Court File and Parties

COURT FILE NO.: CV-12-470161 DATE: 2020-03-13 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: The Northwest Company LP, Plaintiff AND: Classic Furs Company Ltd., Defendant AND: Jason White, J. Doe #1, J. Doe #2, and J. Doe #3, Third Parties

BEFORE: Pinto J.

COUNSEL: I. MacLeod, for the Appellant / Defendant N. Businger, for Respondents / the Plaintiff and the Third Party Jason White

HEARD: March 9, 2020

Endorsement

Overview

[1] This is an appeal from an order of Master Jolley concerning an undertakings and refusals motion.

[2] Classic Furs Company Ltd. ("Classic Furs"), the appellant/defendant (plaintiff by counterclaim and third party claim), appeals from the decision of the Master with respect to a refusals and undertakings motion it brought against The Northwest Company LP ("Northwest"), the plaintiff (defendant by counterclaim) and Northwest's employee Jason White ("White").

[3] On appeal are the following:

(a) One question (1347-1352) refused by White that the Master did not require White to answer; (b) One undertaking (587) given by White that the Master determined was sufficiently answered; and (c) Four questions (1341, 776, 800-803 and 806-809) refused by either Northwest or by White that the Master refused to order them to answer.

[4] For the reasons that follow, the appeal is dismissed. Costs of the appeal are awarded to the respondents.

The Main Action

[5] Classic Furs is in the business of buying, manufacturing and selling furs and leather goods. Northwest is a limited partnership that carries on business throughout Canada and internationally. White was the Director of Northwest's Inuit Art and Fur Marketing Division in 2011, and subsequently its Director of Fur Marketing.

[6] In 2010 and 2011, the parties entered into several contracts. Classic Furs agreed to purchase goods including animal skins and aboriginal artwork from Northwest. White negotiated on behalf of Northwest with Cezar Gajos, a principal of Northwest.

[7] Classic Furs alleges in its counterclaim that "after receiving payment from Classic Furs in respect of merchandise delivered in 2010 and early 2011, [Northwest] breached its contracts with Classic Furs and/or made various misrepresentations to Classic Furs and sent Classic Furs fraudulent invoices."

[8] Northwest and White's examinations for discovery were held in September 2018. The discoveries resulted in numerous undertakings and refusals. Northwest and White subsequently produced further documentation. Classic Furs submits that there are significant inconsistences in the positions taken by Northwest and White as evident from their pleadings, discoveries and productions to date, highlighting the importance of documentary discovery in this action.

Motion before the Master

[9] Although the parties were able to resolve most of the refusals and undertakings in dispute, Classic Furs ultimately brought a motion before a Master in June 2019. In a July 3, 2019 decision, the Master ordered Northwest and White to deliver a further and better affidavit of documents and answer an undertaking. However, the Master determined, inter alia, that some of the refusals and undertakings were satisfied, and that certain other refusals were irrelevant. The motion before the Master dealt with 15 discrete issues and the respondents prevailed on 13 of them.

[10] Classic Furs now appeals from the Master's decision with respect to 6 issues, as discussed below. In a related costs decision, the Master ordered Classic Furs to pay costs in the sum of $8,513.62.

Standard of Review

[11] The Standard of Review of a Superior Court judge sitting on appeal from a decision of a Master was described by Strathy J. (as he then was) in Paul v. Pizale, 2011 ONSC 3490, at paras. 19-20:

[19] The standard of review on appeal from the Master was set out by the Divisional Court in Zeitoun et al. v. The Economical Insurance Group (2008), 91 O.R. (3d) 131, [2008] O.J. No. 1771, aff'd, (2009), 2009 ONCA 415, 96 O.R. (3d) 639 (C.A.): the decision should not be interfered with unless the Master made an error of law, exercised his or her discretion on the wrong principles or misapprehended the evidence such that there was a palpable or overriding error. Where there is an error of law, the standard of review is correctness, whether the order is final or interlocutory. Where there is an error in the exercise of discretion, it must be established that the discretion was based on a wrong principle or that there was a palpable or overriding error in the assessment. See also Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235.

[20] A Master's decision concerning relevance is a question of law: Republic Bank of New York (Canada) v. Normart Management Ltd., (1996), 31 O.R. (3d) 14 (Gen. Div.).

Issue #1: Questions 1347-1352

[12] Classic Furs appeals from the Master's decision that the respondents had already answered Classic Furs' request for shipping documents and customs forms. The relevant part of the Master's decision states:

Refused questions 1347-1352 - Classic Furs requested shipping documents and customs forms in the power, possession and control of Northwest Company with respect to coyote furs that were delivered to Classic Furs in 2011. The documents produced purportedly in answer to these questions are not responsive in that they are not shipping documents or customs forms. On the motion Northwest Company confirmed that it had made a reasonable search and did not have any additional documents. The documents are clearly relevant as acknowledged by Northwest Company's attempts to locate responsive documents but their search did not turn up any additional documents. The refused question has been answered.

