Waxman v. Waxman, 2021 ONSC 2180

COURT FILE NO.: 07-CL-6901

DATE: 20210323

ONTARIO

SUPERIOR COURT OF JUSTICE

(COMNMERCIAL LIST)

BETWEEN:

MORRIS WAXMAN AS ASSIGNEE OF THE ESTATE OF I. WAXMAN & SONS LIMITED, MORRIS WAXMAN and SOLID WASTE RECLAMATION INC.

Plaintiffs

– and –

CHESTER WAXMAN, WARREN WAXMAN, SHELDON KUMER, DYNAMIC METAL TRADING INC., WAYNE LINTON, AARON WAXMAN, WAXMAN INDUSTRIAL SERVICES CORP., WAXMAN REALTY COMPANY INC., SCRAPCARES CORPORATION, c.o.b. as SCRAP CARES, ELKO INDUSTRIAL TRADING CORP. and AHMED (ALBERT) SAMEE

Defendants

Richard Swan, Gideon Forrest for the plaintiffs

Gordon Capern, Jean-Claude Killey, Hailey Bruckner, for the defendants Elko Industrial Trading Corp and Ahmed Samee

HEARD: November 12, December 9, 2020 (orally) with supplementary written submissions on March 12, 13 and 14, 2021

Koehnen j.

OVERVIEW

[1] There are three motions before me. All arise out of two judgments of approximately $10,000,000 each that the plaintiff Morris Waxman obtained against his brother Chester and the family company, I. Waxman & Sons Limited (“IWS”) and others. After obtaining judgment, Chester entered into a scheme with his son Warren, grandson Aaron and brother-in-law Sheldon Kumer to direct business away from IWS and towards a company started by his grandson Aaron known as Waxman Industrial Services Corp. (“WIS”). This was done to deprive Morris of the benefit of the judgment against Chester and IWS.

[2] The plaintiffs allege that the defendants Elko Industrial Trading Corp. and its principal, Ahmed (Albert) Samee were part of that scheme and are liable for their participation under the principles of knowing receipt and knowing assistance.

[3] For ease of reference, I will refer to all parties by their first names as counsel did in their factums and in argument. Any reference in these reasons to Elko also refers to Albert. In certain cases, I will refer to Albert specifically, especially when taking about his evidence or knowledge.

[4] The first motion is one by the plaintiffs for summary judgment against Elko in the amount of $5 million for knowing receipt and knowing assistance.

[5] The second motion is one by Elko to stay the action against it based on the principles set out by the Court of Appeal in Handley Estate v. DTE Industries Limited.[^1] Handley and the cases following it reaffirm the principle that any agreement that materially changes the relationship between the parties to an action from what one might expect, must be disclosed as soon as it is entered into failing which the action can be stayed.

[6] Elko submits that the plaintiffs entered into settlement agreements with the defendants Chester, Sheldon and Aaron in exchange for evidence that the plaintiffs could use against Elko. Those agreements were not disclosed to Elko until four years later.

[7] The third motion involves a request by Elko that summary judgment be awarded in its favour against the plaintiffs. Elko makes this request without having served its own notice of motion for summary judgment.

[8] For the reasons set out below, I dismiss the plaintiffs’ summary judgment motion and grant summary judgment in favour of Elko against the plaintiffs. In the alternative, I would permanently stay the action against Elko.

[9] The evidence in the record before me does not demonstrate that Elko had the requisite knowledge to be liable for knowing receipt or knowing assistance. The plaintiffs agreed that it was open for me to award summary judgment in Elko’s favour if I were satisfied that no further evidence would be available at trial. The plaintiffs have not suggested that they would have any additional evidence at trial that is not before me today.

[10] In the alternative to the foregoing, I would stay the action permanently against Elko. The plaintiffs entered into an agreement with Warren, Sheldon and Aaron that changed the relationship of adversity that one would otherwise expect to exist between them. Those are agreements of the sort that must be disclosed as soon as the agreement is reached. Here, the fact of the agreement was not disclosed until 3 ½ years after it was entered into. The agreements themselves were not disclosed until over 4 years after they were entered into.

[11] Given that the facts related to the stay motion are relevant to the summary judgment motion, I will address the stay issue first.

I. The Stay Motion

A. The Facts

[12] After judgment was rendered against Chester, it appears that he and other family members devised a scheme to dissipate business away from IWS thereby decreasing its value and in turn decreasing the value of the judgment Morris had obtained against Chester because the judgment awarded Morris one half of IWS.

[13] The scheme involved having Chester’s grandson Aaron start his own business under the name Waxman Industrial Services (“WIS”) and having suppliers stop selling to IWS but sell to WIS instead.

[14] Elko was a scrap and metals trader which had, in the past, been a competitor of, customer of and supplier to IWS.

[15] During his lifetime, Albert was the sole owner and operator of Elko. Elko is now owned by Albert’s widow and is run by her and her two sons.

