Reasons For Endorsement

I. Introduction

[1] There are 2 motions. The Plaintiff, Vanalt Electrical Construction, Inc. (“VEC”) brings a motion to compel the Defendants to answer 3 undertakings, 25 under advisements and 7 refusals arising from the examinations for discovery of Dominic Caroleo, Project Manager of the Defendant Ozz Electric Inc. (“Ozz”) and the Defendant John Cinelli. VEC also seeks an order compelling Mr. Caroleo to re-attend on examination for discovery and for the Defendant Steven Muzzo to attend for his first examination for discovery. Ozz brings a motion to compel VEC to answer 4 under advisements and 1 undertaking arising from the examination for discovery of David Maloni, Senior Project Manager with VEC.

[2] Significant case management was provided at 2 previous court attendances and on 3 telephone case conferences. Together with ongoing discussions and exchanges of documents and positions by the parties, this has assisted in significantly reducing the number of disputed questions on VEC’s motion from 72 undertakings and 44 refusals/under advisements.

II. The Parties and the Action

[3] This action relates to VEC’s work on 2 Toronto Transit Commission (“TTC”) projects: Ashbridges Bay and Leslie Street (collectively, the “Projects”). TTC, as owner, retained Pomerleau Inc. (“Pomerleau”) as general contractor for the Projects. Pomerleau retained Ozz as a subcontractor and Ozz in turn contracted VEC pursuant to a stipulated or fixed price contract to supply materials and services to the Projects.

[4] In its Statement of Claim issued on August 2, 2017, VEC claims payment of U.S.$563,336.77 from Ozz for outstanding holdback and unpaid invoices and breach of trust under the Construction Lien Act (Ontario)(now the Construction Act (Ontario))(the “Act”): U.S.$271,292.16 for Ashbridges Bay and U.S.$292,044.61 for Leslie Street. VEC claims breach of trust under the Act against the Defendants John Cinelli and Steven Muzzo who were directors and officers of Ozz.

[5] In its Statement of Defence delivered on September 12, 2017, Ozz asserts a $1,700,000 set off claim against VEC as a result of TTC’s issuance of Change Directive 301 dated November 28, 2014 (“CD301”) which removed Ozz’s Overhead Contact System (“OCS”) installation work from Ozz’s scope of work at Ashbridges Bay. In its Reply delivered on September 28, 2017, VEC states that it was was not contracted to perform any OCS installation work, the de-scoping is unrelated to VEC’s scope of work and therefore, Ozz has no right of set-off.

[6] The issues with respect to CD301 were settled by TTC, Pomerleau and Ozz in an arbitration of numerous disputes related to multiple projects. In a letter to Pomerleau dated May 9, 2017, TTC claims that it was entitled to a credit of $1,533,016.38 plus HST with respect to CD301 and Ozz has alleged that it has a set-off claim related to CD301 against VEC in the full amount of the credit claimed by TTC from Ozz. On discovery, Ozz advised that it is advancing a set-off claim of $1,500,000. During the motion, Ozz advised for the first time that CD301 was resolved as part of a global settlement of the arbitration for a lump-sum credit of $800,000 which was not allocated to any specific projects or claims.

III. The Law and Analysis

Generally

[7] Rule 31.06 states:

(1)A person examined for discovery shall answer, to the best of his or her knowledge, information and belief, any proper question relevant to any matter in issue in the action….

[8] Rule 29.2.03 sets out the proportionality factors which apply to oral and documentary discovery:

(1)In making a determination as to whether a party or other person must answer a question or produce a document, the court shall consider whether,

(a) the time required for the party or other person to answer the question or produce the document would be unreasonable;

(b) the expense associated with answering the question or producing the document would be unjustified;

(c) requiring the party or other person to answer the question or produce the document would cause him or her undue prejudice;

(d) requiring the party or other person to answer the question or produce the document would unduly interfere with the orderly progress of the action; and

(e) the information or the document is readily available to the party requesting it from another source.

(2) In addition to the considerations listed in subrule (1), in determining whether to order a party or other person to produce one or more documents, the court shall consider whether such an order would result in an excessive volume of documents required to be produced by the party or other person.

[9] Perell J. summarized relevance and the scope of discovery in Ontario v. Rothmans Inc., 2011 ONSC 2504 and Canadian Imperial Bank of Commerce v. Deloitte & Touche, 2013 ONSC 917. Discovery questions must be relevant to the issues as defined by the pleadings such that they have probative value and adequately contribute to the determination of the truth or falsity of a material fact. Overbroad and speculative discovery and “fishing expeditions” are not permitted (Rothmans at paras. 129 and 154-157).

