COURT FILE NO.: CV-18-605563 MOTION HEARD: 2019-03-22 REASONS RELEASED: 2019-03-26
SUPERIOR COURT OF JUSTICE – ONTARIO
BETWEEN:
Daland Developments Ltd. Plaintiff
- and-
2075568 Ontario Inc., Idacris Investments Inc., and 163157 Ontario Inc. Defendants
BEFORE: MASTER D. E. SHORT
COUNSEL: Colby Linthwaite, for the Plaintiff William Chalmers, for 2075568 Ontario Inc., Idacris Investments Inc., and 163157 Ontario Inc.
REASONS RELEASED: March 26, 2019
Reasons for Decision
I. Overview
[1] This is an unusual action which has given rise to a somewhat out of the ordinary motion under Rule 20.05 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.
[2] Mr. Justice Newbould made an order in the Court monitored receivership arising out of the insolvency of Gottardo Construction and related entities in 2016, vesting a certain property in the defendants.
[3] The plaintiff asserts that it was the beneficiary of a trust involving some or all of the defendants such that it is entitled to a share in the subject underlying property.
[4] In response to the statement of claim the defendants have seen fit to bring a motion under Rule 20.05 to strike the plaintiff's action on a number of grounds.
[5] Affidavits were filed on behalf of the defendants setting out their version of the relevant facts.
[6] Counsel for the deponent refused to allow a number of specific questions relating to activities prior to the granting of the order by Justice Newbould on the basis that they were irrelevant.
[7] The plaintiff now moves for an order requiring a re-attendance and the answering of the questions put to the witness.
[8] The plaintiff now moves for an order requiring a re-attendance and the answering of the questions put to the witness.
[9] As well, a Rule 35 motion was brought by the plaintiff with a view to obtaining further information regarding the position of the defendants. Once again similar questions dealing with the pre-order situation were refused.
[10] The motion to strike the paragraphs is scheduled for later this week. The motion was argued before me last Friday. As a consequence these reasons must of necessity be somewhat less refined than I would have preferred.
II. Relevant Rules
[11] Rule 21 is a narrow rule dealing with the circumstances under which the determination of an issue before trial is available to litigants.
To Any Party on a Question of Law
21.01 (1) A party may move before a judge,
(a) for the determination, before trial, of a question of law raised by a pleading in an action where the determination of the question may dispose of all or part of the action, substantially shorten the trial or result in a substantial saving of costs; or
(b) to strike out a pleading on the ground that it discloses no reasonable cause of action or defence, and the judge may make an order or grant judgment accordingly.
[12] Somewhat unusually, the next subsection establishes this restriction:
(2) No evidence is admissible on a motion,
(a) under clause (1) (a), except with leave of a judge or on consent of the parties;
(b) under clause (1) (b). The Rule then provides for additional opportunities to those defending an action:
To Defendant
(3) A defendant may move before a judge to have an action stayed or dismissed on the ground that,
Jurisdiction
(a) the court has no jurisdiction over the subject matter of the action;
Capacity
(b) the plaintiff is without legal capacity to commence or continue the action or the defendant does not have the legal capacity to be sued;
Another Proceeding Pending
(c) another proceeding is pending in Ontario or another jurisdiction between the same parties in respect of the same subject matter; or
Action Frivolous, Vexatious or Abuse of Process
(d) the action is frivolous or vexatious or is otherwise an abuse of the process of the court,
and the judge may make an order or grant judgment accordingly.
[13] The rule further provides these procedural instructions:
MOTION TO BE MADE PROMPTLY
21.02 A motion under Rule 21.01 shall be made promptly and a failure to do so may be taken into account by the court in awarding costs.
FACTUMS REQUIRED
21.03 (1) On a motion under Rule 21.01, each party shall serve on every other party to the motion a factum consisting of a concise argument stating the facts and law relied on by the party.
(2) The moving party’s factum shall be served and filed with proof of service in the court office where the motion is to be heard at least seven days before the hearing.
(3) The responding party’s factum shall be served and filed with proof of service in the court office where the motion is to be heard at least four days before the hearing.
[14] Rule 39 is also of some relevance on this motion, it reads:
EVIDENCE BY EXAMINATION OF A WITNESS
Before the Hearing
39.03 (1) Subject to subrule 39.02 (2), a person may be examined as a witness before the hearing of a pending motion or application for the purpose of having a transcript of his or her evidence available for use at the hearing.
(2) A witness examined under subrule (1) may be cross-examined by the examining party and any other party and may then be re-examined by the examining party on matters raised by other parties, and the re-examination may take the form of cross-examination.
