Court File and Parties
COURT FILE NO.: CV-16-1570 DATE: 2019 07 18 SUPERIOR COURT OF JUSTICE– ONTARIO
RE: FALCON LUMBER LIMITED Plaintiff
AND:
24803375 Ontario Inc., carrying on business as “GN MOULDINGS AND DOORS”, MUHAMMAD ASJID IQBAL, GN TRIM AND DOORS Ltd. a.k.a. “GN TRIM & DOOR LTD.”, SURINDER P. LOTEY a.k.a. “PAUL LOTEY”, 252825 ONTARIO INC. carrying on business as VK TRIM & DOORS and 2625068 ONTARIO INC, carrying on business as VK Trim & Doors, 2562825 ONTARIO INC., carrying on business as VK TRIM & DOORS, and 2625068 ONTARIO INC., carrying on business as VK Trim & Doors Defendants
BEFORE: Ricchetti J.
COUNSEL: R. Linton for the Plaintiff R. Gandotra for “Lotey Defendants” (being 24803375 Ontario Inc., carrying on business as “GN MOULDINGS AND DOORS”, MUHAMMAD ASJID IQBAL, GN TRIM AND DOORS Ltd. a.k.a. “GN TRIM & DOOR LTD.”, SURINDER P. LOTEY a.k.a. “PAUL LOTEY”)
HEARD: July 4, 2019
Endorsement
OVERVIEW
[1] The issue is whether a $131,000 claim for goods and services delivered, now more than 3 years outstanding, should be dismissed in circumstances where:
a) According to the court records, there have been 30 dates for motions, cross-motions and case conferences in the past 3 years;
b) In most court attendances, the primary issue has been the Lotey Defendants’ failure to provide complete relevant productions;
c) This proceeding has resulted in 22 orders or judicial endorsements on separate dates;
d) In this proceeding has resulted in 6 orders regarding Lotey Defendants to make or failure to make productions; and
e) In as of July 4, 2019, the Lotey Defendants have still not made full and complete productions.
[2] In my view, the answer is yes.
[3] I am satisfied that the deliberate and continuous conduct of the Lotey Defendants throughout this proceeding has been to deliberately delay and obstruct the proper adjudication of this claim and they have been successful in this strategy for the past three years.
[4] The Lotey Defendants have deliberately and flagrantly disregarded numerous orders and the Rules of Civil Procedure. The Lotey Defendants have done everything in their power to avoid the full production of relevant documents and the adjudication of the Plaintiff’s claim on the merits.
[5] To permit the Defendants to conduct themselves in this manner, without judicial intervention by the striking of their pleadings, despite the severity of such an order, would encourage other defendants to undertake similar conduct thereby bringing the administration of justice into disrepute and the end of compliance with the Rules of Civil Procedure.
THE CURRENT MOTIONS
[6] There are two motions to be dealt with:
a) The Plaintiff’s May 2018 motion to strike the pleadings of 2480375 Ontario Inc., carrying on business as “GN Mouldings and Doors,” GN Trim and Doors Ltd. a.k.a. “GN Trim & Door Ltd.” and Surinder P. Loteyaska “Paul Lotey” (the “Lotey Defendants”); and
b) The Plaintiff’s May 2019 motion for an order compelling the Lotey Defendants to produce complete Affidavits of Documents and attend for an examination for discovery. This motion includes a claim for costs payable against counsel for the Lotey Defendants.
THE CLAIM
[7] In 2015, the Plaintiff allegedly contracted with one or more of the Lotey Defendants to supply lumber and building materials. The Plaintiff received purchase orders from the Lotey Defendants. The Plaintiff supplied the lumber and other building materials to the Lotey Defendants.
[8] The Plaintiff's purchase invoices were addressed to GN Trim and Doors Ltd. (GN Ltd.). The amount of the invoices was $131,748.17. No dispute was raised regarding the invoices or the materials supplied. There was no suggestion that the Plaintiff’s products were not delivered or a suggestion that the products delivered were defective or unusable.
[9] 2480375 Ontario Inc. carries on business under the firm name and style of “GN Mouldings and Doors” (248 Ont.). GN Ltd. is a separate corporate entity with a similar operating name to 248 Ont. Paul Lotey is the principal officer, director and sole shareholder of GN Ltd. and 248 Ont. ("Mr. Lotey").
[10] The Plaintiff has not been paid. Shortly after the delivery of the invoices, Mr. Lotey advised that GN Ltd. was no longer in business. Yet, the business operations including at the location of the business and Mr. Lotey’s involvement in the business, remained exactly the same.
[11] The Plaintiff's claim is for goods sold and delivered, seeking to pierce the corporate veil due to a “corporate shell game,” and Mr. Lotey's participation in misleading creditors, improper use of corporate entities and unjust enrichment.
