COURT FILE NO.: CV-18-600077

DATE: August 1, 2019

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Eagle Construction Service, Inc. v. Royal One 2225 Markham Road Med Centre Ltd. and Morrison Financial Mortgage Corporation;

BEFORE: MASTER C. WIEBE

COUNSEL: Fabio Soccol for Royal One 2225 Markham Road Med Centre Ltd. (“Royal One”); Christine Kellowan for Eagle Construction Service, Inc. (“Eagle”);

HEARD: July 31, 2019.

REASONS FOR DECISION

[1] On June 10, 2019 two motions were brought before me in this action, one by Royal One for an order requiring that 41 refused questions on a section 40 cross-examination on January 14, 2019 be answered (plus other related relief), and the other by Eagle for an order striking certain paragraphs of the Royal Once Statement of Defence and Counterclaim. Both motions were adjourned on consent to be argued before me on July 31, 2019.

[2] On July 31, 2019 counsel advised me of the following developments. Concerning the Royal One motion, Eagle provided answers to 26 of the 41 refused questions in mid-July, 2019, and on July 30, 2019 agreed to answer the remaining 15. Furthermore, counsel advised that the parties had agreed that there will be a further attendance by Kevin Reptke, principal of Eagle, on an agreed upon date for a further section 40 cross-examination on the refused questions that have now been answered and that will be answered. As to the deadline the answeres, I heard brief submissions and ordered that the deadline be what Ms. Kellowan suggested, namely 60 days from July 31, 2019.

[3] The only issues that remain to be determined on this motion were the following: whether Eagle must produce in thirty (30) days the nine groups of documents that are listed in the Notice of Examination dated December 12, 2018 that Royal One served on Mr. Reptke; and whether Royal One should be paid its costs thrown away of $8,552.46 for the January 14, 2019 cross-examination.

[4] Concerning the Eagle motion to strike pleadings, the factum that Eagle served on July 19, 2019 indicated that it had reduced the number of paragraphs it was requesting be struck from the Royal One Statement of Defence and Counterclaim to the following: paragraphs 31 to 41, 54(i), 54(iii), 62 and 63(i). These paragraphs concern the allegation that Eagle breached the contract by failing to assist Royal One in obtaining construction financing, namely by failing to allay the concerns of its prospective lender, Morrison Financial Mortgage Corporation, that Mr. Reptke was the same Kevin Reptke that appeared in a newspaper article that cast grave aspersions on this “Kevin Reptke.” These pleadings also refer to correspondence from Eagle’s lawyer, Leonard Feingold, on this subject that was marked “without prejudice.” Eagle’s position is that these paragraphs are “frivolous and vexatious” under Rule 25.11(b) and should be struck. I note that Royal One has been scrupulous not to plead the contents of the article or mention the contents of the article in its original affidavits. At the motion Mr. Soccol filed a separate affidavit containing the article and the lawyers’ correspondence and both sides agreed I should seal this affidavit once the motion is determined. I so order.

[5] I was also told that the action in which this motion is brought is one of two Eagle lien actions, that the within action concerns the largest Eagle claim for lien, that there is another Eagle lien action (court file number CV-18-610596) concerning the other Eagle claim for lien, that equivalent motion material on all of these issues was served in this other action, that this other motion was also returnable on July 31, 2019, and that my ruling should, therefore, apply to this other motion as well, even though I have not seen this other motion material. Relying on these representations of counsel, I so order.

Pleadings motion

[6] Ms. Kellowan argued that, while Royal One may have pleaded that Eagle had a contractual obligation to assist Royal One in obtaining construction financing, there was no such contractual obligation in fact. She referred me to the underlying two construction contracts between the parties that appear in the motion material.

[7] I do not accept this position, not because of what the evidence may or may not show, but because that is not the issue on this motion. This is a pleadings motion, not a motion for summary judgment. Therefore, the issue is whether the pleadings in issue contain material facts that are relevant to the relief and causes of action claimed; see Little v. Dionisio, [2007] O.J. No. 1619 (Ont. Master) at paragraph 5. There is little doubt that the pleadings in issue in this motion are relevant to the pleaded relief and cause of action. In paragraphs 12 and 13 of the Royal One Statement of Defence and Counterclaim, Royal One expressly pleads that Eagle agreed to assist Royal Once in getting construction financing. The impugned paragraphs are just the material facts that Royal One alleges particularize the breach by Eagle of this contractual obligation.

