Court File and Parties

COURT FILE NO.: CV-14-517805 MOTION HEARD: 2020 02 24

Superior Court of Justice - Ontario

RE: DK Manufacturing Group Ltd. o/a D.K.M.G. and S.G. Investments Group Ltd. v. Co-Operators General Insurance Company, The Alarm Factory Inc., and National Fire Adjustment Co., Inc.

BEFORE: MASTER R. A. MUIR

COUNSEL: Yadvinder S. Toor for the plaintiffs Frank Caruso for National Fire Adjustment Co., Inc. Robert W. Dowhan for Co-Operators General Insurance Company

Reasons for Decision

[1] The plaintiffs bring this motion pursuant to Rule 39.02(2) of the Rules of Civil Procedure, RRO 1990, Reg. 194 (the “Rules”). The plaintiffs seek leave of the court to file further affidavits after having conducted cross-examinations.

[2] The cross-examinations took place in connection with motions brought by the defendants seeking an order that the plaintiffs post security for costs. The defendants are opposed to the plaintiffs’ motion.

[3] This action involves a claim for damages arising from a fire at a commercial property owned by the plaintiff S.G. Investments Group Ltd. and occupied by the plaintiff and related corporation DK Manufacturing Group Ltd. The defendant Co-Operators General Insurance Company (“Co-Operators”) issued commercial insurance policies to the plaintiffs. Following the fire, the plaintiffs retained the defendant National Fire Adjustment Co., Inc. (“NFA”) to assist with the adjustment of their claim under the policies of insurance.

[4] Certain parts of the plaintiffs’ claim were disposed of by Justice Stinson on a summary judgment motion decided June 20, 2016. The plaintiffs’ remaining claims appear to allege that Co-Operators and NFA failed to adjust the plaintiffs’ claim in a timely manner which resulted in the plaintiffs’ bank calling its loans. The plaintiffs allege they have suffered business losses arising from the defendants’ alleged delay and subsequent events. The defendants deny the plaintiffs’ claims.

[5] The defendants’ security for costs motions were first brought in the summer of 2019 pursuant to a timetable order established by Justice Stinson. The plaintiffs’ responding motion record was delivered at the end of August 2019. Initially, the lawyer for the plaintiffs had advised the defendants’ lawyers that at least one of the plaintiffs had sufficient assets in Ontario to respond to a potential costs order. However, the lengthy responding record eventually delivered by the plaintiffs departed from that position and instead suggested that the plaintiffs and their principals were impecunious.

[6] The defendants then undertook some further investigation in a very short period of time. NFA served a reply affidavit late in the day on September 3, 2019. That affidavit identified potential assets of the principals of the plaintiffs that were not mentioned in the plaintiffs’ responding evidence.

[7] Cross-examinations were set to begin the following day. The plaintiffs were able to immediately address some of the items raised in the NFA reply affidavit and served supplementary affidavits later in the evening of September 3, 2019.

[8] Cross-examinations took place on September 4 and September 6, 2019.

[9] Late in the day on September 6, 2019, the plaintiffs’ lawyer sent a letter to the defendants’ lawyers which included additional particulars and documents purportedly in response to the NFA reply affidavit and questions asked on the plaintiffs’ cross-examinations. That letter, and the attached documents, have now been included with an affidavit sworn by Kulbhushan Narang on September 18, 2019, who is one of the principals of the plaintiff corporations. In that affidavit, Mr. Narang adopts the contents of the September 6, 2019 letter sent by his lawyer. In an affidavit dated October 8, 2019, the other principal of the plaintiff corporations adopts the evidence provided by Mr. Narang. That is the evidence the plaintiffs now seek leave of the court to deliver after having cross-examined representatives of the defendants.

[10] Rule 39.02 provides as follows:

39.02 (1) A party to a motion or application who has served every affidavit on which the party intends to rely and has completed all examinations under rule 39.03 may cross-examine the deponent of any affidavit served by a party who is adverse in interest on the motion or application.

(2) A party who has cross-examined on an affidavit delivered by an adverse party shall not subsequently deliver an affidavit for use at the hearing or conduct an examination under rule 39.03 without leave or consent, and the court shall grant leave, on such terms as are just, where it is satisfied that the party ought to be permitted to respond to any matter raised on the cross-examination with evidence in the form of an affidavit or a transcript of an examination conducted under rule 39.03.

[11] The courts have developed a four-part test when deciding whether leave should be granted under Rule 39.02(2). The law is well summarized in Master Jolley’s decision in Nexim Healthcare Consultants Inc. v. Yacoob, 2018 ONSC 91 (Master), a decision relied upon by Co-Operators. At paragraph 9 of that decision Master Jolley states as follows:

