COURT FILE NO.: CV-17-5302-00
DATE: 2020 08 26
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Alearano Caroti, Jacinta Caroti, Ian Grounds, Moraig Grounds, Nancy Kostelac, Brain McDowell, Biljana Nizalek, Marielle Pelchat-Morris, Wilma Jesus, Monica Savona, Milena Boland, Frand Demaria, Jurica Biondic, Renato Biondic, Roberta Biondic and Boris Klecina by his Litigation Guardian Mike Klecina
D. Cunningham, counsel for the Plaintiffs, Peter Pichelli, Todd Leslie, Frank Toth and 958041 Ontario Limited
Plaintiffs
- and -
Ante Kegalj, Anthony Vuletic, John Vuletic, Mira Vuletic, Embleton Properties Corp., 1857325 Ontario Ltd. and Bramption G&A Holdings Inc.
E. Hiutin, counsel for the Defendant, Brampton G&A Holdings Inc. (Not present)
N. Paris, counsel for the Defendant Ante Kegalj
Defendants
-and between-
Anthony Vuletic, John Vuletic, Mira Vuletic, Embleton Properties Corp. and 1857325 Ontario Ltd.
G. D.E. Adair and D. Steinberg Counsel for the Defendants/Plaintiffs by Counterclaim, Anthony Vuletic, John Vuletic, Mira Vuletic, Embleton Properties Corp. and 1857325 Ontario Ltd.
C. Abela, Counsel for the Plaintiffs/Defendants by Counterclaim, Aleardo Caroti, Jacinta Caroti, Ian Grounds, Moraig Grounds, Nacny Kostelac, Brain McDowell, Biljana Nizalek, Madelle Pelchat-Morris, Wilma Jesus, Monica Savona, Milena Boland, Frank Demaria, Jurica Biondic, Renato Biondic, Roberta Biondic and Boris Klecina by his Litigation Guardian Mike Klecina
Plaintiffs by Counterclaim
Aleardo Caroti, Jacinta Caroti, Ian Grounds, Moraig Grounds, Nancy Kostelac, Brain McDowell, Biljana Nizalek, Marielle Pelchat-Morris, Wilma Jesus, Monica Savona, Milena Boland, Frand Demaria, Jurica Biondic, Renato Biondic, Roberta Biondic, Boris Klecina by his Litigation Guardian Mike Klecina, Anna Bilich, Emma Faria, Katarina Granic, Anton Granic, Marianne Martinovic, Frank Samardzic and Robert Sokic
J. Macdonald, Counsel for the Defendants to Counterclaim, Robert Sokich and Joe Faria
G. Karayannides, Counsel for the Defendants to the Counterclaim, Milena Boland, Frank Demaria, Jurica Biondic, Renato Biondic and Roberto Biondic
A.Macdonald, Counsel for Anna Bilich
Defendants
HEARD: In Writing
REASONS FOR DECISION
LEMAY J
[1] I have been case-managing this matter for some time. The history of this file is set out in previous reasons (see 2019 ONSC 168). The issue before me currently relates to a question of pre-discovery disclosure. Specifically, the Caroti parties, represented by Ms. Abela, are seeking disclosure of bank records for John, Mira and Anthony Vuletic from 2002 to 2019, as well as tax returns and tax assessments over the same time period for the same parties. The Vuletics, represented by Mr. Adair, are opposed to this production request.
[2] For the reasons that follow, I am directing that the Vuletics produce, in advance of discovery if possible, their tax returns and Notices of Assessment, the tax returns and Notices of Assessment of any companies that the Vuletics controlled, for the period between January 1, 2002 and December 31, 2016 to the extent that those records are available. I am also ordering the production of the bank statements of the Vuletics and the companies that they controlled for the same time period.
Background Facts
[3] The facts are generally as set out in my previous endorsements. However, I will briefly sketch out the facts that are relevant to my determination of the issues.
a) The Property and the Agreements
[4] The Vuletics purchased a large property at 78 Cliffside Drive back in 2002. Title to the property was held by a couple of companies during the time that it was controlled by the Vuletics. For the purposes of this motion, the identities of the companies are not relevant. As a result, when I refer to the Vuletics in this decision, I should be taken to mean all of them collectively, including the companies, unless I note otherwise.
[5] 78 Cliffside Drive was suitable for subdivision, and the Vuletics marketed lots in the property to investors over the next few years. The Vuletics sold a number of these lots, and most of the purchasers (whom I will refer to as "lot holders") signed a Lot Purchase Agreement ("LPA").