[13] Counsel for Classic Furs acknowledged that the issue on appeal with respect to these refused questions is not relevancy. Accordingly, the decision whether to order such questions answered was in the discretion of the Master. I would need to identify a palpable and overriding error to overturn the Master's decision. Counsel submits that the Master erred in relying on opposing counsel's submissions that Classic Furs had already produced the responsive documents in the absence of actual evidence on the motion. Counsel also submits that refusals and undertaking charts are "not evidence, but only a guide to the evidence in a motion to enforce compliance", citing Cuff v Gales, 2014 ONSC 4756 at para. 102 (f) (SCJ).

[14] Counsel for the respondents submitted that the Master made no error on this issue, let alone one that could be described as palpable and overriding. Counsel further submitted that, this was not a case where there was evidence that documents remained in the possession of the respondents that they had not produced; rather, there was no evidence one way or another that further documentation existed. In the circumstances, the Master's discretionary decision to not order further production must stand.

[15] In reply, counsel for the appellant reiterated that answers to undertakings must be responsive and here they were not. The Master should have ordered the production of the requested shipping documents and customs forms.

[16] I find that the issue here is one of sufficiency, not relevancy. The Master believed that the respondents had provided sufficient evidence of shipping documents and customs forms and accepted that a reasonable search had been made and no additional documents were found.

[17] The Master did not rely only on the submissions of counsel. Paragraph 5 of the Master's Costs decision stated:

[5] On the motion, counsel for the plaintiff advised that his client had made reasonable searches for certain categories of the documents and none were found. This was not the only information before the court on these refusals. The plaintiff's undertakings and refusals chart clearly stated in response to Questions 1347-1352 and Question 587 that the plaintiff had produced the "documents that remain in their power, possession or control". I found that the documents that were produced were not responsive but the evidence in the chart and as confirmed in the submission of counsel indicated that there were no other documents.

[18] I agree with the submissions by respondents' counsel that this was not a case where there was evidence before the Master that the respondents were holding back documents, which evidence was so misinterpreted by the Master so as to rise to the level of a palpable and overriding error.

[19] The Master made a discretionary decision refusing to order the respondents to produce further shipping documents and customs forms. It also bears pointing out that should the respondents attempt to introduce such evidence at trial, and the evidence is favourable to the respondents’ case, the respondents would have to seek leave of the court to do so: Rule 30.08(1)(a) of the Rules of Civil Procedure.

Issue #2: Question 587

[20] Classic Furs appeals from the Master's decision holding that the respondents had already answered Classic Fur's request to produce shipping slips or receipts documenting the delivery of coyote skins to Classic Furs.

[21] The analysis of this issue is identical to that of questions 1347-1352 above and, for the same reasons, I uphold the Master's ruling.

Issue #3: Question 1341

[22] Classic Furs asked Northwest Company to produce invoices and other documentation from suppliers in relation to Northwest Company's purchase of coyote skins in 2011. The Master's decision states:

[4] Refused Question 1341 - Classic Furs asked Northwest Company to produce invoices and other documentation from suppliers in relation to Northwest Company's purchase of coyote skins in 2011. It argues that these invoices are relevant as they may demonstrate that Northwest Company was unable to deliver 15,000 skins to Classic Furs in breach of its oral agreement to do so. Whether Northwest Company had the furs or didn't have the furs will not advance, in my view, this issue in the litigation, namely whether Northwest Company breached its alleged agreement with Classic Furs to deliver 15,000 furs. It does not tend to prove or disprove the existence of the agreement nor does it advance proof of a breach. Whether Northwest Company breached that agreement, assuming one is found, will turn on whether it in fact delivered that quantity of furs to Classic Furs or, at least, whether it offered those furs to Classic Furs, which rejected them. The quantity of furs that Northwest Company had available to it in 2011 would not establish a breach, but at best might provide only a reason for the breach, should one be found. The documents sought would not directly or indirectly enable Classic Furs to advance its case or damage the case of Northwest Company or lead to a train of inquiry that could have either of those consequences, in the language of Benatta v. Canada (Attorney General) at paragraph 20). The question need not be answered.

[23] Classic Furs submits that the requested documentation is relevant as it goes to "the ability and intention of [Northwest] and White to deliver 15,000 coyote skins to [Classic Furs] in 2011" which is directly relevant to "the most significant alleged misrepresentation" which is pleaded (in part) as follows:

Mr. White's representations at the meeting in late 2010 that NWC could and/or would sell 15,000 high quality dressed coyote skins to Classic Furs in 2011 at a unit price of $64.00, and that NWC had no expectation of being paid at or near the time of the merchandise's delivery, were false.

[24] Counsel for the respondents agreed that relevance is a matter of law over which the Master had to be correct, however, he submitted that once relevance has been ascertained, discretion remains as to whether to order the document to be produced or the question to be answered: Berry v Scotia Capital Inc., 2014 ONSC 5244 at par 12.

