COURT FILE NO.: 18-00606344-00

DATE: 20191017

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

INTACT INSURANCE COMPANY

Plaintiff

– and –

MEYKNECHT-LISCHER CONTRACTORS LTD., TEJA LISCHER, LISCHER CONSTRUCTION INC., 914035 ONTARIO INC., TOM LISCHER, T AND T LISCHER HOLDINGS CORP., AND MEYKNECHT-LISCHER QUEBEC LTEE

Defendants

Andrew Punzo, for the Plaintiff

Douglas Menzies, for the Defendants, Meyknecht-Lischer Contractors Ltd., Teja Lischer, Lischer Construction Inc., 914035 Ontario Inc., Tom Lischer, T and T Lischer Holdings Corp., and Meyknecht-Lischer Quebec Ltee.

Anthony Imbesi, for the Defendant, Tom Lischer

HEARD: October 1, 2019

Cavanagh J.

Reasons for Jugment

Introduction

1The plaintiff Intact Insurance Company (“Intact”) makes claims under several indemnity agreements whereby the defendants agreed to indemnify Intact for payments it made as surety under ten performance bonds and labour and materials bonds that it (or a predecessor company) issued in respect of various construction projects undertaken by two of the corporate defendants. Intact moves for summary judgment against the defendants as indemnitors.

2The individual indemnitors are the defendants Teja Lischer and his son Tom Lischer. Teja Lischer was a co-founder of companies which operated in the construction business since 1972 and grew over the years into a substantial and successful group of companies. The corporate indemnitors (the “Lischer Companies”) are members of this group of companies.

3The bond principals encountered financial difficulties and defaulted on their contractual obligations under the construction projects. Claims were made against Intact under the bonds. Intact paid amounts under the bonds for which it seeks indemnification from the defendants pursuant to the indemnity agreements.

4The responding parties oppose Intact’s summary judgment motion on the ground that Intact has failed discharge its onus of showing that there is no genuine issue requiring a trial. The responding parties rely on Intact’s refusals on the cross-examination of its witness to produce documents they need to determine the extent of their liability under the indemnity agreements. Intact submits that the requested documents are not relevant, and, in any event, the responding parties have failed to put their best foot forward in response to this motion by failing to take steps to compel production of any additional documents they need for their defence.

5I conclude that the responding parties have not failed to put their best foot forward. Because of Intact’s refusals to produce relevant documents requested on the cross-examination of its witness, the evidentiary record is incomplete and does not allow me to fairly and justly adjudicate this dispute. Intact has failed to discharge its onus of showing that there is no genuine issue requiring a trial.

Evidentiary Background

Intact’s affidavit evidence

6In support of its motion for summary judgment, Intact filed the affidavit of Riccardo Orsini, a Surety Claims Manager at Intact. Mr. Orsini provided evidence of the facts that follow.

The Indemnity Agreements

7Intact entered into the following indemnity agreements:

(a) On February 24, 1999 the defendants Meyknecht-Lischer Ltd., Meyknecht-Lischer Québec Ltée., 914035 Ontario Inc., and Teja Lischer executed an agreement of indemnity in favour of Wellington Insurance (now Intact) (the “1999 Indemnity Agreement”).

(b) On November 30, 2000, the defendants Lischer Construction Inc., Meyknecht-Lischer Contractors Ltd., Meyknecht-Lischer Québec Ltée. and Teja Lischer executed an additional agreement of indemnity (the “2000 Indemnity Agreement”) in favour of Wellington Insurance (now Intact) on the same terms as the 1999 Indemnity Agreement.

(c) On January 18, 2005 the defendant Meyknecht-Lischer Contractor’s Ltd., and a related entity, Lischer Holdings Corp., executed a further additional agreement of indemnity (the “January 2005 Indemnity Agreement”) in favour of ING Insurance Company of Canada (now Intact) on the same terms as the 1999 Indemnity Agreement and the 2000 Indemnity Agreement.

(d) On March 30, 2005 the defendants Meyknecht-Lischer Contractors Ltd., T and T Lischer Holdings Corp., Lischer Construction Inc., and Tom Lischer executed two further additional agreements of indemnity (the “March 2005 Indemnity Agreements”) in favour of ING Insurance Company of Canada (now Intact) on the same terms as the other indemnity agreements.

These indemnity agreements are referred to collectively as the “Indemnity Agreements”, and the defendants are referred to collectively as the responding parties to this motion or the “Indemnitors”.

8Under the Indemnity Agreements, the Indemnitors jointly and severally agreed to indemnify the named surety and its successors and assigns against any and all losses, expenses, costs, claims and liabilities (the “Indemnity Losses”) of whatsoever kind or nature (including the establishment of a reserve to cover any possible Indemnity Loss and the fees and disbursements of counsel) which the surety may sustain or incur (i) by reason of having executed or procured the execution of any Bond or Bond; (ii) by reason of the failure of the Indemnitors to perform or comply with the covenants and conditions of the Indemnity Agreement; or (iii) in enforcing any of the covenants and conditions of the Indemnity Agreement.

9The Indemnity Agreements provide that Intact may pay or compromise any claim, demand, suit, judgment or expense arising out of any Bonds, and such payment or compromise shall be binding on the Indemnitors provided the same was made by Intact in the reasonable belief that it was liable for the amount, or that such payment or compromise was reasonable under all the circumstances.