[12] Essentially, the Statement of Defence denies the allegations and states that Mr. Lotey was not personally liable, involved in a joint effort to defeat creditors and was not unjustly enriched.
THE BACKGROUND OF PROCEEDINGS TO DATE
[13] On April 5, 2016, the Plaintiff issued and served a Statement of Claim by personal service on Mr. Lotey.
[14] No Defence was forthcoming as required by the Rules.
[15] On April 28, 2016, a default judgment was issued for $131,935 plus costs against the Lotey Defendants.
[16] On June 6, 2016, on consent, the default judgment was set aside.
[17] In July 2016, the Plaintiff requested, on numerous occasions in writing, an Affidavit of Documents from the Lotey Defendants. None was immediately forthcoming.
[18] In July 2016, the Plaintiff served an appointment for discovery. The appointment was returnable on July 21, 2016.
[19] On July 21, 2016, the Lotey Defendants had not delivered an Affidavit of Documents and no one appeared for the Lotey Defendants at the examination for discovery.
[20] In August 2016, the Plaintiff brought a motion to strike the Lotey Defendants' pleadings or, alternatively, to compel delivery of an Affidavit of Documents and an attendance at an examination for discovery.
[21] On August 18, 2016, the parties agreed to a timetable and one was ordered by Price J. An Affidavit of Documents was to be delivered and examinations for discovery were to be held on October 7, 2016.
[22] In August 2016, the Lotey Defendants produced an Affidavits of Documents. On an even cursory review, it was apparent that the Lotey Defendants' Affidavit of Documents was deficient. For example, the only documents listed were the Plaintiff’s invoices. Mr. Lotey’s Affidavit contained nothing at all! This despite allegations of unjust enrichment and the corporate structure referred to above.
[23] The Plaintiff demanded a fresh Affidavit of Documents.
[24] An appointment was served on Mr. Lotey, to attend an examination for discovery on October 7, 2016 in his personal capacity and as a representative of the Lotey Defendants. The appointment required Mr. Lotey to bring “books, contracts, letters and in particular, two year financial statements, 12 months’ bank statements.”
[25] On October 7, 2016, Mr. Lotey did not bring the documentation with him to the examination for discovery. Mr. Lotey refused to produce the documentation requested. The examination ended.
[26] There can be no dispute that the Lotey Defendants had not produced all relevant documents in the Affidavit of Documents as required by the Rules (as subsequently decided by this court) and as such, the Plaintiff did not want to and had every right not to proceed with the examination for discovery.
[27] Despite this, the Lotey Defendants' counsel wrongly wanted the Plaintiff to proceed to ask questions at the examination. Counsel's position and submission makes no sense. A party is not required to proceed to examine for discovery of the opposing party until the opposing party has produced all relevant documents. Not only is the Plaintiff’s refusal to proceed with the examination for discovery in these circumstances consistent with the Rules (see R. 34.14), it would also be negligent of the Plaintiff’s counsel to conduct an examination for discovery where there are obvious missing documentation.
[28] On March 24, 2017, the Plaintiff again brought a motion requiring the Lotey Defendants to produce a full and complete Affidavit of Documents. This motion was heard by Barnes J. He stated:
[10] The crux of the Plaintiff’s argument is that the Defendants colluded to obtain and retain the benefit of the Plaintiff’s goods and it is an unjust enrichment to allow the Defendants to obtain the benefit of the goods without paying for them. The Plaintiff submits that the documents are relevant to the issue of why the money has not been paid, who may have obtained the benefit from the transaction and whether there is any financial relationship between the Defendants.
[13] A non-exhaustive list of the issues raised by the pleadings in this action includes:
Was there a contract between the parties for the supply of the goods?;
Were the goods delivered by the Plaintiff in accordance with the contract?;
Which Defendant(s) received the goods?;
Which Defendant(s) was responsible for paying the Plaintiff for the delivery of the goods?;
Was the Plaintiff paid for the delivery of the goods?;
Did the Defendants collude to deprive the Plaintiff of payment for the goods?;
Did the Defendant(s) receive a corresponding benefit from the delivery of the goods?;
If the Defendant(s) received a benefit, which Defendant(s) received the corresponding benefit?; and
Which Defendant(s) was unjustly enriched by receiving the benefit?