[25] Counsel for the respondents submitted that having the requested documents does not "contribute to determining the truth or falsity of whether Mr. White made any representations in late 2010 that Northwest could and/or would sell 15,000 high quality dressed coyote skins to Classic Furs in 2011. If such representations are found to have been made, the documents do not contribute to determining whether Mr. White intended Classic Furs to rely upon those representations or whether Classic Furs did rely upon them to its detriment."

[26] On this Question 1341 Issue, I find that, while the appellant's pleading is phrased both in terms of ability (based on the word "could") and intention (based on the word "would"), the test for relevancy is not met. Having "invoices and other documentation from suppliers in relation to Northwest Company's purchase of coyote skins in 2011", may allow the appellant Classic Furs to assert, with some evidence, various propositions about the state of Northwest's inventory at the material time, but the action is based on (a) an alleged breach of contract and, in the alternative; (b) an alleged misrepresentation made by White. Although the Master focused on the former - "It does not tend to prove or disprove the existence of the agreement nor does it advance proof of a breach" - and neglected to mention the misrepresentation aspect, I find the same reasoning holds, namely, having more information about Northwest’s inventory would not necessarily enable Classic Furs to advance its own case or damage the case of its adversary. While the request may have met the now discarded "semblance of relevancy" test, I agree with the Master that it does not meet the current relevancy test.

Issues #4, 5, 6: Questions 776, 800-803 and 806-809 respectively

[27] Classic Furs appeals the Master's decision that the respondents' refusals to these questions were acceptable since these questions were not relevant.

[28] The Master's decision stated:

[12] Question 776 - Classic Furs seeks to know how Northwest Company treated the unpaid invoices that it sent to Classic Furs for accounting purposes. Questions 800-803 seek production of Northwest Company's financial statement from 2010 onward. Question 805 seeks to know whether financial statements exist for Northwest Company beyond 2010 and Question 804 seeks to know whether this litigation is reflected in the financial statements of Northwest Company and how the litigation is treated in Northwest Company's accounting records and financial statements (Question 806-809).

[13] Classic Furs argues that these questions are relevant as it has specifically pleaded that Northwest Company and its employees conspired together and sent fraudulent invoices to Classic Furs in order to conceal accounting discrepancies associated with the sale of merchandise that would have otherwise been apparent in the company's books and records. It further alleges Northwest Company and its employees then agreed to cover up and conceal their wrongful activities.

[14] It is unclear how the answer to the questions asked will advance the litigation, even considering the pleading above. If the invoices were noted as collectible receivables, it does not tend to prove or disprove their authenticity. They could have been noted as collectible either as part of the alleged cover up or because Northwest Company believed them to be collectible. Similarly if they were discounted or written off or noted as a contingent asset, that would not tend to prove or disprove anything other than perhaps Northwest Company's view of their collectability. In neither case would the disclosure assist in proving whether the invoices were in fact false, as Classic Furs claims, or whether there was a cover up afoot. The questions need not be answered.

[29] Class Furs’ counsel contends that the Master erred by equating relevance with conclusive proof, and then postulating one hypothetical explanation for the possible accounting treatment of the invoices - "just because a document may not conclusively determine a matter in issue does not mean that the document is therefore irrelevant." Classic Furs' counsel also argues that the requested production is highly relevant because the alleged fraudulent invoices at issue are part of the claim in the action therefore Northwest's past and continuing accounting treatment of the invoices is relevant.

[30] The respondents counter that the material fact at issue is whether "Mr. Scott [a Northwest employee] is telling the truth when he says he delivered the 225 skins and had Mr. Gajos [a Classic Furs employee] sign the note acknowledging the delivery." Therefore, Northwest's accounting and financial treatment has no probative value to the real issue in the case.

[31] Once again, I find that the Master's reasoning with respect to Questions 776, 800-803 and 806-809 is sound. Northwest's historic and ongoing accounting and financial records would presumably disclose Northwest's view of the invoices' collectability, but that view itself may or may not be accurate, or the product of legal and strategic considerations. Making logical inferences from the accounting and financial information, even if it were to be produced, and projecting the inferences on to the material questions at issue is an extremely speculative endeavour. Accordingly, I uphold the Master's ruling that the refused questions are not relevant and therefore do not have to be answered.

[32] As I have rendered this appeal based on my view of how the Master exercised her discretion (Issues #1 and #2), and relevancy (Issues #3 to #6), I do not find it necessary to address proportionality. In sum, I uphold the Master's ruling on all six issues and the appeal in its entirety is dismissed.

Costs

[33] Respondents’ counsel provided a bill of costs in respect of this appeal seeking $8,951.46 inclusive of fees, disbursement and taxes based on a partial indemnity basis. I find the proposed amount excessive in light of the limited number of items under appeal and instead fix costs in the amount of $5,000 all-in. Appellant’s counsel argued that the Master below made an error in principle by failing to address the issue of alleged divided success. I disagree and find that the Master’s costs decision contained no error.

Pinto J. Date: March 13, 2020