10The Indemnity Agreements provide that in the event a payment or compromise is made by Intact arising out of any Bonds, an itemized sworn statement by any officer of Intact, or the voucher or other evidence of such payment or compromise, shall be prima facie evidence of the fact and amount of the liability of the Indemnitors under the Indemnity Agreements in respect of such payment or compromise.

11The Indemnity Agreements provide that if an Indemnitor desires that Intact defend a claim or demand made under a Bond, the Indemnitor shall (i) give such notice to Intact; (ii) simultaneously deposit with Intact cash or collateral satisfactory to Intact in an amount sufficient (in Intact’s sole opinion and subject to revision) to cover the claim or demand and interest thereon; and (ii) deposit simultaneously with Intact cash or collateral in an amount sufficient (in Intact’s sole opinion and subject to revision) to cover Intact’s estimate of the expenses and fees of defence.

Bonds and Payments

12At the request of the Indemnitors and in reliance upon the Indemnity Agreements, Intact executed and delivered ten Performance Bonds and Labour & Material Payment Bonds (the “Bonds”) to Meyknecht-Lischer Contractors Ltd. and Lischer Construction Inc. as principals. These principals were unable to perform their bonded contractual obligations and, therefore, defaulted on each of the bonded contracts.

13Following default by Meyknecht-Lischer Contractors and Lischer Construction Inc. on the bonded projects, Intact received claims, set reserves, and paid amounts against the Bonds. Intact made payments against the Bonds which, as of July 19, 2019, totalled $934,083.54. Intact provided proof of these payments in Mr. Orsini’s affidavit.

14Intact provided evidence that it also made the following payments for legal, adjusting, and consulting services in the total amount of $417,275.11 as a result of having executed the Bonds:

(a) Borden Ladner Gervais LLP (“BLG”) legal expenses: $98,607.18;

(b) BBCG Claims Services (“BBCG”) external adjusting expenses: $10,567.24;

(c) VTX Consulting Services (“VTX”): $308,100.69.

Intact provided proof of these payments in Mr. Orsini’s affidavit.

Recoveries reducing Indemnitors’ liability

15Intact made recoveries from the remaining contract funds on certain projects related to certain of the Bonds in the total amount of $239,867.64 which it applied against the claim payment losses under the Bonds to reduce the Indemnitors’ liability.

16According to Mr. Orsini’s affidavit, the total amount of Intact’s claim pursuant to the Indemnity Agreements is:

(a) Claim Payments: $934,083.54

(b) Expenditures/Expenses: $417,275.11

(c) Recoveries: ($239,867.64)

(d) Interest (at 3.70%): $41,125.17

(e) Total: $1,152,616.18

Responding affidavits of Teja Lischer and Tom Lischer

17In his affidavit, Teja Lischer explains the circumstances which led to the collapse, as he put it, of the Lischer Companies in November 2017. Teja Lischer acknowledges that he signed the various Indemnity Agreements and Intact provided bonds for projects under which they made payments as set out in the evidence filed by Intact on this motion.

18Teja Lischer states in his affidavit that Intact has forfeited the right to receive the full amount claimed on several grounds including the following:

a. Teja Lischer states that there was a pattern of interaction with Intact on prior occasions when there were claims or threats of claims against the bonding company where Intact permitted the Lischer Companies to complete projects and defend claims and that Intact failed to follow that pattern of expected behaviour on this occasion. Teja Lischer states that where Intact did ask the Lischer Companies to complete projects, it interfered, failed to pay workers, material or expenses and generally were more of a hindrance in dealings with the contracting owner and the staff of the Lischer Companies.

b. Teja Lischer states that on some contracts, Intact failed to award the contract to contractors with which the Lischer Companies had work in the past and who would have used Lischer prepaid or pre-ordered materials and subcontractors, avoiding unnecessary litigation and/or additional expense.

c. Teja Lischer states that Intact failed to act in a reasonable and cost-effective manner by paying substantially more than what was required to complete the contracts, including paying for extras and for unnecessary additional expert and other assistance provided to contracting parties or owners for matters that were not included in the contracts with the Lischer Companies.

d. Teja Lischer states that the legal fees charged by BLG are excessive, unnecessary and a reflect a duplication of effort with the charges of BBCG and VTX. Teja Lischer also states that the amounts paid to VTX are excessive, commercially unreasonable and reflect a derogation of responsibility of Intact which should have relied on the existing subcontracts between Lischer Construction Inc. and Meyknecht-Lischer Contractors Ltd. and their subcontractors or suppliers of material. He states that VTX was difficult to deal with and appeared to be churning the file for its own benefit. He states that he wishes to see backup documentation from the three firms that charged for legal, consulting and adjusting services, which charges form part of Intact’s claims under the Indemnity Agreements.

e. Teja Lischer states that he also relies on his statement of defence in support of his denial that Intact is entitled to indemnification under the Indemnity Agreements or that the amount of such indemnification be such as the court finds reasonably necessary, having regard to the proper construction and interpretation of the Indemnity Agreements.

19Tom Lischer also delivered an affidavit in response to Intact’s motion for summary judgment. In his affidavit, Tom Lischer states that of the ten projects for which Performance Bonds and/or Labour and Material Bonds were provided, he was personally involved in overseeing only two, only one of which is a project where Intact made a bond payment. Tom Lischer states that all of the other projects were under the supervision and administration of his father. He states that, as a result, he has little to no knowledge as to the true state of accounts for eight of the ten projects, and that he has not been provided with information and documentation evidencing the accurate state of accounts on the projects for which Intact is seeking indemnification under the Indemnity Agreements.