[21] The cumulative effect of facts previously described and the following additional facts raise the issue of whether the Transamerica factors for piercing the corporate veil are present in this case:
When the Plaintiff made a demand for payment, it was informed that GH Trim and Doors Ltd. was no longer operating;
The Plaintiff determined that the phone number and email of GH Trim and Doors Ltd. were still operational;
2480375 Ontario Inc. carrying on business as ”GN Mouldings and Doors” has the same business address as the said defunct GH Trim and Doors Ltd;
The Co-Defendant Paul Lotey and Co-Defendant Mohammed Asjid Iqbal had an agreement for the sale of the assets of GH Trim and Doors Ltd.; and
Co-Defendant 2480375 Ontario Inc. also carrying on business as “GM Mouldings and Doors” was incorporated for that purpose. The agreement was later cancelled.
[22] Thus the documents sought by the Plaintiff are relevant to the issues raised by the action. The documents can help discover why the amount claimed has not been paid, who may have obtained the benefit arising from the failure to pay, whether there is any financial relationship between the Defendants and the nature of any financial relationships. All of these items are relevant to the issue of unjust enrichment and whether the corporate veil can be pierced in this action.
[23] Therefore, the Defendants GN Trim and Doors Limited, also known as “GN Trim & Door Ltd” and Surinder P. Lotey also known as “Paul Lotey” shall comply with the Order previously described.
(emphasis added)
[29] This court order should have finally resolved the production issues. It did not.
[30] On the heels of the May 2017 order, the Lotey Defendants, chose not to produce a complete Affidavit of Documents as ordered, instead, Mr. Lotey brought a motion for summary judgment. This was an obvious attempt to circumvent the Barnes J.’s order by Mr. Lotey.
[31] In May 2017, Mr. Lotey’s summary judgement motion came before Bloom J. Bloom J. adjourned the motion to permit the filing of responding materials and cross-examination.
[32] Mr. Lotey attended cross-examination on June 22, 2017, but he had continued to refuse (or failed) to produce the documents ordered by Barnes J. some 3 months earlier.
[33] In September 2017, the Plaintiff brought another motion to compel Mr. Lotey to answer refused questions and produce the documentation ordered by Barnes J.
[34] On September 14, 2017, the Plaintiff's motion was heard by Shaw J. Justice Shaw determined that:
[4] The defendants have not complied with Justice Barnes order. GN and Lotey were to have provided disclosure by August 31, 2017. Counsel for the defendants informed the court during the motion that the disclosure would be provided by September 28, 2017.
[35] It is apparent that the Lotey Defendants continued to "play" the delay game despite being in flagrant and deliberate breach of the order of Barnes J.
[36] Justice Shaw ordered Mr. Lotey to re-attend and answer a number of questions. The court was advised that compliance with Barnes J.’s order would be made by the Lotey Defendants by September 28, 2017.
[37] September 28, 2017 came and went without a complete Affidavit of Documents. The Lotey Defendant's delay continued.
[38] The Plaintiff's arranged for the cross-examination of Mr. Lotey on March 8, 2018 despite the fact that full and complete documents by the Lotey Defendants had not been made as ordered by Barnes J. or as Shaw J. had been advised.
[39] Once again, the Plaintiff’s counsel chose not to proceed with the cross-examination. Once again Lotey Defendants' counsel, on the record, objected to the termination of the examination suggesting that the Plaintiff ask questions on the documents which had been produced. Clearly, the Lotey Defendants' counsel did not and does not understand that all relevant documents should have been produced in advance for a proper and complete cross-examination.
[40] This is a further example of the deliberate delay and failure to comply with the Rules for almost two years and the failure to comply with the Barnes J.’s order for almost a year. Six months had elapsed since Lotey Defendants' counsel advised the court that the productions would be made by September 28, 2017.
[41] On May 3, 2018, counsel for the Lotey Defendants produced an “updated” Affidavit of Documents but this Affidavit was unsworn and continued not to be complete or produce the documentation ordered by Barnes J.’s order.
[42] In May 2018, the Plaintiff's brought a motion to strike the Lotey Defendants' pleadings for failure to provide a complete Affidavit of Documents or, alternatively, to produce all relevant documents and proceed with the examinations.
[43] This motion was returnable on May 10, 2018. The motion came before me. Mr. Lotey’s summary judgment motion was scheduled for May 29, 2018, yet it was painfully obvious that the Lotey Defendants continued to be in breach of the Barnes J.’s order.
[44] On May 29, 2018, Mr. Lotey’s motion for summary judgment and the Plaintiff’s motion to strike the Lotey Defendants' pleadings came before me.
[45] To no great surprise, the Plaintiff sought an adjournment of the Lotey summary judgment motion on the basis that Mr. Lotey had not yet produced all relevant documents as ordered by Barnes J. or promised to Shaw J. or been properly examined for discovery. Mr. Lotey’s counsel opposed the adjournment.