[10] I have also considered Rule 1.04(1) which provides that the Rules of Civil Procedure shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits and Rule 1.04(1.1) which requires the court to make orders and give directions that are proportionate to the importance and complexity of the issues and to the amount involved.

[11] The parties have agreed there will be re-attendances on examinations for discovery (and in Mr. Muzzo’s case, a first attendance). This will provide an opportunity to ask questions arising from additional productions and/or permit the parties to obtain clarifications which may assist in resolving some disputed questions.

VEC’s Motion

[12] Substantially all of the disputed questions on VEC’s motion relate to its trust claims and Ozz’s set-off defence. Given the link between these 2 issues, there is overlap in how the disputed questions were addressed.

[13] The following 31 disputed questions all relate to VEC’s trust claims: Caroleo Undertaking No. 9; Caroleo Under Advisements Nos. 7, 8, 10, 11, 12 and 13; Caroleo Refusals Nos. 3, 4, 5, 8, 9, 10 and 11; and Cinelli Under Advisements Nos. 8, 9, 10, 11, 12, 13, 15, 16, 17, 18, 20, 23, 24, 25, 32, 34 and 38. In these questions, VEC seeks bank records and other documentation and information with respect to payments made by Pomerleau to Ozz for the Projects and Ozz’s use of these funds including for overhead and payments to other subtrades, Mr. Muzzo and Mr. Cinelli.

[14] The Defendants have conceded that if VEC is successful in proving that Ozz is contractually liable for any outstanding amounts, then all 3 Defendants will consent to Judgment in the same amount for breach of trust. Therefore, the Defendants have refused to answer these 31 questions on the basis that it is unnecessary given their agreement that there will be a breach of trust if contractual liability is established.

[15] Counsel engaged in significant discussions during and between various telephone case conferences and before today’s attendance with a view to agreeing on a form of consent Judgment regarding VEC’s trust claims which would have resolved the 31 trust questions. Although these efforts were unsuccessful, the Defendants continue to take the position, on a with prejudice basis, that they will consent to Judgment for breach of trust in any amount for which Ozz is proven to be contractually liable. The Defendants filed a form of Judgment on this motion which they requested the Court to approve. VEC opposes the Defendants’ form of Judgment, submitting that the Defendants should consent to VEC’s draft Judgment, barring which, they should be ordered to answer all of the 31 disputed questions.

[16] However, it became apparent during case management and submissions that VEC’s real issue is with the Defendants’ lack of productions and particulars in support of Ozz’s set-off claim. The 2 questions which VEC is moving on in this regard are Caroleo Under Advisement No. 9 (asking Mr. Caroleo to confirm Ozz’s position regarding the amount of its alleged set-off related to CD301) and Caroleo Under Advisement No. 15 (requesting that Ozz produce a brief of documents in support of whatever amount Ozz is claiming as set-off). With respect to No. 9, Mr. Caroleo has advised that Ozz is claiming the full amount of the credit that TTC claimed from Ozz. With respect to No. 15, Ozz’s position is that all relevant documents have been produced including with its answers to undertakings, OCS drawings submitted by Ozz which were rejected by TTC and prepared with substantial input by VEC, and that TTC took the position that VEC’s input with respect to RFQs 224 and 282 were contractual changes by Ozz. Determining Ozz’s position on its set-off claim has been further complicated given that, as set out above, Ozz has advised that the amount being claimed is $1,500,000, $1,700,000 and now some portion of the $800,000 unallocated arbitration settlement. VEC submits that correspondence from TTC’s counsel suggests that TTC claimed a credit from Pomerleau but not Ozz.

[17] Given concerns that there may be confidentiality restrictions related to the arbitration proceedings preventing the production of documentation and the amount of the credit claimed by TTC, in my Endorsement dated March 27, 2019, I ordered the Defendants “to request TTC’s and Pomerleau’s positions with respect to any undertakings and refusals/under advisements particularly with respect to confidentiality”. In a letter to Defendants’ counsel dated April 23, 2019, TTC’s counsel confirmed that the arbitration and the settlement are “governed by strict confidentiality provisions”, that all documents, information or communications generated for the purpose of the arbitration and settlement are confidential and TTC will not agree to their production. TTC’s counsel also refers to correspondence with VEC’s counsel wherein VEC withdrew its request for similar documents. However, TTC’s counsel also states:

“… TTC does not object to Ozz advising Vanalt whether CD 301 was resolved or whether there are amounts retained from or by Ozz with respect to CD 301. This would include advising Vanalt as to the particulars of these amounts.”