20In addition, in his affidavit, Tom Lischer states:

a. His new company was invited to provide pricing/proposals in order to complete the outstanding bonded projects, but he was not provided with an opportunity to do so through his company. Instead, without notification, Intact decided to award the completion project in respect of one of the projects to another company. Tom Lischer states that he has no knowledge of whether or not Intact made efforts to obtain competitive bids for completion of this project.

b. Following December 2017, he received little to no information or documentation pertaining to the projects for which Performance or Labour and Material Payment Bonds had been delivered.

c. He understands that significant funds were generated on one of the projects (the Fleet Street Aqueduct project) and that there may have been a surplus of monies once all project debtors were paid. He has not been made privy to the accounting for this project.

d. He understands that following December 2017 Teja Lischer, the Lischer Companies and Intact entered into an agreement whereby one or more of the Lischer Companies or its employees would undertake the completion of certain projects. He is not privy to the accounting or the details of the arrangement.

e. In order to determine what his obligation as an indemnitor ought to be he needs certain information and/or documentation on each of the projects for which Intact is seeking recovery from him including:

i. contract documents;

ii. the state of accounts between the owner and the Lischer Companies, copies of payment certificates issued prior to the default of the Lischer Companies which would set out the percentage of work then certified as completed, the dollars available to complete outstanding work and the holdback maintained and value of Change Orders;

iii. the exact amount of funds paid by the owner to either Intact or the Lischer Companies and the dates when such payments were made and, if the full contract balance was not paid by the owner, the reasons why not and all supporting documents;

iv. information as to who completed the balance of the work otherwise undertaken by the Lischer Companies and at what price; and

v. if work was completed other than by the Lischer Companies, whether the work was competitively priced and re-tendered and, if so, the details and documents relating thereto.

f. He has not been provided with an explanation or information as to why certain charges were made (Condominium Corporation No. 21 and Condominium Corporation No. 49). He believes that Intact, acting reasonably, should have provided him with full reports as to what costs were being incurred, for what reasons, and that he should have been given an opportunity to mitigate any alleged loss. An example is the Condominium Corporation No. 21 project. Tom Lischer states that he was not provided an opportunity to complete the work at this project to mitigate the losses incurred by Intact.

g. No details have been provided of the funds recovered by Intact from the owner which would permit an assessment as to whether these recoveries were reasonable in the circumstances.

h. With respect to one project, the Kingston bridge rehabilitation project, Lischer Construction Inc. commenced an action against the City of Kingston. Tom Lischer believes that Lischer Construction is entitled to recover in excess of $3 million from the City of Kingston but, due to its financial difficulties, Lischer Construction has been unable to proceed with its claim. Intact is a defendant by counterclaim. In the circumstances, Tom Lischer states that he would have thought it reasonable for Intact to fund the Kingston litigation to a successful conclusion and it has not done so.

i. No particulars or details were provided with respect to Intact’s claims under the Indemnity Agreements for expenses paid to BLG, BBCG, and VTX.

j. He is at a complete loss to know with any certainty whether or not any of the payments made by Intact were reasonable under all of the circumstances.

Mr. Orsini’s reply affidavit

21Mr. Orsini filed an affidavit sworn June 3, 2019 in reply to the affidavits of Teja Lischer and Tom Lischer. Mr. Orsini states that Intact complied with its obligations under the Bonds and under the Indemnity Agreements. He states that to the extent any contract funds in respect of any bonded contracts were received by Intact, such are identified and provided for as a “recovery” as stated in his first affidavit. He states that he kept the Indemnitors informed about claims received under the Bonds and would provide them, in particular Tom Lischer initially, then Teja Lischer, with information received by potential claimants and would ask for the Indemnitors’ position in respect of such claims and, to the extent that the Indemnitors were able to support defences, Intact would assert the Indemnitors’ position. Mr. Orsini explained why he considered it to be inappropriate to have the Lischer Companies, or related companies, complete the bonded projects.

22In his reply affidavit, Mr. Orsini addresses Tom Lischer’s evidence that he has little knowledge as to the true state of accounts for eight of the ten bonded projects and that he has not been provided with related information and documents. Mr. Orsini states that to the extent any request for information was made by an Indemnitor to Intact he provided the requested information. He states that Tom Lischer initially provided limited information in response to requests for assistance in responding to the various Bond claims and then ceased doing so once Intact decided not to use Tom Lischer’s new company to complete bonded projects. Mr. Orsini states that Tom Lischer would have access to all information related to the bonded projects given his ownership or management of the Lischer Companies.

23Mr. Orsini provided evidence that he followed the following process in response to claims under the Bonds:

a. He would request supporting information and documentation from each claimant in respect of claims received under the Bond;

b. He would review any information and documentation received, and where necessary, consult with VTX to determine the validity of any such claim;

c. He would request comments from Indemnitors in respect of any possible defences to the Bond claims. To the extent the defences were supportable and such supporting documentation was provided, Intact would assert such defences;

d. Upon obtaining the available information, he would consider the most cost-effective solution in keeping the bonded project’s best interests in mind and also the Indemnitors’ interests and the commercial interests of Intact;

e. Each payment was made when he believed that Intact was liable to make the payment and that such payment was reasonable in the circumstances;

f. In a number of cases, Teja Lischer acknowledged claims as owing and authorized payments.

Analysis

24The issue on this motion is whether Intact should be granted summary judgment for its claims under the Indemnity Agreements.

25Under Rule 20.04(2) of the Rules of Civil Procedure, the court shall grant summary judgment if it is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence. The onus rests with Intact, as the moving party, to satisfy the court that there is no genuine issue requiring a trial.

