COURT FILE NO.: CV-18-2350-00
DATE: 20201116
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: STEVEN SAROLI v. CAN ART ALUMINUM EXTRUSION L.P.
BEFORE: Mandhane J.
COUNSEL: Daniel Camenzuli, for the Plaintiff/Moving Party Irfam Kara, for the Defendant/Responding Party
HEARD: November 13, 2020
E N D O R S E M E N T
[1] This The Plaintiff brings a motion for:
(a) an order that the Defendant produce certain financial statements; and
(b) an order allowing the Plaintiff to amend his Statement of Claim to plead that he entitled to the balance of his commission for fiscal 2016.
[2] For reasons that follow, I grant the Plaintiff’s motion.
FACTS
[3] The Plaintiff was employed by the Defendant for 12 years. From 2015 onwards, part of his compensation included a commission. Under his Employment Agreement, he was to receive 10% of the pre-tax profits earned at the Gana Plant on an annual basis (“Commission.”) The parties dispute whether this aspect of compensation is a properly considered income or a discretionary bonus.
[4] The Defendant’s ownership changed in 2016. At some point after that, the Plaintiff was no longer able to access to the company’s financial records.
[5] In early 2017, the Defendant paid the Plaintiff $75,000. The Plaintiff says that he understood this to be his Commission (i.e. 10% of the pre-tax profits earned at the Gana Plant in 2016).
[6] The Plaintiff left his employment in April 2018 and began working for a competitor.
THE PROCEEDINGS
[7] The Plaintiff’s Statement of Claim was issued on June 5, 2018—within 2 months of his claim materializing and well within the applicable limitation period.
[8] The Plaintiff claims that he was constructively dismissed when the Defendant unilaterally altered his compensation by reducing the amount of his Commission to something less than 10%. The Plaintiff argues that he was paid significantly less in 2017 than he was paid in 2016 or 2015.
[9] The Plaintiff claims damages for unilateral reduction of his Commission in 2017, and non-payment of his Commission from January-April 2018.
[10] The Defendant’s Statement of Defence was issued on or about July 23, 2018. The Defendant denies that the Plaintiff was owed a Commission or, in the alternative, denies that there was any substantial reduction in the Plaintiff’s compensation at any time.
[11] The parties exchanged unsworn Affidavits of Documents in or about late 2018.
[12] The Plaintiff was examined for discovery on April 26, 2019, and the Defendant’s representative was examined on May 23, 2019.
[13] At its examination for discovery, the Defendant took it under advisement to produce monthly/year end financial statements that would reflect its 2017 pre-tax profits.
[14] The parties exchanged their Answers to Undertakings, Under Advisements, and Refusals on December 23, 2019.
[15] The Defendant’s Answers included a manually-created, unaudited financial spreadsheet for 2017 (“2017 Spreadsheet”).
[16] Based on his years at the company, the Plaintiff disputed the numbers provided in the 2017 Spreadsheet. On January 8, 2020, the Plaintiff sent a letter to the Defendant advising that the 2017 Spreadsheet was incorrect and that it did not include sufficient information to calculate the Gana’s Plant’s pre-tax profit (which was the basis for calculation of the 10% Commission). The Plaintiff requested an accurate/audited financial statement.
[17] On January 24, 2020, the Defendant responded and explained that the problems with the 2017 Spreadsheet were due to an “administrative error.” The Defendant then produced a revised unaudited 2017 financial statement for the Gana Plant (“2017 Revised Statement”).
[18] The parties participated in mediation on June 30, 2020. It was during the mediation that the Plaintiff first realized that the Defendant characterized its 2016 payment to him as a discretionary bonus rather than a Commission.
[19] I accept the Plaintiff’s uncontroverted evidence that this is when he first realized that he might also have a claim for a portion of his 2016 Commission as well. However, without the complete 2016 audited financial statements, he could not be certain that he was underpaid.
[20] After the mediation, counsel also realized that he had inadvertently failed to request 2018 audited financial statements from the Defendant.
[21] In July 2020, the Plaintiff sent a letter to the Defendant requesting production of the Gana Plant’s 2016, 2017 and 2018 audited financial documents. He followed up on his request with letters dated July 7 and 15, 2020.
[22] On July 22, 2020, the Defendant sent the Plaintiff unaudited pre-tax profit numbers for 2016, 2017 and 2018, stating “my client undertakes that these numbers are accurate and consistent with Can Art’s financial statements.” (“Unaudited Pre-Tax Profits”)
[23] On July 23, 2020, the Plaintiff wrote the Defendant and challenged the accuracy of Unaudited Pre-Tax Profits, based on various information he had received from third parties and the fact that the numbers inexplicably showed the Gana Plant suffering a loss in 2016 (when he was still an employee).