[18] Pomerleau has also confirmed that it does not object to the disclosure of this information. However, Ozz advises that is unable to provide any breakdown or allocation with respect to the $800,000 arbitration settlement as the amount is a lump-sum which is not comprised of specific project or claim amounts.

[19] The quantum of Ozz’s set-off claim is relevant and probative of one of the main issues in this action, namely, whether VEC’s claims, if proven, are partially or entirely set off by Ozz’s claim for a credit. The Defendants do not seem to dispute this, however, the quantum of their set-off claim and the supporting documentation have been moving targets. This has been further complicated by the fact that the final version of CD301 has not been produced which would provide clarity by confirming the scope of work which was removed by TTC. The Defendants advised the Court that they do not have a copy, however, it is unclear what efforts they have made to obtain one from TTC or Pomerleau.

[20] Notwithstanding the Defendants’ position that they have no further information or documentation to produce, VEC is entitled to as much clarity as possible regarding the quantum and evidence in support of Ozz’s set-off claim. Accordingly, there are steps which Ozz should take to provide further clarity and facilitate the efficient completion of discoveries: i.) Ozz shall make best efforts to obtain a final copy of CD301 and produce it to VEC within 30 days; and ii.) Ozz shall advise, confirm and/or clarify all documentation already produced to VEC upon which Ozz is relying in support of its set-off claim within 30 days. After Ozz has satisfied these two directions, the parties shall engage in further discussions prior to re-attendance on examinations for discovery

[21] Subject to my orders above, I am of the view that discovery on these issues has largely reached the point where it appears that Ozz has no further information or documentation to produce. Accordingly, the most efficient and proportionate approach is for VEC to ask any remaining follow-up and clarification questions on re-attendance on examinations for discovery (Axelrod et al v. Primont Management Corporation et al, 2017 ONSC 3082 at para. 12; Arenza Global Technologies Corp v. Cue Network Ltd., [2000] O.J. No. 1524 (S.C.J.).

[22] Given my directions, the upcoming discoveries and ongoing discussions, it is unclear what additional information and documentation may be produced which is responsive to the disputed questions. Accordingly, all steps are without prejudice to VEC bringing Caroleo Undertaking No. 9; Caroleo Under Advisements Nos. 7, 8, 9, 10, 11, 12, 13 and 15; Caroleo Refusals Nos. 3, 4, 5, 8, 9, 10 and 11; and Cinelli Under Advisements Nos. 8, 9, 10, 11, 12, 13, 15, 16, 17, 18, 20, 23, 24, 25, 32, 34 and 38 back before me after examinations for discovery and any submissions the parties may make. These questions are adjourned sine die.

[23] Counsel advised that Caroelo Undertaking No. 25 (faxing of Ozz’s terms and conditions on page 2 of its purchase orders) and Caroelo Undertaking No. 27 (whether VEC complied with Ozz’s terms and conditions) have been resolved.

Ozz’s Motion

[24] Ozz seeks answers to 4 under advisements and 1 undertaking. The primary dispute relates to 3 under advisements in which Ozz seeks the production of all documentation and information with respect to VEC’s pricing and costs for the Projects.

[25] In Maloni Under Advisements Nos. 1, 2 and 3, Ozz seeks to compel VEC to produce the documentation used to prepare its pricing proposal, estimate and job costs for the Projects. Ozz submits that this documentation is relevant given that VEC agreed to a credit of $178,500 related to CD301 which Ozz alleges is insufficient. Therefore, Ozz submits that VEC should be compelled to produce all documentation with respect to its pricing and job costs for the Projects in support of the entire fixed price amount of $2,690,000. Ozz also submits that it cannot know whether VEC provided a credit covering the entirety of the descoped work without this supporting documentation.

[26] VEC submits that it has already provided sufficient information regarding the credit of $178,500. VEC refers to Mr. Maloni’s answers to Questions 311-314 on examinations for discovery where he explained the line items comprising the credit of $178,500 as set out in a chart included with his email message to Ozz dated December 12, 2014. Mr. Maloni provided additional information regarding this credit by letter to Ozz dated February 24, 2015.