26In Hryniak v. Mauldin, 2014 SCC 7, the Supreme Court of Canada set out at paras. 49-50 and 66 the approach to be taken on a motion for summary judgment. The judge should first determine if there is a genuine issue requiring a trial based only on the evidence before the court, without using the new fact-finding powers. There will be no genuine issue requiring a trial if the summary judgment process provides the motion judge with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure. If there appears to be a genuine issue requiring a trial, the motion judge should then determine if the need for a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). The motion judge may, at his or her discretion, use those powers, provided that their use is not against the interests of justice. Their use will not be against the interests of justice if they will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.

27Intact tendered evidence which is prima facie evidence of the fact and the amount of the liability of the Indemnitors under the Indemnity Agreements: Stratton Electric Ltd. v. Guarantee Co. of North America, 2006 CarswellOnt 4095 at para. 38. I am satisfied that Intact has discharged its initial burden of proving that there is no genuine issue requiring a trial and, having done so, the evidentiary burden shifts to the responding parties pursuant to rule 20.02(2) of the Rules of Civil Procedure to adduce evidence of specific facts showing that there is a genuine issue requiring a trial: Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200 at para. 26.

28Rule 20.02(2) of the Rules of Civil Procedure provides that in response to affidavit material or other evidence supporting a motion for summary judgment, a responding party may not rest solely on the allegations or denials in the party’s pleadings, but must set out, in affidavit material or other evidence, specific facts showing that there is a genuine issue requiring a trial.

29It is now well settled that parties are required to “put their best foot forward” on a motion for summary judgment. The motion judge is generally entitled to take it that the evidence on the motion for summary judgment contains all of the evidence the parties would present at trial. A bald assertion of facts or a bald denial is insufficient. Merely asserting defences without providing evidence of specific facts does not create a genuine issue requiring a trial. See Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200 at paras. 26, 27, 32, and 33; aff’d 2014 ONCA 878 at paras. 2-4; Vincorp Financial Ltd. v. Hope’s Holdings Inc., 2010 ONSC 6819 at para. 45.

30Teja Lischer states in his affidavit that Intact failed to act in a reasonable and cost-effective manner, and he challenges the reasonableness of the amounts paid to complete the contracts and the amounts paid for legal and consulting services, but he does not include in his affidavit evidence of specific facts relating to these payments which show that there is a genuine issue requiring a trial. Similarly, Tom Lischer states in his affidavit that he does not know whether the payments made by Intact were reasonable and he needs more documents in order for him to determine what his obligation as an indemnitor ought to be. The affidavit evidence filed on behalf of the Indemnitors does not include evidence of specific facts showing that there is a genuine issue requiring a trial with respect to Intact’s claim.

31The responding parties do not, however, rely only on the affidavits of Teja Lischer and Tom Lischer. They also rely on the fact that Intact did not serve an affidavit of documents before bringing its motion and on the incompleteness of the evidentiary record because Mr. Orsini refused to answer a number of questions on his cross-examination where he was asked to produce additional documents that, according to the responding parties, they need to respond to this motion.

32The hearing date for this motion was scheduled on consent of the parties at Civil Practice Court on April 30, 2019 and all parties agreed to the schedule of steps to be taken and the timetable. The responding parties did not ask for exchanges of affidavits of documents as part of this schedule. The Rules of Civil Procedure provide that a plaintiff may move for summary judgment after the defendant has delivered a statement of defence. There is no requirement in the Rules that a party must deliver an affidavit of documents before moving for summary judgment. There may be cases where affidavits of documents should be delivered before a motion for summary judgment is brought. This is something that should be addressed by the parties and, if there is disagreement, raised with the court before the motion for summary judgment is heard. This should be done at Civil Practice Court when the moving party seeks to schedule the motion or, if the motion is brought by the moving party and scheduled directly with the court office, by a motion to compel delivery of an affidavit of documents and, if necessary, a request for an adjournment.

33The fact that Intact brought this motion before delivering an affidavit of documents does not show that there is a genuine issue requiring a trial or that Intact’s motion is premature. The responding parties chose to proceed with the cross-examination of Mr. Orsini without requesting an affidavit of documents or moving to compel one. The dispute concerning the completeness of the evidentiary record crystallized, however, when questions on the cross-examination of Mr. Orsini requesting production of documents were taken under advisement or refused, and through the responses to questions taken under advisement when objections to provide requested documents were confirmed.

34I turn to Intact’s objections on Mr. Orsini’s cross-examination to produce documents requested by the responding parties.

35Mr. Orsini was cross-examined on his affidavits on July 19, 2019. On this cross-examination, he undertook to answer a number of questions, and answers to these undertakings were given. These answers include production of copies of VTX invoices (and dockets) and BBCG invoices, disclosure of hourly rates for BLG timekeepers, whether there are documents in respect of Intact’s decision not to use Tom Lischer’s company to complete bonded projects, whether written analyses or reports were provided by VTX, production of copies of completion proposals by contractors on bonded projects where performance bond payments were made, and answers to some specific questions relating to three specific projects.