III. Motion to Date
[15] The defendants brought a motion to determine a question of law under Rule 21. They filed two affidavits in support. These articulated the defendants' position on the merits of the action, key disputed facts, and the law.
[16] The plaintiff attempted to examine a principal of two of the defendants as a witness under Rule 39.03, and to cross-examine the affiant. In the case of the witness, the defendants' counsel refused questions which the plaintiff asserts were “on the merits”, as irrelevant.
[17] In the case of the affiant, counsel refused questions concerning the defendants' legal position as improper, and declared all questions about matters occurring before a certain date irrelevant. The affiant had devoted approximately nine affidavit pages to events occurring prior to his counsel's chosen date.
[18] This motion is for an order directing that the witness and the affiant appear for new examinations, and directing them to answer all questions bearing upon any matters relevant to the determination of the issues in respect of which the defendants' affidavits were filed, inclusive of the merits, the disputed facts, and the defendants' legal position.
The Action
[19] This proceeding concerns the plaintiff's claim to an undivided 25% interest (the "Daland Interest") in a joint venture respecting certain real property (the "Project").
[20] Briefly stated, the plaintiff asserts:
(a) that it did not validly convey any interest in the Daland Interest to B. Gottardo Construction Ltd. ("Construction"), or that it has recovered that interest;
(b) that the defendant co-venturers had agreed that Daland owned, or that they would cooperate with Daland to recover, the Daland Interest (the "Cooperation Agreement");
(c) that in violation of the Co-Ownership/Joint Venture Agreement respecting the Project (the "JVA") and the Cooperation Agreement, the defendants 2075568 Ontario Inc. ("Highmark") and Idacris Investments Inc. ("Idacris") purported to acquire the Daland Interest from Construction's receiver, BOO Canada Limited (the "Receiver"); and
(d) that if Highmark and Idacris now have an interest in the Daland Interest, they are holding it in trust for Daland.
[21] The statement of claim was served in October 2018. A defence has not been served.
The First Messina Affidavit
[22] In November 2018, the defendants served a notice of motion pursuant to Rule 21.01 (3)(d)5, seeking an order striking "the action in this proceeding" as frivolous and vexatious due to cause of action estoppel, issue estoppel, or the doctrine of abuse of process.
[23] In essence the plaintiff submits that defendants' motion is predicated upon the assertion that “because a judge of the Commercial List had made an order vesting Construction's interest in the Daland Interest in Highmark and Idacris, (the "Vesting Order"), the issue of Construction's ownership of the Daland Interest has been judicially decided and could not be re-litigated in this action.”
[24] The Plaintiff submits that this argument “overlooks the fact that if Construction did not have such an interest, neither it nor its receiver could convey it.”
[25] The Vesting Order was made October 19, 2016 (the "Order Date"). It appears that the first eight pages of the Messina Affidavit described events prior to the Order Date. I note from the moving party’s factum these observations that:
(a) The narrative commences in 2004, with the execution by the parties of the JVA respecting the Project.
(b) An account of the meaning of certain aspects of JVA is provided and then Messina asserts that the plaintiff has violated the JVA.
(c) Construction's receivership and the 2015 efforts (never successful) by the Receiver to obtain an order "that the interest of Daland in the Joint Venture is held in trust by Daland for the benefit of Construction" are described.
(d) Negotiations concerning the Daland Interest between Highmark, Idacris and the Receiver, and then between the Receiver and the principal of Daland, David Gottardo ("David") are described.
(e) “Messina then purported to describe David's knowledge of the Receiver's negotiations with Highmark and Idacris.”
(f) The September 2016 agreement of purchase and sale between the Receiver, as vendor, and Highmark and Idacris, as purchaser, (the "APS") is discussed.
[26] The plaintiff’s factum asserts that at this point, “Messina made two careful misrepresentations concerning the issue at the heart of the action:
(i) He swore flatly that "Highmark and Idacris purchased Daland's 25% interest in the Project, including the Joint Venture Lands". The Receiver was Construction's receiver, not Daland's, and the Receiver could convey only Construction's interest in the Project, not Daland's. Accordingly, the APS document conveyed only Construction's right, title and interest in Daland's shares in the Project and the underlying property. Whether Construction had an interest in the Daland Interest that could be conveyed is an issue central to this action. Messina made the sworn assertion that that issue has been decided by the terms of the APS.