[46] I was satisfied that the adjournment be granted “because of Lotey’s conduct.” It would have been unfair to require the summary judgment motion to be heard without the Plaintiff having all documentation and either an examination or cross-examination with the benefit of all the documents. See the analysis of Brown J. in George Weston Limited v. Domtar Inc., 2012 ONSC 5001.
[47] Once again, the Lotey Defendants were to produce the relevant documentation ordered by Barnes J. I scheduled a case conference for June 28, 2018 to ensure that the Lotey Defendants’ productions this time were in fact made and complete.
[48] Faced with having to make some disclosure, the Lotey Defendants produced a further Affidavit of Documents, albeit incomplete.
[49] On June 28, 2018, a case conference was held. Now, the Lotey Defendants advised that GN Ltd. had been placed in receivership. This simply highlights the importance of why the Plaintiff required productions in this case. This also demonstrates the reason for the deliberate delay the Lotey Defendants went to, to avoid even the most basic of production in this case.
[50] I ordered that Mr. Lotey be examined for discovery, leaving aside for another day, whether Mr. Lotey’s answers were binding on GN Ltd. given the purported receivership. It was not clear if the receiver of GN Ltd. would or had taken any role in these proceedings (or indeed in the business). In addition, I ordered Mr. Lotey to produce documents relating to the receivership within 10 days. The continuing obligation to disclose was not apparently considered or complied with by the Lotey Defendants’ counsel. The court ordered that, if Mr. Lotey failed to produce documents relating to the receivership, the Plaintiff was given leave to bring a motion, on notice to the receiver, for an order that the receiver produce all documents relating to the appointment of the receivership. The summary judgment and motion to strike were adjourned to August 17, 2018.
[51] On August 5, 2018, just days before the matter was again to return before me, Mr. Lotey produced a fresh amended Affidavit of Documents.
[52] The receivership documents disclosed that:
• In April 2017, one year after the litigation, Mr. Lotey caused GN Ltd. to give to him personally a General Security Agreement (GSA). This GSA was never disclosed to the Plaintiff or the court despite its clear relevance to the unjust enrichment claim;
• In November 2017, Mr. Lotey appointed a receiver of GN Ltd. under his GSA;
• The receiver did not take possession, control or operate GN Ltd.;
• The largest listed creditor of GM Ltd. (by far) was Mr. Lotey;
• On November 22, 2017, the receiver sold the assets of GN Trim to 256285 Ontario Inc. (“VK Trim”) for $147,000;
• VK Trim was incorporated by Mr. Lotey on March 1, 2017;
• Mr. Lotey’s companies continued to carry on business from the same location as did GN Ltd.;
• In April 2018, the same business was sold to another company for $580,000; and
• Details of the ownership of the new company are not known.
[53] Did the Lotey Defendants' file a “transmission of interest” or a change of solicitor of record relating to the receivership? NO.
[54] Was the court advised of the receivership, after the receivership in November 2017, despite the court attendances? NO.
[55] Did the Lotey Defendants continue to be represented by the same counsel? YES.
[56] It is very troubling that none of this was disclosed to this court in May 2018 when counsel for Mr. Lotey resisted the adjournment, wanting to proceed with Mr. Lotey’s summary judgment motion – with, in my view, full knowledge that the Affidavit of Documents of Mr. Lotey was woefully deficient, not only for failing to comply with the Barnes J.’s order two years earlier or the commitment given to Shaw J. and the undoubted relevance of Mr. Lotey’s securitization, receivership and sale to another Lotey company.
[57] In light of this new information, the Plaintiff brought a motion to amend its Statement of Claim to now add the new Lotey companies. I granted the motion on October 10, 2018. The Plaintiff added the VK Trim companies as Defendants. Pleadings were exchanged.
[58] The outstanding motions by the Plaintiff to strike the Lotey Defendants' pleadings (the May 2018 motion) and the summary judgment motion were adjourned to December 14, 2018 before me.
[59] On December 14, 2018, the matter again came before me. Complete productions and a complete Affidavit of Documents by the Lotey Defendants continued to be an issue.
[60] I had no choice but to again adjourn the motions and directed the parties to complete the outstanding productions and ordered a case conference for January 10, 2019 to monitor the progress in compliance with this further order.
[61] On January 10, 2019, I conducted a case conference on this matter. The Lotey Defendants' productions were still not complete. On consent, the court ordered Mr. Lotey to provide a new fresh and complete Affidavit of Documents by January 15, 2019, and be examined by the end of February 2019.
[62] An examination was scheduled for February 27, 2019. However, despite now having consented to provide a fresh and complete Affidavit of Documents, the Lotey Defendants continued to fail to produce all relevant documents, in particular the documentation in relation to the trail of the monies and assets from GN Ltd., the security, receivership and subsequent sales.