36Intact also took under advisement 33 other questions. Intact provided answers to 9 of these questions and objected to answering the other questions. The questions which Intact objected to answering included the following requests:

a. To produce a copy of the contract between Intact and VTX in respect of its retainer for the Lischer projects.

b. To produce dockets which provide a breakdown of the work that was performed in support of the invoices rendered to Intact from BLG.

c. In respect of all claims made under the Labour and Material Payment Bonds that are the subject of this action, to produce the backup documentation received from claimants in respect of the various claims.

d. To produce the documents listed in paragraph 24 of Tom Lischer’s affidavit in respect of all of the projects which are the subject of Intact’s action.

e. To provide the backup documentation in support of each of the payments made under the performance bonds for the projects.

f. To produce copies of any written communications, analysis, notes or other written documents in respect of Intact’s decision not to use Tom Lischer’s new company to complete the bonded projects.

37The grounds for the refusals were generally that the answer to the question is not relevant to any matter in issue on the motion and, in some cases, also on grounds that the documents requested would be available to the defendants, the requested document is subject to litigation privilege, the answer was provided in an answer to undertaking, or the question is not based on any evidence. Intact did not object to answering questions on the basis of the considerations in Rule 29.2.03 that concern proportionality in discovery and on an examination under Rule 34.

38The responding parties submit that Intact has unjustifiably refused to produce documents in response to proper questions asked on Mr. Orsini’s cross-examination. They contend that they need these documents to assess the reasonableness of the payments made by Intact pursuant to the Bonds. Tom Lischer maintains that the requested information is critical in order for him to assess whether his company had the ability to minimize or eliminate any indebtedness under the Bonds. Tom Lischer also submits that Intact has not provided details of amounts recovered in respect of three projects which would permit an assessment as to whether these recoveries were reasonable in the circumstances.

39With respect to the charges by VTX, Tom Lischer submits that the amount paid by Intact appears to be very high in relation to the total amount paid under the Performance Bond and, because VTX’s fees are not broken out in respect of each project, the Indemnitors are unable to ascertain which expenses were incurred in respect of particular claims in order to enable them to determine whether the expenditures were reasonable. With respect to the BLG charges, Tom Lischer submits that the charges appear excessive on their face, and that Intact refused to produce back-up documents, such as dockets, to support the charges.

40Tom Lischer submits that Intact’s refusal to produce the requested documents with respect to payments under the Bonds has precluded them from properly defending Intact’s claim and left them in a position where they cannot assess whether the payments under the Bonds were reasonable or whether Intact acted in good faith and took reasonable steps to mitigate its damages. He contends that fairness dictates that the Indemnitors be provided with the documents upon which Intact based its decisions to make the payments under the Bonds because, without this information, they are unable to challenge the reasonableness of the payments made by Intact. Tom Lischer submits that, as a result, Intact’s motion for summary judgment is premature and should be dismissed. The other responding parties support these submissions.

41Intact makes three submissions in response. First, Intact submits that the documents which it objected to produce are not relevant. Second, it submits that the documents requested are in the possession of the responding parties. Third, it submits that the responding parties failed to put their best foot forward in response to this motion because they failed to take reasonable steps to obtain the documents they seek by moving to compel answers to the questions to which Intact had objected. I address each of these submissions in turn.

42Intact’s position is that it produced all documents relevant to its motion in its motion materials, and it provided additional answers to undertakings and to some questions taken under advisement to avoid unnecessary time and expenses to litigate these issues. Intact contends that the Indemnitors are impermissibly attempting to re-litigate the claims under the Bonds and that the purpose of the Indemnity Agreements is to provide it with security that it can perform its obligations under the Bonds with assurance that it will be reimbursed by the Indemnitors. Intact submits that the reason for each objection was given as required by rule 34.12(1) and that its objections to the questions were proper.

43Intact submits that there are no authorities before me which address the legal questions of relevance in the context of the issues raised in Intact’s action. I disagree. Several authorities were cited which explain the relevant considerations which the court should take into account in an action by a surety against indemnitors.

44In Stratton, a trial decision, Lane J. was called on the decide whether a surety making a claim against indemnitors under an indemnity agreement for reimbursement of payments made under a labour and materials payment bond exercised reasonable prudence and acted in good faith in making payments under the bond. The indemnity agreement in Stratton provided that the surety shall have the sole right to pay, settle or compromise any expense, claim or charge under the bond and the voucher, cheque or other evidence of such payment shall be prima facie evidence of the surety’s right to make such payment and the indemnitors’ liability therefor to the surety. The language of the indemnity agreement in Stratton closely corresponds with the language of the Indemnity Agreements upon which Intact relies, although the Indemnity Agreements expressly require the surety’s “reasonable belief” that it was liable for the amount paid or that the payment or compromise was “reasonable under all of the circumstances”.

45In Stratton, Lane J. addressed at para. 38 the obligations of the surety under the indemnity agreement:

[The surety’s] power to pay, settle or compromise in clause 6 is not expressly restricted by such words as “reasonable”, but the evidence of payment is expressed to be prima facie evidence that the Indemnitors are liable to reimburse [the surety]. In my view, this imports into the clause a requirement of good faith and a reasonable basis for the payment made. The burden is on the Indemnitors to show the absence of good faith or of reasonable grounds by evidence sufficient to offset the prima facie the contractual presumption established by the clause. In such an analysis, the merits of the claim asserted are but one factor. The economic cost-benefit analysis is also a factor: the surety is not obliged to support the position of the Indemnitors if it is not cost-effective to do so.

Lane J. held at para. 41 that the elements of reasonableness and good faith include a thorough investigation into the facts and the “relevant legalities”.