(ii) He swore that the APS "obviated the need for the Court to adjudicate the portion of the Receiver's 2015 Motion regarding the Joint Venture ... " As set out above, that "portion" respected the question of whether "the interest of Daland in the Joint Venture is held in trust by Daland for the benefit of Construction". Messina is here again swearing that the terms of an APS between private parties and the Receiver had the legal effect of a Court order.
[27] Finally, at paragraph 21, the Vesting Order was arrived at.
[28] Once Messina had quoted the Vesting Order and the APS, he set out the defendants' legal argument. The third and final four paragraphs of the First Messina Affidavit explicitly articulate the defendants' legal position on their Motion and their defence to the action:[emphasis in plaintiff’s factum]:
3 This Action is entirely based on a claim by the Plaintiff ('Daland") to an interest in a joint venture that was expunged and discharged by the express terms of an order made by a Judge on October 19, 2016, on a motion of which Daland was given notice and an opportunity to respond, but on which Daland chose not to file materials or even appear to make submissions. This Action is res judicata and an abuse of process.
The claims advanced by Daland in this Action properly belonged to the subject matter of the Approval & Vesting Motion in the 2015 Proceeding. In this Action, Daland is attempting to re-litigate a case by advancing a new legal theory in support of a claim based on essentially the same facts or combination of facts at play on the Approval & Vesting Motion.
The issues raised by Daland in this Action are not incidental to the determination of the rights of the parties. They are, rather, part of what was the central dispute between Daland, on the one hand, and the Defendants on the other regarding the Joint Venture, the Purchased Assets, the Joint Venture Agreement and the Trust Agreement. The determination of Daland's rights in the Joint Venture Lands, the Project and Joint Venture form part of the conclusions that were necessarily determined on the Approval & Vesting Motion.
In this Action, Daland has merely advanced new legal theories of liability, based on facts that it was aware of as of October, 2016. It would be manifestly unfair to the Defendants to require them to defend this Action, arising out of the same facts as [. . .] those in issue on the Approval & Vesting Motion, merely because Daland either forgot or failed to advance theories of liability at the time of the hearing of the Approval & Vesting Motion.
The causes of action claimed in this Action are ones that were known or ought to have been known and could have been raised on the Approval & Vesting Motion in the Prior Proceeding.
[29] The contents of Messina's sworn account of Daland's "disposition" of its Interest, Gottardo's knowledge of various matters at disparate times, and the content and legal effect of the APS and the Vesting Order are contested by Daland.
[30] The plaintiff subsequently brought a motion to strike the Messina Affidavit, or in the alternative to strike certain paragraphs in that Affidavit (the "Plaintiff's Motion"). Upon receiving the notice of motion, Chalmers wrote Tayar:
I acknowledge receipt of your Notice of Motion [. . .]
However, as you know, I have suggested since you first advised me of your intention to bring a motion to strike the Messina Affidavit that your argument in that regard can and should be made at the return of the Defendants' Motion. I have expressly stated that the delivery of material by you and the exercise of your client's right to cross-examine Mr. Messina will be without prejudice to your position that the Messina Affidavit is not admissible on the Defendants' Motion.
IV. The Lucchese and Messina Examinations
[31] Philip Lucchese is a principal of Highmark and a director the defendant 1637050 Ontario Inc. On January 31, 2019, Tayar attempted to examine Lucchese pursuant to Rule 39.03. Mr. Chalmers, counsel for the defendants, appeared as counsel for Lucchese.
[32] The plaintiff asserts in its factum that Mr. Chalmers permitted Lucchese to answer nineteen innocuous questions. Lucchese's last answer is on page 12 of a 29-page transcript. The vast majority of the questions were refused on the basis that they were irrelevant. Chalmers put his position concerning relevance on the record. “
MR. TAYAR: Sure it is.
MR. CHALMERS: I understand you say sure it is, but you and I apparently have a different view of the law. Fortunately, I brought the law with me. I even sent the case to you, Baradaranv and Alexanian, so it makes it clear the purpose of this motion isn't to determine the merits but to decide whether the pleadings should be struck. That's what I'm relying on.
MR. TAYAR: Mr. Chalmers, you delivered two affidavits. Probably in terms of their thickness, they are probably about three inches thick. Are you telling me, sir, that you can file and deliver affidavit material relating to the merits and now say to me I can't examine on the merits?
MR. CHALMERS: These don't relate to the merits.
MR. CHALMERS: No. I'm telling you, Mr. Tayar. Thanks for asking for my position so I'll give it to you. I'm advising you, Mr. Tayar, that the matter in issue in this motion as I see it, and accordingly, it's my client's position, is that whatever happened up until the point in time that the order, approval and vesting order was made is irrelevant and you want to get into all those events that led up to it.