[6] Between 2002 and 2016, the property was not developed. However, a plan of subdivision was created. The property was sold in 2016 to a company called Brampton G & A. The sale was at a price that was considerably higher than the property was purchased for. As part of the orders I have made in this case, approximately $10 million will be paid into Court from the vendor take-back mortgage that the Vuletics currently hold on the property. All of that money is over and above the amount that was originally paid for the property. The total net change in the value of the property appears to be nearer $15 million.
[7] From 2002 to 2016, the property was owned by one of the Vuletics' companies. In that time period, a number of mortgages were put on the property. The Vuletics assert that these mortgages were necessary in order to fund the development of the property. The various lot-holders take the position that the mortgages were not necessary, and that the funds from the mortgages were improperly used by the Vuletics for personal expenses.
b) The Litigation and the Claims
[8] Litigation in this case commenced in 2017, with a number of lot holders ("the Pichelli Parties") being represented by Mr. Cunningham. Shortly after the litigation was commenced, I was appointed as the case management judge in this matter. As part of the case management process, we determined who the lot holders that were not yet parties to the litigation were and put them on notice of this litigation
[9] The lot holders have divided into four major groups. First, there are the Pichelli Parties. I understand that they claim to have a different LPA than the other parties. Second, there are the Caroti Parties, represented by Ms. Abela. They are the moving parties on this motion. Third, there are some other lot-holder Plaintiffs who are represented by Mr. MacDonald. Finally, there is a group of lot-holders who are Defendants to the Counterclaim only, and who are represented by Mr. Karayannides ("the Biondic parties").
[10] All of the pleadings filed by the parties are somewhat different. For the purposes of this motion, there are a number of features of the pleadings in respect of the Caroti parties that should be highlighted:
a) The Caroti parties claim that, at the time the lots were purchased, the Vuletics represented that they would be "investing significant amounts of money into the" development.
b) As noted above, the Caroti parties allege that the Vuletics improperly used the proceeds of mortgages on the property for their own personal expenses.
c) The Caroti parties allege that the Vuletics made a number of misrepresentations, including that they had a personal investment in the property.
d) The Caroti parties also allege that there were a series of material omissions made by the Vuletics, including that Anthony Vuletic was using monies from the mortgages to finance his personal business interests.
[11] In response to some of these allegations, the Vuletics have asserted that they were entitled to claim a management fee from the property, as well as reasonable expenses for their work on the development of the property.
[12] As part of the case management process, the parties were to prepare a discovery plan, as well as agree upon dates and other steps to be taken. I have been actively involved in that process.
[13] In correspondence leading up to the development of the timetable, both Ms. Abela and Mr. Macdonald requested the production of various documents. They also requested that, if these documents were not provided, then an Affidavit was required to explain why the documents were not being made available. In my endorsement of January 14th, 2020, I made it clear that I would permit a motion to be brought for this pre-discovery disclosure.
[14] Among the documents that Ms. Abela requested were the tax returns and bank records, as well as other documents, from the Vuletics. As far as I understand, the other pre-discovery issues have been dealt with between the parties. However, the tax returns and bank documents remain outstanding.
[15] As part of the timetable I established on January 14th, 2020, this motion was originally scheduled to be heard on April 8th, 2020. However, as a result of the pandemic, Court operations were suspended starting March 16th, 2020. As a result, the motion was adjourned. The discoveries, which were scheduled for May, were also adjourned.
[16] However, the parties had also scheduled a full-day hearing on June 17th, 2020 in order to deal with issues arising from the discovery. Given that the Court had the resources to conduct remote video and audio conference hearings, I determined that the June 17th, 2020 date was to be used for the hearing of the motion on the disclosure issues.
Issues
[17] As I have identified above, the two issues that are to be determined on this motion are:
a) Whether the tax returns and notices of assessment for the Vuletics and their companies should be disclosed for the period from 2002 to 2019?
b) Whether the Vuletics and the companies that they control should be obligated to produce personal bank statements for the period from 2002 to 2019?
[18] I will deal with each of those issues in turn. However, there are three preliminary matters that should be addressed at the outset as they relate to both of the issues that I have to decide
[19] First, the Vuletics argue that the requests for these documents are not proportional to the litigation. I reject that argument for two reasons as follows:
a) As I have noted above, the amounts in dispute are in excess of $10 million dollars. Indeed, they are approximately $15 million. This is not a small dispute. A requirement to produce tax returns, bank statements and other documents in a dispute over these types of amounts is not disproportionate.
b) The issue of proportionality has to be considered in light of the course that this litigation has taken. In that regard, I would point to two facts. First, we are three years into this litigation, and it is still going on. Second, the discoveries in this matter were originally scheduled for almost a month. These facts both suggest that proportionality is less of a concern than it might otherwise be.