46The obligations of a surety under an indemnity agreement such as those before me on this motion were also addressed by Lederer J. in Zurich Insurance Co. v. Paveco Road Builders Corp., 2009 CarswellOnt 1543. That case also involved a claim by a surety on an indemnity agreement after the surety paid amounts claimed under performance bonds and labour and materials bonds given in respect of construction projects. The surety brought a motion for summary judgment. The indemnitors opposed the motion on the ground that there was a genuine issue for trial in respect of whether the payments were fair and reasonable and made in good faith. The surety argued that the indemnitors’ evidence consisted only of bald allegations without support in the evidence which was insufficient to show that there was a genuine issue for trial. Lederer J. disagreed. He identified the issue before him as whether or not the surety acted with an absence of good faith and contrary to its obligations under the indemnity agreement. He considered what is necessary for indemnitors to show an absence of good faith by a surety and at para. 45 he concluded that, at its core, good faith is a subjective concept. He expressed the view at para. 48 that the subjective nature of the question underscores the care that needs to be taken in deciding that there is no genuine issue for trial because, by its nature, a subjective question is not as easily determinable as a purely objective consideration. Lederer J. considered the extensive evidentiary record before him and he accepted that the evidence upon which the indemnitors relied was sufficient to show that there was a genuine issue for trial (paras. 164-166).

47With respect to the contractual requirement of good faith which was imported into the indemnity agreement before him, Lederer J. cited at para. 46 of his decision in Paveco the following passage from the trial judge’s decision in Zurich Insurance Co. v. Modern Marine Industries Ltd., 1993 CarswellNfld 42 at para. 149:

The contractual requirement of good faith must refer, not only to the fact of any payment to bond claimants, but also to the quantum of any payments. Where, as in this case, the surety fully expects to recover any payments from the Indemnitors, the surety is, to all intents and purposes, spending the Indemnitor’s money. Good faith requires that no more money be disbursed than the surety honestly believes is required to respond to the claim. Honesty of purpose requires, in this context, that the surety be guided in its decisions not so much by the bond limits as by the recognition that the Indemnitor is entitled to the lowest possible payment. A payment of the bond limit would be appropriate only when the surety honestly believes that a lower payment cannot be achieved. The honesty of this belief is assessed by reviewing whether or not the surety considered all information available to it and generally proceeded in a manner which exhibited a genuine intention to preserve the assets of the Indemnitors insofar as possible.

The trial judge’s decision in Modern Marine was upheld on appeal: 1996 CanLII 11046 (NL CA).

48I do not accept the narrow view of relevance that Intact advances on this motion. According to section 1 b. of the Indemnity Agreements, Intact is entitled to pay or compromise a claim arising out of a Bond, and such payment or compromise shall be binding upon the Indemnitors, provided Intact does so in the reasonable belief that it was liable for the amount paid, or that such payment or compromise was reasonable “under all the circumstances”. The Indemnitors have the burden of showing that Intact did not believe that payments or compromises of claims under the Bonds were reasonable, or that payments or compromises were not reasonable, having regard to all of the circumstances. In Stratton, Lane J. held that the requirements of reasonableness and good faith call for a “thorough investigation” into the facts surrounding the payments. In Modern Marine, the court held that the requirement of good faith must be assessed by reviewing whether the surety “considered all information available to it”. In Paveco, the motion judge had a complete evidentiary record before him (the surety’s motion record consisted of twenty-six volumes), and he relied on documents in this record to conclude that there was a genuine issue for trial.

49Documents that provide the necessary context for Intact’s payments under the Bonds and that show the information that was available to Intact when the payment was made are evidence of the circumstances of such payments. The responding parties were not required to simply accept Mr. Orsini’s statements in his reply affidavit that Intact complied with its obligations under the Bonds, the reasons why Mr. Orsini considered it to be inappropriate to have the Lischer Companies (or related companies) complete bonded projects, that the responding parties would have access to all information related to the bonded projects, and that payments made to BLG, VTX and BBCG were reasonable in the circumstances. Intact may be correct that the payments under the Bonds were reasonable under all of the circumstances, and that it made such payments in the reasonable belief that it was liable for the payments. However, the responding parties were entitled to test these statements through the cross-examination of Mr. Orsini, and he was obliged to answer proper questions on his cross-examination and produce documents which inform the circumstances under which Intact made payments under the Bonds and show the information available to Intact when it made payments under the Bonds.

50I do not intend to address each refusal on the cross-examination of Mr. Orsini and rule individually on the propriety each of Intact’s objections to answering questions or producing documents as if I were hearing a refusals motion. I am satisfied that by giving blanket refusals to answer the questions listed in paragraph 36 of my reasons, Intact failed to answer these proper questions and to provide responsive documents which would show the relevant information available to Intact when it made payments under the Bonds. Intact could have addressed issues of scope, proportionality, and privilege in its answers. For example, if issues of privilege arise in respect of BLG’s dockets, this could be addressed through proper redactions, and the dockets would still provide relevant information to the responding parties to allow them to assess the reasonableness of these charges.

51As a ground for many, but not all, of the questions on Mr. Orsini’s cross-examination to which Intact objected, Intact stated that the requested documents “would be available to the responding parties”. For example, Intact points to letters sent to Tom Lischer and Teja Lischer which were provided in answer to an undertaking as showing that it requested documents from the Indemnitors to assist it in responding to claims under the Bonds. With respect to payments under the Payment Bonds representing $542,109.11 of its claim, Intact points out that the responding parties did not put into evidence the Lischer companies’ own accounts payable records to show that Intact unreasonably made payments to the Lischer Companies’ suppliers.