[16] In this action, the plaintiffs allege that Elko participated in the scheme to such a degree that it should be held liable under the principles of knowing receipt and knowing assistance.

[17] The plaintiffs allege that Albert lent Aaron money to start his business and frequently served as an intermediary for sales to IWS. According to the plaintiffs, the impugned transactions were ones in which former suppliers to IWS would now sell to WIS who would sell onwards to IWS. Chester and the other plaintiffs feared that if the court-appointed Monitor learned that WIS was selling to IWS, it would be seen as an attempt to undermine Morris’ judgment. To avoid that allegation, the plaintiffs allege that Elko was interposed as an intermediary between WIS and IWS so that it looked like IWS was purchasing scrap from Elko.

[18] The plaintiffs began this action against the Waxman defendants in March 2007. They amended the claim to join Elko in May, 2012.

[19] After Elko’s discoveries were completed in early 2015, the action appears to have gone dormant. Elko heard nothing from the plaintiffs until November 2018 – when the plaintiffs provided Elko with a draft Notice of Motion for summary judgment. The draft Notice of Motion referred to settlements that the plaintiffs had reached with Warren, Sheldon, and Aaron. The settlements came as news to Elko who had not previously been advised of them.

[20] The terms of the settlements were as follows:

(a) Warren and Sheldon each paid $1,000,000 to the plaintiffs. Aaron paid $900,000. In exchange, Warren, Sheldon and Aaron were released from any claims under a judgment of approximately $10.5 million and Warren was released from a second judgment of approximately $10 million against him.

(b) Warren and Sheldon agreed to provide evidence to the plaintiffs by way of affidavits and cross-examinations about the substantive issues in the action which the plaintiffs could use in pursuit of their claims against Elko.

(c) Although Aaron’s settlement agreement did not, on its face, require evidence, he was nevertheless cross-examined as part of the settlement.

(d) Each of the settling defendants would provide an affidavit containing a statement of assets and would subject themselves to an examination in aid of execution in respect of that affidavit.

(e) The agreements also allowed the plaintiffs to withdraw unilaterally from the settlement if they were not satisfied with the sufficiency of the evidence that Warren, Sheldon or Aaron provided about the substantive merits of the claim or their assets.

[21] The settlements proceeded as follows:

(a) Sheldon’s settlement letter is dated March 20, 2015. He swore an affidavit on April 20, 2015.

(b) Warren’s settlement letter is dated May 20, 2015. He swore an affidavit on September 16, 2015 and was cross-examined on June 27, 2016.

(c) Aaron’s settlement letter is dated April 6, 2015. He was cross-examined on May 29, 2017.

[22] Each of Sheldon Warren and Aaron accepted the terms of settlement shortly after receiving their respective settlement letters. The plaintiffs say that acceptance by the settling defendant led to a conditional settlement which the plaintiffs did not accept with Aaron until December 2017, with Warren until January 2018 and with Sheldon until June 1, 2018.

[23] Elko was unaware that settlements had been reached until November 2018 and was unaware of the affidavits or transcripts until April 2019 when the plaintiffs served Elko with electronic copies of both. The plaintiffs rely on these affidavits and transcripts in support of their summary judgment motion.

[24] The plaintiffs did not give Elko actual copies of the settlement agreements until December 20, 2019.

[25] Elko submits that the action should be stayed because the plaintiffs did not disclose the settlements to them when they were entered into.

B. Analysis

[26] The core principles governing situations like this were most recently set out by the Court of Appeal in Handley Estate v. DTE Industries Limited[^2] where the Court reaffirmed the following principles:

(i) There is an obligation to disclose immediately upon their completion any agreement between or amongst parties to a lawsuit that has the effect of changing the adversarial position of the parties set out in their pleadings into a co-operative one.[^3]

(ii) The absence of prejudice does not excuse late disclosure.[^4]

(iii) Failure to comply amounts to an abuse of process that must result in consequences of the most serious nature.[^5]

(iv) The only remedy to address the abuse of process is to stay the claim because it is only by imposing the most serious consequences on the defaulting party that the court is able to enforce and control its own process and ensure justice is done between the parties.[^6]

[27] Although the remedy of a stay may be severe, the court noted that if a party to an agreement is unclear about whether disclosure is required, it can move for directions.[^7]

[28] The first question to ask is whether the settlement here was the sort that required immediate disclosure. In my view it did.

[29] What must be disclosed are agreements that alter the relationship among the parties from those set out in the pleadings.[^8] The agreements at issue here does so. The settlement clearly changed the relationship between the plaintiffs and the settling defendants from parties adverse in interest to parties who were cooperating. That cooperation extended to providing affidavits and subjecting themselves to cross examinations.

[30] The plaintiffs submit that imposing this result on them would be unfair because the settlements were subject to a true condition precedent and were not satisfied until the true condition precedent was met.