[63] The examination on February 27, 2019 started with counsel for the Lotey Defendants denying they had received three separate letters sent on three separate occasions requesting that the documentation be produced prior to the examination of Mr. Lotey. Regardless of whether the letters were or were not received by Lotey Defendants' counsel, it remained the Lotey Defendants' obligation to comply with the court’s very clear orders, including Barnes J.’s order, the commitment to Shaw J. and my prior directions to the Lotey Defendants to produce all relevant documents.
[64] To make matters worse, the Lotey Defendants' counsel produced very limited documentation on the very day of the examination on February 27, 2019 and again asked the Plaintiff’s counsel to proceed with the examination, offering to let Plaintiff's counsel have some time to review the limited documentation before the examination commenced. It was entirely appropriate for Plaintiff’s counsel to refuse to proceed with the examination that day. On the other hand, Lotey Defendants' counsel's position is, in light of the history, absolutely shocking and unprofessional.
[65] In May 2019, the Plaintiff brought a further motion before me for a complete and proper Affidavit of Documents (including it being sworn this time) and requiring Mr. Lotey to re-attend for examination for discovery. The Plaintiff also renewed its adjourned motion to strike the Lotey Defendants’ pleadings. The Plaintiff now sought costs against the Lotey Defendants’ counsel.
[66] On May 17, 2019, these motions came before me. After some discussion regarding the claim for costs personally against counsel, the Lotey Defendants' counsel sought an adjournment to retain counsel to deal with the claim for costs. The adjournment was granted. The Plaintiff's motion to strike and the motion for a full and proper Affidavit of Documents from the Lotey Defendants were adjourned to July 4, 2019 on terms. Once again the Lotey Defendants were given, in my view, one last opportunity before the motion to strike was to be heard, to make full disclosure and produce all relevant documentation. This time it was apparent that increased court supervision was required. The delay and numerous attendances in court had become embarrassing to the administration of justice and usurped unnecessary and considerable judicial and court resources. The terms of the adjournment were:
a) that the Lotey Defendants produce prior a fresh and complete sworn Affidavit of Documents to include what was specifically identified in paragraphs of the Plaintiff’s Motion Record;
b) copies of the productions in the fresh sworn Affidavit of Documents were to be delivered to the Plaintiff by June 27, 2019; and
c) Lotey Defendants' counsel was to bring to court, on July 4, 2019, a copy of the productions in the fresh sworn Affidavit of Documents.
[67] There could be no doubt that this process was to bring finality to the production issue.
[68] On July 4, 2019, the matter came back before me. Despite having been granted the adjournment to retain counsel, the Lotey Defendants had not retained counsel to deal with the claim for costs against counsel personally. That is the choice that the Lotey Defendants’ counsel made.
[69] The Lotey Defendants produced an Affidavit of Documents. It was sworn and copies were available to the court. However, within moments, it became clear that the Lotey Defendants had not produced what was ordered. The Affidavit of Documents was incomplete.
[70] Many of the produced documents were redacted; and some were missing. For example:
a) Bank information was missing or redacted;
b) Not all bank statements were produced from VK Trim, most notably the initial bank statements which would show the incoming and outgoing funds and financing;
c) While the Lotey Defendants were to show how the leased business premises were “transferred” between the companies, the Lotey Defendants simply said there was no assignment. There was no new lease produced, no termination documents, or other documents which would show this was either a sham transaction or a legitimate leasing transaction.
[71] The redactions and missing documentation obfuscated exactly what happened with respect to the initial corporate dealings/transfer, the securitization, the receivership and the subsequent sale. In other words, whether the transactions were properly done in accordance with corporate law, that the transactions were bona fide, whether the transactions were at arm's length or at fair market value whether the transfer of funds complied with the Bulk Sales Act, where the funds went and many other issues could not be ascertained by the limited or redacted productions.
[72] When Lotey Defendants’ counsel was asked about such missing documentation, such as the missing bank documents, his response was that he would “now” ask the bank for this documentation.
[73] When Lotey Defendants’ counsel was asked, by this court, how the examinations could proceed, his remarkable response was again to have Plaintiff’s counsel ask questions and the Plaintiff could follow up when the documents were produced later in response to those questions. This was absolutely shocking that this continued to be the Lotey Defendants’ counsel's position.
[74] To get to the “bottom line,” I asked the Lotey Defendants’ counsel whether the new Affidavit of Documents and the most recently produced documents showed what happened to the assets and monies regarding the sale of the GN Ltd. Counsel for the Lotey Defendants admitted that the documentation/information in the now produced documentation did not disclose this information.
[75] Three years later, and we continue to have production issues on the very documents ordered by Barnes J. in 2016, the order of Shaw J. and my various orders!