[24] On August 20, 2020, the Defendant sent the Plaintiff an “Auditor’s Letter” from KPMG that included financial information that the Defendant argues substantially responds to the Plaintiff’s request for financial statements (“Auditor’s Letter”).
[25] While the Auditor’s Letter includes amounts for the pre-tax income of the Gana Plant for 2016, 2017, 2018, I note that:
(a) It does not include amounts on a monthly basis;
(b) It contains numbers different from those contained in the Defendant’s Unaudited Pre-Tax Profits; and
(c) It does not include any supporting document that would allow that Plaintiff to “re-create” its calculations.
[26] More notably, when compared to the numbers in the Unaudited Pre-Tax Profits, the Auditor’s Letter would support the Plaintiff’s claim that he was not paid his full Commission in 2016.
[27] From July through September 2020, The Defendant continued to refuse to produce the audited financial statements and, in a letter dated August 20, 2020, stated “Entire financial statements contain sensitive business and commercial information that our client understandably does not want to disclose to your client who has worked for direct competitors since his resignation.”
ANALYSIS
Amendment of pleadings
[28] Under Rule 26, the Court “shall grant leave to amend a pleading on such terms as are just unless prejudice would result that could not be compensated for by costs or an adjournment.”
[29] The Defendant relies on Frohlick v. Pinkerton, 2008 ONCA 3, wherein the Court of Appeal for Ontario noted that, “Where a limitation period has passed, there will be a presumption of prejudice that cannot be compensated for by costs or an adjournment.”
[30] In this case, the limitation period has not passed. I rely on my finding of fact that the Plaintiff only discovered his potential claim related to his 2016 Commission in June 2020 at the mediation.
[31] Any prejudice that would flow to the Defendant from allowing the Plaintiff to amend his pleadings at this stage is minimal. The underlying legal basis for the claim has not changed. Moreover, the amended claim is for liquidated damages that are easily ascertained by reference to the audited annual financial statements, which the Defendant currently has in its exclusive possession.
[32] To the extent that there is any prejudice, it is remedied by granting the Defendants leave to amend their Statement of Defence, and to conduct discoveries on the new aspects of the claim.
Production of audited financial statements for 2016, 2017, 2018
[33] The parties agree that the Plaintiff’s main issue in this action relates to his Commission. Given that his Commission was pegged to the pre-tax income of the Defendant, the financial statements go to the heart of his claim. They are relevant.
[34] I do not accept the Defendant’s argument that the Plaintiff should rely exclusively on the Auditor’s Letter to quantify his damages. The Auditor’s Letter is deficient because it does not provide sufficient information to allow the Plaintiff to calculate his Commission on a month-by-month basis for January-April 2018.
[35] Moreover, it is understandable that the Plaintiff would be concerned about the reliability of the Defendant’s statements regarding its pre-tax income. The Defendant admits that the numbers it provided to the Plaintiff changed substantially between once audited.
[36] In this context, it is not reasonable to expect the Plaintiff to simply accept that the changing numbers are due to a different accounting practices without an opportunity to review the primary source documentation on which the Auditor’s Letter is based.
[37] The Defendant’s concern that sensitive information contained in the financial statement will wind up in the hands of a competition can be addressed with appropriate conditions requiring counsel to keep the contents confidential.
RESULT
[38] The Plaintiff’s motion is granted.
[39] The Plaintiff shall be permitted to amend his Statement of Claim to plead an entitlement to the balance of his Commission for fiscal 2016.
[40] By December 15, 2020, the Defendant shall produce audited monthly and annual financial statements for the Gana Plant for the following time periods:
(a) December 2016;
(b) January-December 2017; and
(c) January-April 2018.
[41] The Plaintiff shall not disclose the contents of the audited financial statements to his client except as they relate to calculation of the potential Commission owing.
[42] The Plaintiff shall not seek further production beyond that which is ordered in para. 40 above, and shall not conduct further examinations for discovery in relation to the amended claim.
[43] The Defendant shall be granted leave to conduct further discoveries on the new aspect of the claim only, and at its own cost.
COSTS
[44] Both parties seek costs on a substantial indemnity basis and submitted their Bills of Costs.
[45] I am satisfied that the matter was sufficiently complicated to warrant substantial indemnity costs. Moreover, I find that the Defendant’s refusal and/or inability to produce accurate and reliable financial statements added to the overall complexity.
[46] The Defendant shall pay the Plaintiff costs on a substantial indemnity basis in the amount of $16,800, including all fees, disbursements and HST.
Mandhane J.
DATE: November 16, 2020
COURT FILE NO.: CV-18-2350-00
DATE: 20201116
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: STEVEN SAROLI v. CAN ART ALUMINUM EXTRUSION L.P.
COUNSEL: Daniel Camenzuli, for the Plaintiff/Moving Party Irfam Kara, for the Defendant/Responding Party
ENDORSEMENT
Mandhane J.
DATE: November 16, 2020