52Tom Lischer does not agree that he had ready access to documents in the possession of the Lischer companies. In his affidavit, Teja Lischer stated that he made an arrangement with his son, Tom Lischer, that he would become the general manager for the Lischer Companies and take over responsibility for operating the big jobs and the office. In his affidavit, Tom Lischer states that ultimate control over the Lischer Companies was exercised by his father who was the principal decision-maker in almost all financial matters. Tom Lischer states that he received little to no information or documentation pertaining to the projects for which the Bonds had been delivered and for which claims are now being asserted against him. He relies upon a letter dated February 7, 2018 sent to counsel for Teja Lischer with a copy to Intact in which he requests full disclosure of information or documentation relating to the bonded projects.

53Certainly, some of the requested documents in the possession of Intact would not be in the possession of the responding parties. For example, BLG’s dockets would not be available to the responding parties. On the record before me, I am not able to conclude that the responding parties have access to all relevant documents they requested on the cross-examination of Mr. Orsini, and that this was a proper ground for Intact to object to producing the requested documents.

54Intact submits that in order for the respondents to satisfy their obligation under rule 20.02(2) and put their best foot forward in response to Intact’s motion, they cannot simply rely on the fact that Intact objected on Mr. Orsini’s cross-examination to answering questions asking for documents. Intact submits that if the responding parties disagreed that the objections were proper, they were required to take steps to compel production of the requested documents, and they failed to do so. Intact relies on the decisions in Sweda Farms, particularly the decision of the Court of Appeal, in support of this submission.

55In Sweda Farms, the motion judge, Corbett J., stated the principle that, generally, the court is entitled to assume that the record on a motion for summary judgment contains all the evidence the parties would present at trial. Corbett J. noted, however, that there are exceptions to this principle, including where evidence is missing from the record because of conduct by a party. Corbett J. held that in the circumstances of the motion before him, the burden of persuasion rested on the responding parties to establish that they had taken reasonable steps to obtain the evidence they need for the motion, and that the “missing evidence” would be material to the disposition of the motion. Corbett J. described the “missing evidence” on the motion before him, and he was not prepared to infer that these documents would establish anything material not already in evidence.

56In Sweda Farms, Corbett J. described the foundation for the responding party’s production requests as “skimpy”, and he found that the likely probative value of the requested production was “scant”. He described the responding party’s requested production as a “ruse to cloak the speculation that lies at the core of [the responding party’s] case with an air of remote possibility”. Corbett J. acknowledged that in some cases the court will defer a motion for summary judgment until after examinations for discovery have been conducted, but he was not willing to put the moving party to the expense and trouble of completing an extensive discovery process in the circumstances. Corbett J. concluded that the responding parties had failed to put their best foot forward, and their failure to do so cannot be laid at the feet of the successful moving party for any failure of disclosure. See Sweda Farms at paras. 19, 22, 27, 28 and 43.

57Intact relies heavily on the decision of the Court of Appeal in Sweda Farms. On that appeal, the appellants’ principal submission was that the granting of summary judgment was premature because the moving parties had not disclosed many relevant documents in their affidavit of documents. The Court of Appeal did not accept this submission and held at para. 4:

If the appellants’ complaint was that Burnbrae had not complied with its disclosure obligations, then the appellants were obliged to take steps to compel production. They did not do so. Accordingly, they did not meet their obligation to put their best foot forward on the motion.

The Court of Appeal observed that the moving party’s affidavit of documents had been served seventeen months before the summary judgment motion was heard and that motion judge had addressed the “missing evidence” and concluded that the missing evidence was unlikely to assist the appellants. The appeal was dismissed.

58Intact submits that in the appeal decision in Sweda Farms the Court of Appeal articulated a principle that on a motion for summary judgment a party complaining that documents have not been produced, in order to comply with the obligation to put its best foot forward, is obliged to take steps to compel production of the documents. Intact submits that this principle also applies where, as here, a party refuses to produce documents in response to questions asked of a witness on a cross-examination.

59I do not agree that the decision of the Court of Appeal in Sweda Farms establishes a principle that applies generally in other cases. The statement made by the Court of Appeal in paragraph 4 of its decision applied to the circumstances on the appeal. The relevant circumstances did not involve refusals by the moving party to answer proper questions on the cross-examination of a witness on his affidavit; they involved the responding party’s failure to take steps to compel production of additional documents of questionable relevance where the moving party’s affidavit of documents had been served seventeen months before the motion was heard. The Court of Appeal in Sweda Farms did not establish a general principle that would apply in all cases and require a party to move to compel answers to questions refused on the cross-examination of a witness in order to satisfy the party’s obligation to put their best foot forward on a summary judgment motion. Whether the obligation of a party to put its best foot forward is satisfied must be determined based upon the circumstances of a given case.

60Intact also relies on the decision of Myers J. in ThyssenKrupp Elevator (Canada) Ltd. v. Amos 2014 ONSC 3910. In ThyssenKrupp the defendants moved for summary judgment in an action in which the plaintiff alleged that a former employee had violated his employment contract, a separate confidentiality agreement, and his fiduciary duties by improperly soliciting the plaintiff’s customers. The defendants submitted that there was no evidence of illicit solicitation or misuse of confidential information by the former employee or his new employers. The plaintiff responded that this evidence was uniquely within the knowledge of the defendants and that it was entitled to documentary discovery and examinations for discovery in order to compel the defendants to provide the necessary evidence. The plaintiff submitted that the court could infer that there are material issues requiring a trial from the limited evidence that they had obtained to date.