THE POSITION OF THE PARTIES
[76] The Plaintiff seeks to strike the pleadings of the Lotey Defendants or, in the alternative, a further order for production and attendance at an examination for discovery, and full indemnity costs against the Lotey Defendants’ counsel.
[77] It is hard to ascertain what the Lotey Defendants’ position is except to request a further adjournment to permit compliance with the Rules and prior court orders.
[78] Counsel for the Lotey Defendants submits that costs should not be awarded against him as costs against counsel should only be awarded in the clearest of cases and for inexcusable conduct.
THE LAW
Striking of Pleadings
R. 30.08(2) Where a party fails to serve an affidavit of documents or produce a document for inspection in compliance with these rules or fails to comply with an order of the court under rules 30.02 to 30.11, the court may,
(a) revoke or suspend the party’s right, if any, to initiate or continue an examination for discovery;
(b) dismiss the action, if the party is a plaintiff, or strike out the statement of defence, if the party is a defendant; and
(c) make such other order as is just.
34.15 (1) Where a person fails to attend at the time and place fixed for an examination in the notice of examination or summons to witness or at the time and place agreed on by the parties, or refuses to take an oath or make an affirmation, to answer any proper question, to produce a document or thing that he or she is required to produce or to comply with an order under rule 34.14, the court may,
(a) where an objection to a question is held to be improper, order or permit the person being examined to reattend at his or her own expense and answer the question, in which case the person shall also answer any proper questions arising from the answer;
(b) where the person is a party or, on an examination for discovery, a person examined on behalf or in place of a party, dismiss the party’s proceeding or strike out the party’s defence;
(c) strike out all or part of the person’s evidence, including any affidavit made by the person; and
(d) make such other order as is just.
(emphasis added)
[79] In DLE Consulting Inc. v. Graham, 2016 ONCA 315:
[1] The motion judge struck the defendants’ statement of defence and counterclaim for failure to produce an affidavit of documents. ...
[3] The appellants had twice been ordered to produce an affidavit of documents and failed to do so. Even today the appellants still have not delivered an affidavit. The motion judge’s order is discretionary. We are satisfied that she exercised her discretion reasonably, even though the result of her decision will deny the appellants a chance to defend the respondent’s claim on the merits.
[80] In Glass v. 618717 Ontario Inc., 2011 ONSC 2810 (S.C.J.), in which D.M. Brown J. (as he then was) stated in the context of a motion by the Plaintiffs for an order striking out the Defendants’ pleadings for failure to produce material documents in a timely fashion and to provide a supplementary Affidavit of Documents:
[36] The case law submitted by the parties makes two points. First, in exercising its discretion under Rule 30.08(2) a court must consider the seriousness of any breach and the prejudice such a breach may cause to the innocent party's right to a fair hearing. Second, as stated by Wein J. in Newlove v. Moderco Inc., 2002 CarswellOnt 3720 (Ont. S.C.J.), at para. 2: "the draconian measures set out in Rule 30.08(2)(b) can only be used, in my view, in exceptional circumstances" or, as put by Lane J. in Breslin v. Breslin [2006 CarswellOnt 6372 (Ont. Div. Ct.)], at para 9: the "interlocutory dismissal of an action is a remedy of last resort, to be invoked when the litigant has shown a cavalier disregard of his obligations". I agree with those statements of the law.
(emphasis added)
[81] The following statement by Gray J. in Broniek –Harren v. Osborne [2008] O.J. No. 1690 (S.C.J.) also provides guidance in such motions:
[28] The policy underlying the Rules of Civil Procedure is twofold: to ensure that cases that are not settled are tried on their merits; and to ensure that cases are processed, and heard, in an orderly way. A civilized society must ensure that a credible system of justice is in place, and the Rules of Civil Procedure, made pursuant to the Courts of Justice Act, reflect the scheme created by the Province for the orderly handling of civil cases.
[29] The Rules reflect a balance. The litigant does not have an untrammelled right to have his or her case heard. In order to be heard, a case must be processed in accordance with the Rules. By the same token, adherence to the Rules must not be slavish in all circumstances. They are, after all, designed to ensure that cases are heard. Throughout the rules, the principle is reflected that strict compliance may be dispensed with where the interests of justice require it: see, for example, Rules 1.04(1), 2.01, 2.03, 3.02, and 26.01. The difficult issue, in any particular case, is to determine when non-compliance reaches the point that it can no longer be excused. The Court, and society as a whole, have an interest in ensuring that the system remains viable. If the Rules can be ignored with impunity, they might as well not exist.