9. The four-part test for granting leave is set out in First Capital Realty Inc. v. Centrecorp Management Services Ltd., 2009 CarswellOnt 6914 (Div. Ct.): (1) is the evidence relevant; (2) does the evidence respond to a matter raised on the cross examination, not necessarily raised for the first time; (3) would granting leave to file the evidence result in non-compensable prejudice that could not be addressed by imposing costs, terms or an adjournment; and (4) did the moving party provide a reasonable or adequate explanation for why the evidence was not included at the outset. A flexible, contextual approach is to be taken in assessing the criteria relevant to rule 39.02(2) having regard to the overriding principle outlined in Rule 1.04 that the rules are to be interpreted liberally to ensure a just, timely resolution of the dispute. An overly rigid interpretation can lead to unfairness by punishing a litigant for an oversight of counsel. As stated by Master Muir in Mars Canada Inc. v. Bemco Cash and Carry Inc. 2015 ONSC 8078 at paragraph 10, "In my respectful view, the court should avoid a rigid interpretation of Rule 39.02. The flexible, contextual approach is to be preferred." As noted in P.M. Perell & J.W. Morden, The Law of Civil Procedure in Ontario, commenting on First Capital Realty and quoted in Shah v. LG Chem, Ltd. 2015 ONSC 776, "the Divisional Court held that all the criteria should be weighed and no one criterion was determinative.”

[12] The defendants appeared to dispute these last points. Co-Operators’ factum cites Sure Track Courier Ltd. v. Kaisersingh, 2011 ONSC 7388 where Justice Goodman stated at paragraph 51 that leave under Rule 39.02 should be “granted sparingly”.

[13] In my view, the approach articulated in First Capital Realty Inc. referred to in the decision of Master Jolley is to be preferred. The decision in First Capital Realty Inc. is a decision of a panel of the Divisional Court and as such takes precedence over a decision of a single judge of the Superior Court and is binding on me. In my respectful view, the court should avoid a rigid interpretation of Rule 39.02. The flexible, contextual approach is to be preferred.

[14] These are the factors and principles I have applied and considered in determining the issues on this motion. In my view, it is just in the circumstances of this motion that leave be granted to the plaintiffs to deliver the additional evidence.

[15] The plaintiffs’ additional evidence primarily addresses issues related to the principals’ personal automobiles, certain corporations controlled by them and properties in Florida registered in their names. All of these issues were raised in the NFA reply affidavit served at the end of the day on September 3, 2019. Importantly, these issues were also addressed in the plaintiffs’ September 3, 2019 supplementary affidavits, served prior to the cross-examinations.

[16] The plaintiffs’ additional evidence is clearly relevant to matters in issue on the security for costs motions. The further evidence addresses the important question of impecuniosity.

[17] The questions surrounding the automobiles, the other companies and the Florida properties were all matters that were raised during cross-examination.

[18] There will be no prejudice to the defendants if the additional evidence is allowed as I am prepared to allow the defendants a further cross-examination of the plaintiffs’ representatives in relation to the new evidence.

[19] Finally, I am satisfied that the plaintiffs have offered a reasonable explanation for their failure to provide the additional evidence prior to the cross-examinations. When the defendants served evidence identifying the alleged additional assets, the plaintiffs were forced to respond quickly given the approaching cross-examinations and the timetable order of Justice Stinson. The NFA reply affidavit was served late in the day on September 3, 2019 and the plaintiffs provided an initial response later that evening addressing the defendants’ allegations. The plaintiffs were questioned about these matters when cross-examined and provided more evidence. They were uncertain of the answers to some of the questions but were able to provide additional particulars and documents within a few days expanding and clarifying their answers. In my view, this is understandable and reasonable, given the short time frames involved.

[20] The defendants suggested that the plaintiffs’ evidence in relation to these additional assets is inconsistent and unreliable and there may have been a deliberate intention to omit those assets from their initial evidence. In my view, this procedural motion is not the place for those arguments. The question on this motion is why the evidence was not provided prior to the cross-examinations. Questions relating to its probative value and why it was not included as part of the plaintiffs’ initial responding evidence are matters for argument at the return of the security for costs motions.

[21] For these reasons, it is my view that the plaintiffs have met the applicable test on this motion. Moreover, it is also just in the circumstances of the security for costs motions to allow this additional evidence. This is a serious matter. The plaintiffs take the position that they are impecunious. If so, an order for security for costs may have the effect of denying the plaintiffs the opportunity of having their claims determined on the merits. The overall objective for the court on a motion for security for costs is to make the order that is just in the circumstances of the particular proceeding. In my view, that overriding principle extends to the taking of evidence.

[22] I therefore order as follows: (a) the plaintiffs are hereby granted leave to deliver the affidavit of Kulbhushan Narang sworn September 18, 2019 and the affidavit of Rani Pardal sworn October 8, 2019; (b) the defendants are hereby granted leave to cross-examine Mr. Narang and Ms. Pardal, on these two affidavits only, for period of time not to exceed 90 minutes in total for both examinations; (c) no further evidence, other than the transcripts from these further cross-examinations, shall be permitted to be delivered on the security for costs motions; (d) the parties are granted leave to serve supplementary factums, with the defendants’ supplementary factums to be delivered by March 19, 2020 and the plaintiffs’ supplementary factum to be delivered by March 25, 2020; (e) the supplementary factums shall not exceed 10 pages in length, double spaced; and, (f) the costs of this motion are reserved to the hearing of the security for costs motions.

[23] The defendants’ security for costs motions will be heard by me on March 31, 2020 for a period of one full day.

Master R. A. Muir

DATE: 2020 02 27