The affidavit material put before the court identifies the steps that were taken in that regard based on the documents. Accordingly, your questions that ask about the detail of those discussions are irrelevant. Either the court is going to find that your client had an opportunity to exercise its claims in that regard and chose not to and now they're precluded or it's precluded from doing so, or not.
[33] Again, the first eight pages of the First Messina Affidavit, and paragraphs 10-13 of the Second Messina Affidavit, discussed events preceding the Order Date. The plaintiff sets out the following description of the examination of this witness:
With virtually every question being refused, Tayar ended the Lucchese examination. He next attempted to cross-examine Messina. Chalmers refused the sixth question, and many of the rest. The answers Messina was allowed to provide demonstrated a level of legal sophistication markedly inconsistent with the content of his affidavits.
Q. You say in that paragraph [nine of the Second Messina Affidavit] about halfway down that you understand that the purpose of the motion is to adjudicate the question as to whether those claims can or cannot be advanced in this action, not the question as to whether those claims are true. For the purpose of this motion, do you accept that the facts alleged in the Statement of Claim are true?
MR. CHALMERS: You're asking for our position? Because this witness is here --
MR. TAYAR: I understand what he's saying in his affidavit, sir. I'm cross-examining on it.
REF MR. CHALMERS: Okay, because this witness is here to answer questions about facts, not positions at law, so I'm objecting to the question on the basis that you are asking this witness for his position at law.
MR. TAYAR:
7 Q. Do you accept, sir -- let me ask the question this way. What do you mean by that sentence that I just read to you from the affidavit? What do you understand that to mean?
A. We are basically here to undertake that what you guys are saying in your motion should move forward to the courts.
8 Q. Yes?
A. That's it.
9 Q. Not whether those claims are true. What do you mean by that?
A. It's just the advancement of law.
10 Q. The advancement of law. Sir, could you tell me what that means?
A. Should be continued on this claim from Gottardo.
11 Q. For the purpose of this motion, do you dispute what's alleged in the Statement of Claim?
REF MR. CHALMERS: Same objection for the reason I said before.
MR. TAYAR: I'm not allowed to know what position he's taking on his motion, Mr. Chalmers? Is that what you're saying?
MR. CHALMERS: If you are asking this witness for his position, no, as you know, and my opinion I think you know, but as I think you know, you are not allowed to ask a witness for his position. If you are asking for the position of the defendants, I can give it to you.
MR. TAYAR: Well, I don't agree with your premise of what I'm allowed to ask and not ask, but I don't mind if you answer the question on his behalf in this case, Mr. Chalmers. Go ahead.
MR. CHALMERS: I'll give you my position in another time. It's not appropriately provided on this examination.
MR. TAYAR: You don't want to give it now?
MR. CHALMERS: Oh. Do you want me to give it now?
MR. TAYAR: Yes.
MR. CHALMERS: So the answer to the question is the purpose of the motion is as is set out in the notice of motion to strike the proceeding as frivolous and vexatious because of res judicata due to cause of action estoppel and/or issue estoppel, or alternatively, because it's an abuse of process.
MR. TAYAR: The question is whether for the purpose of the underlying motion, the defendants accept as true the contents of the Statement of Claim.
MR. CHALMERS: It's not necessary to take a position in that regard for this motion.
MR. CHALMERS: I am not going to give you my position on the motion until all the examinations are complete. If you want it, I can give it to you contemporaneously or with the provision of my factum.
MR. TAYAR: No. I want it right now, Mr. Chalmers. You're refusing. That is what I wanted to hear. Thank you.
26 Q. Was there anyone else involved in negotiations other than yourself?
REF MR. CHALMERS: Again, counsel, same objection as advanced in the other examination. What took place in those negotiations is beyond the scope of what is relevant for the determination to be made on this motion. My client's position is irrespective of what took place in those negotiations, even if there was some problem of the nature of that that could be alleged, that is not relevant to the question the judge has to decide, which is whether your client lost its right to challenge those steps because of its failure to appear at the return of the motion where the approval and vesting order was made, its failure to take any steps to address that order to challenge it, its failure to approve it. Because the order is final and binding, the issue is res judicata because that order formally expunged any claims that could be made.”
[34] Apparently Mr. Tayar asked two more questions, which were refused, and the examination ended. Mr. Chalmers later wrote Mr. Tayar to say that there was "a legitimate disagreement between the parties as to the scope of matters that are relevant to the motions".