(emphasis added)
[82] I agree with the principles laid down by Broad J. in London Eco-Roof Manufacturing Inc. v. South River Developments Ltd., 2019 ONSC 1183:
[23] As Gray J., noted in Broniek –Harren, there are two important policies underlying the Rules of Civil Procedure, namely the policy directed towards ensuring that cases are tried on their merits on the one hand, and the policy directed towards ensuring that cases are processed in an orderly, efficient and timely way on the other.
[24] I accept the proposition laid down by the Court of Appeal in 1196158 Ontario Inc. and H.B. Fuller that, in resolving the tension between these two policies, the bias must always favour resolving disputes on their merits. The case law indicates that this bias may be overcome and result in an order striking pleadings or dismissing a claim or counterclaim where the non-compliant party has, by his or her conduct, demonstrated a determination or approach to consider himself or herself not bound by court orders.
[25] In Jourdain, Platana J., citing Symbol Yachts Ltd. v. Pearson, (1995) 102 F.T.R. 215 (Fed. T.D.), observed that there is a presumption that a party ought not to be allowed to proceed following a breach of a peremptory order and that such conduct is generally considered to be contumelious in nature. “Contumelious” in this context connotes conduct that is scornful, insulting or insolent.
(emphasis added)
Costs Payable by Counsel
[83] McLachlin J. in Young v. Young, [1993] 4 S.C.R. 3, at pp. 135-36, acknowledged that a court can award costs against counsel personally in rare cases where counsel acts in bad faith by encouraging abuse and delay of the court’s process.
[84] In Galganov v. Russell (Township), 2012 CarswellOnt 7400 (Ont. C.A.), the court set out the following factors to consider before making a costs order against a lawyer:
a. The first step is to determine whether the conduct of the lawyer comes within the rule; this is, whether his or her conduct caused costs to be incurred unnecessarily. To do so, the court must consider the facts of the case and the particular conduct attributed to the lawyer.
b. The rule allowing costs against a lawyer is not intended as punishment for professional misconduct. Rather, it is as indemnity for the time wasted and expenses unnecessarily expended as a result of the conduct of a lawyer.
c. Neither negligence nor bad faith is a requirement for imposing costs against a lawyer.
d. Mere negligence or conduct that does not meet the level of negligence may be sufficient to attract costs against a lawyer.
e. The costs rule is intended to apply "...only when a lawyer pursues a goal which is clearly unattainable or is clearly derelict in his or her duties as an officer of the court..."
f. In determining whether the rule applies, the court must examine "the entire course of the litigation that went on before the application judge." This requires a "holistic examination of the lawyer's conduct" in order to provide an "accurate tempered assessment." But a general observation of the lawyer's conduct is not sufficient. Instead, the court must look at the specific incidents of conduct that are subject to complaint.
[85] A costs order against a lawyer is not restricted to a situation where the lawyer has acted in bad faith. See: Covriga v. Covriga, 2010 ONSC 3030. However, the court should exercise extreme caution before ordering costs against a solicitor. See: Rand Estate v. Lenton, 2009 ONCA 251; Sambasivam v. Pulendrarajah, 2012 ONCJ 711.
THE ANALYSIS
Striking of the Lotey Defendants’ Pleadings
[86] The difficulty the Lotey Defendants face in this motion is that, not only have they ignored compliance with the Rules, they have also ignored numerous court orders to provide a complete Affidavit of Documents containing relevant productions so that the matter could proceed to examinations for discovery or cross-examination on the summary judgment motion. This wilful disregard of procedure and court orders has continued for virtually 3 years.
[87] And then there is the obvious corporate transactions undertaken by the Lotey Defendants to take steps to potentially convey assets and the business to defeat the Plaintiff’s claim, even if it were successful. On their face, these transactions raise serious questions. Whether these transactions were done properly or fraudulently or with the intention to defeat creditors is not known. But that is the point of full and complete productions to permit the opposing party to review and assess their position.
[88] The Lotey Defendants do not want an adjudication on the merits; they have done everything in their power to avoid such an adjudication.
[89] There is no reason in these circumstances that this court should favour a bias that it is preferable to have an adjudication on the merits.
[90] This factor favours granting an order striking the Lotey Defendants’ pleadings.
[91] As for prejudice, such prejudice is obvious. There is a three-year delay for proper productions and examinations. During that period, the Lotey Defendants have done everything they can to prejudice the Plaintiff’s claim – they granted security, they appointed a receiver, they purported to extinguish the Plaintiff’s creditor’s claim in the receivership, there was a non-arm's length transaction, then there was a further transaction perhaps at non-arm's length or if at arm’s length for multiple times the value of the prior non-arm's length transaction. And throughout this time, the Lotey Defendants did not disclose these transactions and when ordered to disclose these transactions, refuses or fails to make full disclosure of what happened and where the flow of funds.