61In ThyssenKrupp, Myers J. noted at para. 34 that the responding party had the opportunity to ask for any files in its cross-examination of two witnesses who filed affidavits in support of the summary judgment motion and that its counsel sought almost no undertakings on either examination. Myers J. identified the question before him to be “whether to order production of documents or even limited production of documents so as to give the plaintiff (and the Court) better assurance that there is no smoking gun in circumstances where despite the lack of evidence, a degree of suspicion is reasonable”. Myers J. considered the approach to summary judgment under Hryniak and held:

I am not suggesting that summary judgment motions can be used to avoid a party’s production obligations. But, it is not my role to second-guess counsel’s tactical choices. Faced with several avenues to seek production from the defendants to respond to the motion for summary judgment, the plaintiff chose to limit its investigations and just ask for the motion to be dismissed so the parties can go to discovery. As noted above, counsel could have asked for documents on cross-examination, sought undertakings, or served summonses to witnesses. Counsel could have brought a motion for directions or while at Scheduling Court asked for documents or, in the defendants’ case, sought to control the cost of disclosure.

Myers J. concluded at para. 45 that, absent production, which the plaintiff chose not to seek or make throughout the process, there was no genuine issue requiring a trial.

62In contrast to the circumstances before the court in Sweda Farms or in ThyssenKrupp, the responding parties took steps to obtain the evidence they need on Intact’s motion for summary judgment by asking for production of relevant documents on the cross-examination of Mr. Orsini. The parties had agreed to a schedule for this motion which did not call for an exchange of affidavits of documents. The responding parties had defended the action on the ground that Intact had made payments under the Bonds which were unreasonable and, in the case of Tom Lischer, payments which were not made in good faith. It should not have been a surprise to Intact that the responding parties would ask for documents that would disclose the information known to Intact when the payments were made under the Bonds and inform the circumstances of the payments.

63Intact also relies on the decision of Ricchetti J. in Royal and Sun Alliance Insurance Company of Canada v. Euro Landscape Construction & Grounds Inc. released on July 19, 2019 (Court File No. CV-18-597968) which, it submits, was a motion for summary judgment in an action by a surety against indemnitors involving the same circumstances as those on the motion before me. In that case, the parties agreed that the court would deal with a motion for partial summary judgment. Ricchetti J. was satisfied that a motion for partial summary judgment was appropriate and heard the motion. The defendants submitted that the motion for summary judgment was premature because it was inappropriate for the court to grant partial summary judgment. Ricchetti J. rejected this submission because the defendants had been given an opportunity to raise any issue as to whether a motion for partial summary judgment was appropriate and the motion had been scheduled with the consent of the parties without the defendants having raised the inappropriateness of a partial summary judgment motion. Ricchetti J. held, given these circumstances, that the defendants’ submission was disingenuous. Intact is not moving for partial summary judgment. The defendants in Euro Landscape did not argue that the summary judgment motion was premature because the evidentiary record was incomplete. The decision in Euro Landscape does not involve the same circumstances as those on Intact’s motion.

64Rule 34.15(1) provides that where a person fails to answer any proper question or produce a document that he or she is required to produce on an examination, the court may make one of several specified orders or make such other order as is just. In some circumstances, refusals to answer proper questions asked on the examination of a witness may lead the court to draw an adverse inference that the answers would have been unhelpful to the objecting party. See, for example, Indcondo Building Corp. v. Steeles-Jane Properties Inc., 2001 CarswellOnt 2904 at para. 7. Unlike the circumstances in Indcondo, however, on the record before me, the circumstances of this case do not show that Intact engaged in a concerted effort to block the responding parties from obtaining relevant information, and I draw no adverse inference from Intact’s refusals to produce relevant documents.

65I regard the steps taken by the responding parties to obtain the evidence they need to respond to Intact’s motion for summary judgment – asking for the needed documents on the cross-examination of Mr. Orsini – to have been reasonable in the circumstances. They have met their burden of persuasion in this regard. Intact took an unreasonably narrow view of what documents are relevant to its claims, particularly having regard to the decisions in Stratton, Modern Marine, and Paveco, and the language of the Indemnity Agreements, when, in response to questions asked on Mr. Orsini’s cross-examination, it refused to produce documents that would show the information available to Intact when it made the payments under the Bonds and provide evidence of the circumstances in which the payments were made. Intact’s objections to questions asking for production of relevant documents were not proper. Intact cannot rely upon its decision to object to proper questions on the cross-examination of Mr. Orsini to show that the responding parties failed to put their best foot forward in response to Intact’s motion. Intact is responsible for the incomplete evidentiary record that is before me.

66On the incomplete evidentiary record before me, I am not satisfied that I am able to fairly and justly adjudicate the dispute raised by Intact’s action. Intact has failed to discharge its onus of showing that there is no genuine issue requiring a trial.

Disposition

67For the forgoing reasons, Intact’s motion for summary judgment is dismissed.

68If the parties are unable to resolve issues of costs, the responding parties may make written submissions within 20 days. Intact may make written responding submissions within 20 days thereafter. The responding parties may make brief written reply submissions, if so advised, within 5 days thereafter.

Cavanagh J.

Released: October 17, 2019

COURT FILE NO.: 18-00606344-00

DATE: 20191017

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

INTACT INSURANCE COMPANY

Plaintiff

– and –

MEYKNECHT-LISCHER CONTRACTORS LTD., TEJA LISCHER, LISCHER CONSTRUCTION INC., 914035 ONTARIO INC., TOM LISCHER, T AND T LISCHER HOLDINGS CORP., AND MEYKNECHT-LISCHER QUEBEC LTEE

Defendants