[20] Second, there is the time period for which documentation is being sought. In the absence of discoveries having taken place, it is difficult for me to understand why documents should be produced up until 2019 when the property was sold in 2016. Therefore, without prejudice to the ability of the Caroti parties (or indeed any other party) to seek documents for the time period after the end of 2016 at discoveries, I am not persuaded that those documents should be produced before discovery. The production obligations at this stage are limited to the period from January 1st, 2002 to December 31st, 2016.
[21] Third, there is the issue of the expert report that Ms. Abela has provided. The alleged expert, Mr. Errol D. Soriano, has provided an Affidavit stating that he requires the bank statements and the tax returns in order to properly formulate his opinions. As a result of Mr. Soriano's assertions, Ms. Abela directs my attention to the decision in Air Canada v. WestJet Airlines Ltd. ((2006) 29 C.P.C. (6th) 209).
[22] In that decision, Nordhemier J. (as he then was) observed (at para. 17) that "it does not lie within the purview of Air Canada to decided what information WestJet's experts do or do not need." I accept that statement of the law and acknowledge that the expert's statements (and the reasons for them) require careful consideration. However, I note that Nordheimer J. went on to consider whether the documents sought by the expert were relevant to the case before him. I must engage in the same analysis, and I will now turn to the two categories of documents in dispute.
Issue #1- The Tax Returns
[23] In his argument, Mr. Adair advanced a "broad" reason as to why all of the documents being sought by the Caroti parties should not be produced. This argument focused on the Vuletics' claim that the lot-holders are residual beneficiaries and that what the Vuletics put into the property, or took out of it, is irrelevant.
[24] The problem with this argument is that it assumes the Vuletics will be successful in this argument at trial. However, as I read the pleadings of all of the lot-holders, they appear to take a different view. Certainly, the Caroti parties argue fraud and unjust enrichment and the associated remedies. In the circumstances, it is possible that the lot-holders will be able to claim more than the money owing on the mortgage that is to be paid into Court, and that these claims will be based on the misrepresentations allegedly made by the Vuletics. I hasten to add that I make no finding on the strength of that argument.
[25] I must consider the production request in light of the relatively broad claim made by the Caroti parties. The pleadings (and the motion record before me) disclose that there are issues between the parties over whether the Vuletics made contributions to the property and, if they did, whether those contributions came from the earnings of the Vuletics or whether they were simply "flow through" payments. What I mean by "flow through" payments is that there appears to be a question of whether the Vuletics received payments out of the mortgage proceeds and then put that money straight back into the property.
[26] I would add that it is quite possible that the Vuletics earned this money from their work on developing the property. However, that is not a question for me to determine. That is a matter for the trial judge. However, based on the pleadings and the factual assertions that have been advanced, it is open to the Caroti parties to argue as follows:
a) The fees claimed by the Vuletics were improper and excessive.
b) The fees being claimed by the Vuletics in this action were never claimed as income by them or their companies and, as a result, they are not proper fees.
c) The only income put back into the property by the Vuletics were improper fees that they had received from the management of the property.
[27] I make no finding as to whether any of these claims can be substantiated. However, the fact that they are being advanced when combined with the underlying facts of this litigation suggest that the Caroti parties should be entitled to know what sources of income and funds the Vuletics had. The tax returns are, prima facie, relevant to the questions raised by the Caroti parties. These returns will show the sources of the Vuletics income, which will shed light on the merits of the Caroti parties claims in paragraph 10, above.
[28] This brings me to the larger question of whether the Vuletics personal tax returns would be sufficient to address the disclosure obligations. In my view, they would not be. Where there are a number of corporations controlled by one person or one family, income could very well be kept in one of those companies by the family, or moved around from company to company. I infer no improper intent from any such transactions. I simply observe that the transactions may have taken place, and that the Caroti parties are entitled to consider them.
[29] For the foregoing reasons, the tax returns and notices of assessment from the Vuletics personally and from their companies are to be produced.