[8] Ms. Kellowan then argued that the probative value of these allegations is vastly outweighed by the prejudice that may result. I agree that there is authority for the proposition that pleaded facts that are of only marginal relevance and that are outweighed by their prejudicial effect on one of the parties or on the proceedings can be struck; see Quizno’s Canada Restaurant Corporation v. Kileel Developments Ltd., 2008 ONCA 644 at paragraph 15. But I am not satisfied that this principle applies to this case. As I indicated to Ms. Kellowan, the impugned paragraphs are the central, if not the only, allegation Royal Once is making against Eagle concerning the alleged breach by Eagle for failing to assist Royal One in getting construction financing. The allegation is that because Eagle failed to clarify the article issue, Morrison denied the financing. I agree that the contents of the article cast grave aspersions on Mr. Reptke and would cause him concern about reputational damage. But, as stated earlier, I note that Eagle has been careful not to plead the contents of the article, which is not the issue. This underscores what I view to be the case, that Royal One has indeed pleaded the essential material facts.

[9] Concerning the pleading of the lawyer’s letters that contain the “without prejudice” heading, Mr. Soccol rightfully pointed out that this heading does not determine the issue of whether a letter is in fact privileged. Whether correspondence is privileged is determined by the underlying facts, not a statement by the author; see Kirschbaum v. “Our Voices” Publishing Co. et al., 1971 at paragraph 2. Pleading correspondence that is in fact privileged would be “frivolous and vexatious,” and should be struck. But there was no evidence on this motion that the lawyer’s letters are in fact privileged, either because they contain settlement discussions or because they were written primarily in contemplation of litigation. This correspondence took place when the project financing was in issue and before litigation was contemplated. I do not find that the paragraphs referring to the lawyer’s letters need be struck as a result.

[10] For these reasons, I deny the Eagle motion.

Refusals motion – documents to be produced

[11] The served Notice of Examination contained a list of the documents that Mr. Soccol required Mr. Reptke to bring with him to the section 40 cross-examination. Rule 34.10(2)(b) requires that persons being examined produce all non-privileged documents that are listed in a notice of examination. I note that no affidavits of documents and productions have taken place in the lien actions to date.

[12] At the motion, Ms. Kellowan conceded that the first two categories will be produced. Mr. Soccol in turn did not press the issue of the ninth category. Therefore, the issue was whether the six categories, 3 to 8, should be produced. These categories concern documents that pertain to the Eagle costs concerning its claim for lien, such as subcontracts, purchase orders, invoices, proofs of payments, timesheets, and payroll records.

[13] It is undisputed that the only issue to be explored at the section 40 cross-examination is the quantum of the Eagle claims for lien. Ms. Kellowan’s argument was that the governing contracts between the parties were fixed price contracts, that Royal One retained a payment certifier, an architect named Frank Sather, who certified several Eagle payment applications pursuant to these fixed price contracts, that Eagle relies upon these certified draws to establish the quantum of its claim for lien, and that, therefore, the issue of Eagle’s costs is irrelevant to the quantum issue.

[14] If the contracts were that straight forward, I would be inclined to accept Ms. Kellowan’s position. However, the contracts are not that straight forward. Mr. Soccol pointed out that there aree two fixed price contracts that the parties signed, and that each one has appended to it (as a part of the contract) an earlier proposal that Eagle signed. In this proposal Eagle undertook to provide Royal One with “full disclosure when negotiating with the trades, vendors and sub-contractors.” Eagle also promised to provide Royal One with “full disclosure and unhindered access to the Owner on all project information.” Finally, and most importantly, the proposal specifies that there will be a contingency line item in the budget for the contract price into which Eagle will move all “savings and credits” on each line item of the budget, and that Royal One will have the “sole use” of this line item. This indicates an arrangement between the parties whereby the owner would receive any cost savings, thereby giving the owner an interest in reducing costs. Because of these provisions, the court may well find that, regardless of the wording of the fixed price contracts, the contracts may in fact be more in the nature of cost-plus contracts. At best, there is uncertainty on this issue. As a result, the costs incurred by Eagle are potentially relevant to the quantum on its claims for lien, and Eagle has in any event a contractual obligation to be transparent about its costs.

[15] Ms. Kellowan also raised an issue of proportionality and summary proceeding under the Construction Act. She argued that Ms. Soccol is essentially embarking on an examination for discovery. I must indeed pay attention to these issues, but it is undisputed that the quantum of the Eagle is a proper subject matter for the section 40 cross-examination. I do not see how the listed documents are disproportionate to the claim. The Eagle claims for lien are large and merit careful scrutiny, particularly given what has already been paid to Eagle. This cross-examination may well deal with issues that are the proper subject matter of discovery, but this overlap can be managed by the court in the lien proceedings.

[16] I rule that the subject documents in categories 3 to 8 along with the documents in categories 1 and 2 must be produced to Royal One within thirty (30) days from today, as requested.