V. Disposition
[35] Having considered the opposing sides of that disagreement I have determined that it is inappropriate and unfair for a party to file affidavits in proceedings such as this and to then assert that their sworn written testimony is not open to challenge.
[36] This is particularly the case where the actual circumstances surrounding a previous Order of the court may impact on its reliability in particular situations.
[37] I accept and adopt these submissions from the plaintiff’s factum:
- The law on this point has been settled since the decision of Gale, J. (as he then was) in [Thomson v. Thomson, [1948] O.J. No. 24]:
[. . . A] person cross-examining on an affidavit was not confined to the area within the four corners of the affidavit but could cover any matters relevant to the determination of the issue in respect of which the affidavit was filed.
While I have some difficulty in appreciating the reason why the affidavit was filed, the fact remains that it was brought to the attention of the Court as evidence in support of the plaintiff's motion. It is before the Court and it is well established that it cannot now be withdrawn for the purpose of evading cross-examination upon it. Since Mr. Lerner saw fit to draw and file the affidavit, he at least must have been of the opinion that its contents were relevant and that it would advance the position of his client. I do not think that he should now be allowed to reverse himself by taking the position that the whole affidavit is irrelevant and that therefore cross-examination should not be had upon it. It strikes me that if that were permitted the other side would be left in a very unfortunate position, for it would mean that the affidavit, with whatever influence it possesses, would remain before the Court, and yet would be protected from the test of cross-examination. I cannot accept the logic of that proposition. I agree that the Court will not usually sanction cross-examination upon matters which are totally outside of the issues involved, but here the solicitor for the plaintiff must be deemed to have decided that the contents of his affidavit would be pertinent to the determination of the motion, and it therefore ill fits him to attempt now to escape the consequences of cross-examination by saying that the affidavit cannot affect the result of the motion.
[38] To the same effect is Wojick v. Wojick, [1971] 2 O.R. 687:
[. . . T]hat issue was, in my opinion, raised by the provisions of para. 5, and I think the wife, having raised this issue in the particular affidavit, and it is now filed and before the Court, I think I would be doing a disservice to the defendant if he were not permitted to cross-examine upon an issue put in evidence by the plaintiff, even though such issue is irrelevant.
[39] Thomson and Wojick have been recently cited by the Divisional Court, in [Hoolans v. Van Loon, [2003] O.J. No. 1256] by Justice D.M. Brown (as he then was), and by Justice Perell (in Ontario v. Rothmans Inc., 2011 ONSC 2504 at para. 143) as representing the law concerning cross-examination on an affidavit.
[40] Thus, having served the First and Second Messina Affidavits, I am satisfied that Mr. Messina must answer all questions arising out of the statements made in those affidavits, including questions about the merits of the action, events preceding the Order Date, and the defendants' legal position on their motion and in the action.
[41] In the result the Plaintiff’s motion is successful and I see no reason not to grant the substantive relief sought. Therefore, an Order shall go implementing the foregoing analysis by way of:
An Order that Lucchese and Messina must answer all questions bearing upon any matters (i) within the four corners of the two Messina Affidavits and (ii) relevant to the determination of the issues in respect of which the Messina Affidavits were filed, inclusive of, but not limited to, the merits of the action, events preceding the Order Date, and the defendants' legal position on their motion and in the action.
An Order that Lucchese attend for a new examination pursuant to Rule 39.03 on a date ordered by the Court or agreed upon by counsel;
and
- An Order that Messina attend for a new cross-examination on his affidavit sworn November 5, 2018 and January 28, 2019 on a date ordered by the Court or agreed upon by counsel;
VI. Costs
[42] I am satisfied that the plaintiff should have its costs of this motion on a partial indemnity basis, payable by the defendants within 60 days.
[43] The parties are encouraged to settle the issue of costs. If the parties cannot agree on costs, the plaintiff, may make written submissions as to costs within 30 days of the release of this decision. The defendants will have 20 days after receipt of the plaintiff's submissions to respond. The plaintiff shall then have a further 15 days to reply.
[44] All such written submissions shall not exceed five double-spaced pages, exclusive of Offers to Settle, Bills of Costs and authorities and are to be consolidated and forwarded in a single package to my Assistant Trial Coordinator, Mr D. Backes. If no submissions are received within 90 days from the release of these reasons, the parties will be deemed to have settled the issue of costs as between themselves.
[45] I thank counsel for their detailed and focused submissions.
R. 274/DS
Master D.E. Short