[27] In refusing to produce any underlying documentation with respect to the credit, VEC relies on Balmoral Custom Homes Ltd. v. Biggar, 2016 ONSC 319. In that case, Master Albert held that a contractor who agrees to a fixed price has no obligation to disclose its actual costs. VEC further submits that the information sought is confidential and proprietary and that the $178,500 amount is not a credit, but rather an amount which VEC agreed not to bill.

[28] In my view, Ozz’s request for all documentation in support of the pricing and job costs comprising the entire fixed contract price of $2,690,000 for the Projects is disproportionate, overreaching and seeks information and documentation which is not relevant. The only relevant amount is the credit of $178,500. Just because VEC agreed to the credit and provided the line items which support it does not entitle Ozz to all documents with respect to how VEC arrived at its fixed price of $2,690,000. Any documentation unrelated to the credit is irrelevant, unnecessary and not properly producible with respect to a fixed price contract.

[29] However, I disagree with VEC’s assertion that because it agreed to a fixed price that it is not required to produce the underlying documentation in support of the $178,500 credit. Regardless of how this amount is characterized, VEC agreed, based on its job costs and other amounts, to a reduction of the fixed price. I am not satisfied that the principle in Balmoral is so broad as to insulate a contractor who agrees to vary the fixed price from producing relevant documentation in support of the amount of the reduction. The amount of the credit is at issue in this litigation, therefore, Ozz is entitled to know how VEC arrived at this amount, and the documentation in support of the amount and underlying the line items previously provided by VEC is relevant and probative.

[30] My conclusion may have been different if, as in Balmoral, the parties had agreed in advance to a formula for calculating reductions to the fixed price for items removed from the scope of VEC’s work (Balmoral at para. 32). I was not referred to any such formula in VEC’s contract and in the present case, the credit was calculated by VEC alone and is disputed by Ozz.

[31] Accordingly, I am satisfied that it does not offend the principle in Balmoral, is consistent with the case law on discovery generally, and is reasonable and proportionate that VEC produce any documentation in support of the credit of $178,500 within 30 days. To the extent to which any productions raise genuine confidentiality and proprietary issues that are not otherwise covered by the deemed undertaking rule, counsel may speak to me about appropriate terms of production.

[32] With respect to Maloni Undertaking No. 5, VEC has agreed to review CD301 once Ozz produces a final copy and advise what portion of CD301 relates to its scope of work.

[33] With respect to Maloni Under Advisement No. 6, VEC has confirmed that Richard Heller has nothing to add to the transcript from Mr. Maloni’s examination for discovery.

III. Order

[34] Order to go as follows:

i.) Ozz shall make best efforts to obtain a final copy of CD301 and produce it to VEC within 30 days which VEC shall review and advise what portion of CD301 relates to VEC’s scope of work within 30 days;

ii.) Ozz shall advise, confirm and/or clarify all documentation already produced to VEC upon which Ozz is relying in support of its set-off claim and produce any additional documentation within 30 days;

iii.) Caroleo Undertaking No. 9; Caroleo Under Advisements Nos. 7, 8, 9, 10, 11, 12, 13 and 15; Caroleo Refusals Nos. 3, 4, 5, 8, 9, 10 and 11; and Cinelli Under advisements Nos. 8, 9, 10, 11, 12, 13, 15, 16, 17, 18, 20, 23, 24, 25, 32, 34 and 38 are adjourned sine die without prejudice to VEC bringing them back before the Court after examinations for discovery and any submissions the parties may make;

iv.) VEC shall produce any documentation in support of the $178,500 credit within 30 days;

v.) Mr. Caroleo and Mr. Maloni shall re-attend on examinations for discovery and Mr. Muzzo shall attend on his first examination for discovery on dates to be agreed upon by counsel.

[35] Counsel may file a form of Order for my review and approval.

[36] If the parties cannot agree on the terms of an Order or require clarification regarding my orders and directions, they may schedule a telephone case conference. If the parties cannot agree on the costs of these motions, a timetable for written costs submissions may be spoken to on a future attendance or telephone case conference.

Released: October 10, 2019

Master M.P. McGraw

Vanalt Electrical Construction, Inc. v. Ozz Electric Inc., 2019 ONSC 5893

Case Summary

Reasons For Endorsement

I. Introduction

II. The Parties and the Action

III. The Law and Analysis

Generally

VEC’s Motion

Ozz’s Motion

III. Order

Judge

Counsel

Parties

Areas of Law

Fact Patterns

Financial Outcomes

Issues

Statutory Provisions 3

Legal Tests 2

Legislation 1