[92] This factor favours an order striking the Lotey Defendants’ pleadings.
[93] Is there some remedy short of striking the pleadings? Yes. This court could order yet another fresh and complete Affidavit of Documents. The real question is should the court make such an order? The answer is a resounding no. There is no question that the last appearance on May 17, 2019 was a last chance order with the court ordering the Lotey Defendants to bring a copy of their Affidavit of Documents and the documents themselves into court to verify that the Lotey Defendants complied with the Rules and what this court had ordered on a number of occasions. This extraordinary effort by the court did not work. The Lotey Defendants just ignored this last order.
[94] The Lotey Defendants’ actions are clearly contumelious.
[95] If the Rules and court orders can be ignored repeatedly and over a number of years without severe consequences, then there would be no point in having Rules or making orders on such motions. The Lotey Defendants’ actions can no longer be excused.
[96] The Lotey Defendants’ pleadings are hereby struck without leave to file new or amended defences.
[97] As a result, it is not necessary to deal with the alternative relief sought by the Plaintiff.
Motion’s Costs against Lotey Defendants’ counsel personally
[98] I am satisfied this is one of those rare cases where costs should be awarded against defence counsel personally:
a) Lotey Defendants’ counsel has continually attempted to force on the examinations knowing that the Affidavit of Documents was not complete despite non- compliance with court orders, producing documents on the day of the examination, and suggesting that missing documents could simply be asked for during the examination. This has no doubt resulted in unnecessary delay and costs to the Plaintiff;
b) Having stated to the court that the Lotey Defendants would produce an Affidavit of Documents by various dates and then failed to do so.
c) Lotey Defendants’ counsel did not advise the court after the GN Ltd. purported receivership that he had a new client and a deal with the receiver’s obligation to produce relevant documentation. Instead, Lotey Defendants’ counsel said nothing. This is consistent with Mr. Lotey’s attempt to circumvent the claim by transferring the business to another Lotey company and doing it without the Plaintiff’s knowledge so that even a Judgment would be a hollow victory. Lotey Defendants’ counsel apparently was complicit in these efforts as it knew that it now took (or ought to have taken instructions from the receiver) but chose not to tell the court. As an officer of the court, Lotey Defendants’ counsel failed in its obligation to the court.
d) When the matter came up on May 17, 2019, Lotey Defendants were asked if they wanted an adjournment to retain counsel because of the personal costs claim. The adjournment was granted on this basis. They appeared on their own behalf to deal with the issue. It simply appeared to be yet another delay tactic.
e) To make matters even worse, despite the court’s unusual steps to have counsel bring the Affidavit of Documents and productions to court, Lotey Defendants’ counsel appeared with redacted and missing documents, and when asked a fundamental question, Lotey Defendants’ counsel, without hesitation, admitted that the financial trail in the documents was missing. Clearly, Lotey Defendants’ counsel was aware there had not been compliance with the court orders, yet, said nothing until directly pressed on the issue by this court. Lotey Defendants' counsel facilitated an expensive delay in this proceeding.
[99] I accept that counsel have an obligation to take instructions from their clients. I will assume Lotey Defendants' counsel simply followed instructions for the purpose of this claim for costs. The difficultly is that counsel must never forget they are also officers of the court and have duties to the court in connection with this responsibility. There comes a point when following instructions, makes counsel complicit in the flagrant disregard of the Rules and court orders. That happened here.
[100] I am satisfied that the costs of this motion ought to be paid by the Lotey Defendants’ counsel personally.
[101] Costs Outlines were filed with the court.
[102] The Lotey Defendants’ partial indemnity Costs Outline sought $5,090.01 on a partial indemnity basis.
[103] The Plaintiff’s counsel’s full indemnity Costs Outline seeks $6,346.54. I consider this amount to be reasonable in light of the amount claimed by the Lotey Defendants.
[104] Given the circumstances outlined above, I am satisfied that full indemnity costs are appropriate in this case.
[105] I fix costs of the motion to strike heard on May 17 and July 2, 2019 at $6,246.54 payable by the Lotey Defendants’ counsel forthwith without recovery from their clients.
CONCLUSION
[106] The Lotey Defendants' pleadings are hereby struck without leave to amend or file new Statement of Defences. The Lotey Defendants are hereby noted in default. The Plaintiff may proceed to obtain default judgment against the Lotey Defendants together with costs of the action against the Lotey Defendants.
[107] Costs at $6,246.54 for the motion (May 17 and July 4, 2019) payable by the Lotey Defendants’ counsel, Kramer Simaan Dhillon LLP, forthwith without recovery from their clients.
Ricchetti, J.