Refusals motion – costs of the cross-examination

[17] Mr. Soccol submitted a Bill of Costs for the January 14, 2019 cross-examination which showed $5,674.86 in partial indemnity costs, $7,763.10 in substantial indemnity costs, and $8,522.46 in full indemnity costs. Mr. Soccol argued that I should order that Eagle pay Royal One the full indemnity costs as, he argued, the cross-examination was a waste of time.

[18] Rule 34.14 authorizes the court to order costs thrown away on an examination due to a person’s improper conduct on the examination. Mr. Soccol argued that Ms. Morozova, counsel for Eagle, constantly interrupted his examination of Mr. Reptke, and that Mr. Reptke unreasonably refused to answer a long list of proper questions. He described this conduct as “stonewalling.” Ms. Kellowan argued that the cross-examination was not stonewalling and was not all a waste of time, that several questions were properly answered, that the refused questions were refused on the grounds of relevance, that Eagle is answering these questions without conceding their relevance, and that in any event, Mr. Soccol’s introductory questions probing Mr. Reptke’s identity got the cross-examination off on the wrong foot. She argued that I deny the requested order.

[19] I have read the transcript of the cross-examination. It took place before Royal One pleaded in the lien proceedings. There were no affidavits of documents and productions prior to the cross-examination. Mr. Soccol confirmed that his client wanted to cross-examine quickly as it was having to post a large amount of security for the Eagle claim for lien by motion later in January, 2019. That was Royal One’s prerogative, but it was, therefore, proceeding with no formal evidentiary disclosure in advance. As for Eagle, I was shown no evidence that Eagle was made fully aware prior to the cross-examination of Royal One’s position on the governing contracts, namely that the contracts were more in the nature of cost-plus contracts despite the wording of the signed contract documents. Eagle’s own position was simple, namely that the contracts were fixed price contracts and that the Eagle claim is based entirely on the unpaid certified draws. It maintains that position even now that it is prepared to answer all the refused questions. The great majority of the refused questions concern the issue of Eagle’s costing, which Mr. Reptke and Ms. Morozova maintained at the cross-examination was irrelevant. In these circumstances, I am not prepared to conclude that Mr. Reptke’s conduct was improper and that the cross-examination was entirely fruitless. There was bound to be a stage of the cross-examination where the conflicting positions of the parties were clarified leading to further documentary disclosure and a second round of the cross-examination, probably after a court ruling.

[20] As a result, after careful consideration, I have decided not to award the requested costs thrown away of the January 14, 2019 cross-examination. These costs will be determined in the end in the cause.

[21] Mr. Soccol asked me to include language in my decision instructing Eagle to be more cooperative and responsive at the second round of the cross-examination, with a warning as to consequences if it failed to do so. In light of this decision, I am not prepared to do so. I do, however, expect counsel and the parties to be mindful of the Rules of Civil Procedure, particularly Rule 34.12 concerning the procedure for objections. The Construction Act expressly applies the Rules concerning examination to section 40 cross-examinations, and the parties must therefore follow these rules closely as a result.

Motions costs

[22] I, herewith, summarize my orders on these motions:

a) Concerning the Eagle motion to strike, this motion is dismissed;

b) Concerning the Royal One refusals motion, Eagle has consented to answer and must answer all of the listed refused questions from the January 14, 2019 cross-examination, included the 15 questions that remained in issue up to July 31, 2019;

c) Eagle must deliver all answers to these refused questions within 60 days from July 31, 2019;

d) Eagle must produce the documents described in categories 1 to 8 of the Notice of Examination dated December 12, 2018 within thirty (30) days from today;

e) There must be a continued section 40 cross-examination of Mr. Reptke on an agreed upon date that is after the delivery of the ordered answers and documents;

f) The costs of the January 14, 2019 section 40 cross-examination will be determined in the cause of these actions;

g) The supplementary affidavit of Amy Banko, Law Clerk, sworn on April 18, 2019 that Royal One filed on July 31, 2019 must be sealed;

h) These orders apply equally to the companion motions in action number CV-18-610596.

[23] As to the costs of these motions, both sides filed costs outlines. The plaintiff filed a cost outline for both motions showing partial indemnity costs of $12,045.90, substantial indemnity costs of $14,502.41 and full indemnity costs of $17,559.62.

[24] Royal One filed two bills of costs. One was for the Eagle motion to strike showing partial indemnity costs of $11,369.86 and substantial indemnity costs of $15,571.20. The other was for the Royal One refusals motions showing partial indemnity costs of $6,506.75 and substantial indemnity costs of $9,092.19.

[25] If the parties cannot otherwise agree as to costs, those seeking costs have up to and including August 13, 2019 to serve and file written submissions in this regard of no more than two pages. Any responding written submissions of no more than two pages must be served and filed on or before August 26, 2019. Any reply written submissions of no more than one page must be served and filed on or before August 30, 2019.

DATE: August 1, 2019

MASTER C. WIEBE