answered in respect of Luis’ business interests with anyone associated with Mastronardi Produce. He listed the following:
- What business ventures are you involved in?
- What is the nature of the venture?
- How and when did the venture arise?
- How did your position as a director with Golden Acre Farms bring about those ventures?
[22] I agree with Mr. Gatti that these questions are relevant to the issues as framed and may be asked on examination for discovery. However, I agree with Mr. Safayeni that questions into Luis’ business interests needs to be controlled such that it does not devolve into the type of fishing expedition that needs to be avoided (CIBC).
[23] Luis has also requested strict controls on any information provided given the heightened interest in this litigation by Lynne’s family. Luis provided emails showing that much of the information provided to Lynne’s counsel is provided by Lynne’s brother, the previous distributor for Golden Acre. I note that any information received on an examination for discovery is subject to the deemed undertaking rule. I propose to add a further control requiring the parties and counsel to limit discussions of information obtained to counsel and experts retained in this litigation.
Disposition
[24] For the foregoing reasons, I order as follows:
Luis shall produce confirmation from his lawyers of the amounts paid for legal fees from the date of the first promissory note, October 6, 2017, to date.
Luis shall answer the following questions as they relate to any business interests he has with anyone associated with Mastronardi Produce:
- What business ventures are you involved in?
- What is the nature of the venture?
- How and when did the venture arise?
- How did your position as a director with Golden Acre Farms bring about those ventures?
Luis’ answers to these questions shall not be discussed with anyone other than the parties to this litigation, their counsel and experts retained for this litigation.
In the event the parties cannot agree on costs, they may make written submissions, including a costs outline and any relevant offers to settle, according to the following timeline: a. Lynne may make submissions within 20 days; b. Luis may make submissions within 20 days thereafter; c. Lynne may make reply submissions within 10 days thereafter.
Original signed by Justice Pamela L. Hebner Pamela L. Hebner Justice