Issue #2- The Bank Statements
[30] This brings me to the bank statements that are being sought by the Caroti parties. I acknowledge that there are two key arguments as to why this documentation should not be produced, as follows:
a) There is arguably both more work involved in producing the bank statements and, potentially, less relevant evidence might be found if they are produced than would be obtained from the tax returns. This is an argument of proportionality. As I have indicated above, however, proportionality is a less significant consideration in this case than it might otherwise be.
b) The production of bank statements for the entire period is going to produce some information that is more likely than not irrelevant. While that is true, it is also clear from the pleadings, Mr. Soriano's Affidavit (see paragraphs 22 to 24 in particular) and the other material filed that there will be relevant documents in these materials. A summary of the transactions is not sufficient. The Caroti parties are entitled to the documents behind the transactions.
[31] I am concerned by the fact that that the production request is potentially broad and very onerous. However, I have to balance that concern against the fact that adopting this process may make it more likely that there will be questions and issues arising out of discovery as well as the fact that at least some of the documents are going to be relevant.
[32] The Vuletics have alleged that they have made significant personal contributions to the property. Further, Mr. Soriano's Affidavit makes it clear that there was an intermingling of funds between the accounts of Embleton and the Vuletics. Given these facts, the production of the bank statements appears to me to be necessary for the consideration of the positions advanced by both parties. In other words, the Caroti parties are entitled to review the underlying documentation and test the assertions of the Vuletics.
[33] As a result, I am ordering the production of the bank statements for the Vuletics and the companies that they controlled from the period of January 1, 2002 to December 31, 2016 to the extent that these documents are available.
Conclusion and Costs
[34] For the foregoing reasons, I am ordering as follows:
a) The tax returns and notices of assessments for the Vuletics and their companies for the period from January 1, 2002 to December 31, 2016 are to be produced, if available.
b) The bank statements for the Vuletics and their companies for the period from January 1, 2002 to December 31, 2016 are to be produced if available.
c) If the bank statements, tax returns and/or notices of assessment are not available, an Affidavit is required outlining the steps taken to obtain the documents as well as the reasons why the documents are not available.
[35] Finally, there is the subject of costs. The parties are encouraged to agree on the costs of this motion. Failing agreement, costs submissions are due from both sides fourteen (14) days from the release of these reasons. Those submissions are to be no longer than two (2) single-space pages, exclusive of bills of costs, case-law and offers to settle. Counsel are expected to submit their bills of costs before reviewing the bill of costs provided by the other side.
[36] Any reply submissions are due seven (7) calendar days thereafter. Those submissions are to be no more than one (1) single-spaced page, exclusive of case-law.
[37] The time for the submission of costs may not be extended, even on consent, without my leave. If costs submissions are not received within the time frames set out above, then there will be no costs.
[38] As a final matter, there are a number of follow-up steps that need to be completed in this case, and a further case conference is advisable. Counsel are to advise as to their availability for a 9:00 conference (by ZOOM) the weeks of September 8th and 15th, 2020 by Friday August 28th, 2020. My judicial assistant will then advise counsel of a convenient date.
LEMAY J
Released: August 26, 2020
COURT FILE NO.: CV-17-5302-00
DATE: 2020 08 26
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Alearano Caroti, Jacinta Caroti, Ian Grounds, Moraig Grounds, Nancy Kostelac, Brain McDowell, Biljana Nizalek, Marielle Pelchat-Morris, Wilma Jesus, Monica Savona, Milena Boland, Frand Demaria, Jurica Biondic, Renato Biondic, Roberta Biondic and Boris Klecina by his Litigation Guardian Mike Klecina
Plaintiffs
- and -
Ante Kegalj, Anthony Vuletic, John Vuletic, Mira Vuletic, Embleton Properties Corp., 1857325 Ontario Ltd. and Bramption G&A Holdings Inc.
Defendants
-and between-
Anthony Vuletic, John Vuletic, Mira Vuletic, Embleton Properties Corp. and 1857325 Ontario Ltd.
Plaintiffs by counterclaim
Aleardo Caroti, Jacinta Caroti, Ian Grounds, Moraig Grounds, Nancy Kostelac, Brain McDowell, Biljana Nizalek, Marielle Pelchat-Morris, Wilma Jesus, Monica Savona, Milena Boland, Frand Demaria, Jurica Biondic, Renato Biondic, Roberta Biondic, Boris Klecina by his Litigation Guardian Mike Klecina, Anna Bilich, Emma Faria, Katarina Granic, Anton Granic, Marianne Martinovic, Frank Samardzic and Robert Sokic
Defendants
REASONS FOR JUDGMENT
LEMAY J
Released: August 26, 2020