[31] In the well-known case of Turney v. Zhilka[^9] the Supreme Court of Canada defined a true condition precedent as one that depends “upon a future uncertain event, the happening of which depends entirely on the will of a third party…”

[32] Here, the right of the plaintiff to abrogate the settlement because of its dissatisfaction with the evidence of the settling defendant or their statement of assets, is not a true condition precedent. It depends entirely on the discretion of the plaintiff.

[33] Indeed, in the first instance decision in Handley, the motions judge noted that the agreement ought to have been disclosed even though it was conditional upon the settling party cooperating with the plaintiff.[^10]

[34] Here, the plaintiffs provided no substantive explanation for the significant gap between the time the settling defendants accepted the settlement and the time the plaintiffs say they accepted the settlement. All the plaintiffs’ materials disclose is that “there were significant issues” with Warren’s and Sheldon’s asset disclosure. The plaintiffs do not explain why the settlement with Aaron took from April 6, 2015 to December 2017 to complete. The plaintiffs do not explain what the issues were with Warren’s asset disclosure and why it took between May 20, 2015 and January 2018 to work out those issues. With respect to Sheldon, it appears that his settlement was increased from $300,000 to $1,000,000 as a result of concerns about his asset disclosure but there is still no explanation for why it took between March 20, 2015 and June 1, 2018 to work those issues out.

[35] As Myers J. noted in Tallman Truck Centre Limited v. K. S. P. Holdings Inc.,[^11] one can see the risk of counsel deferring finalizing a form of agreement to delay the disclosure obligation.

[36] More importantly, however, as Myers J. noted in Tallman when dealing with somewhat analogous circumstances, a settling defendant ceases to become adverse in interest from the moment he accepts the settlement offer.[^12] After that point, the ability of the settling party to obtain the benefit of the settlement becomes subject to the plaintiffs’ satisfaction with a settling party’s cooperation. That does not maintain adversity of interest. If anything, it gives the settling defendant an incentive to cooperate with the plaintiffs. So it was with the settling defendants here. During the time period in which the settlement was supposedly conditional, the settling defendants were not adverse in interest to the plaintiffs. If anything, they had an interest in cooperating with the plaintiffs to ensure that their liability would be capped at a fraction of the judgments against them.

[37] Although Handley makes clear that courts will not require prejudice in order to stay a proceeding for failure to disclose an agreement that changes the adversarial nature of the parties, this case clearly demonstrates the nature of the prejudice that can arise by failing to disclose.

[38] As noted, the settling defendants accepted the terms of the settlement in the first half of 2015. Elko was not advised of the settlements until November 2018. Albert died in August 2017. He was the only one with knowledge of Elko’s business. The failure to advise Albert of the settlements in a timely manner deprived him of the ability to meaningfully defend himself against the allegations contained in the affidavits and cross-examination transcripts made in furtherance of the settlement.

[39] Those affidavits and transcripts demonstrate a further difficulty with the plaintiffs’ submission about adversity of interest. On the one hand, the plaintiffs deny that there was a settlement because whatever agreement had been reached was only conditional. At the same time, however, the plaintiffs obtained affidavits from the settling defendants and cross examined on the affidavits without providing copies of the affidavits to Elko or notifying Elko of the cross examinations. As a general rule, parties to a lawsuit must produce affidavits intended to be used in the lawsuit to all parties. Similarly, all parties are entitled to notice of cross examinations. Parties are not generally entitled to run a private process on the side that includes some but excludes others.[^13]

[40] That, however, is exactly what occurred here. Plaintiffs’ counsel drafted affidavits for the settling defendants and cross-examined on those affidavits at a time when the plaintiffs maintain there was no settlement. If that is the case, however, they should have provided Elko with copies of the affidavits and notice of the cross examinations. Even though Elko was given no notice of those cross examinations, the plaintiffs now seek to use them against Elko on the summary judgment motion.

[41] It is no answer to say that Elko can cross-examine the settling defendants now. That situation creates an inherent inequality between the parties. The plaintiffs were able to cross-examine several years ago when events were fresher in the minds of the parties. Elko would be left to cross-examine when events are more distant. If Elko had the chance to cross-examine the settling defendant at the time, counsel would have had the benefit of Albert’s information and instruction. In addition, that cross-examination would have occurred at the same time as the settling defendants were giving the evidence in question. Any cross-examination now would be one in respect of which the settling defendants have had years to consider their answers to any frailties in the evidence they gave.

[42] In light of Albert’s intervening death, Elko has been put to significant prejudice.

[43] Providing timely notice of agreements that change the litigation landscape is important for a number of reasons, including the following:

(i) Timely disclosure enables the remaining defendants to decide whether to bring a cross-claim against the settling defendants.

(ii) Timely disclosure enables the remaining defendants to bring motions for production from the settling defendants.[^14]

(iii) Timely disclosure enables the remaining defendants to determine whether to examine the settling defendants for discovery or otherwise access and memorialize their evidence.

(iv) Timely disclosure allows the remaining defendants to assess whether the arrangement affects their strategy, line of cross-examination and evidence to be led by them.[^15]

(v) The court must be aware of the precise adversarial orientation of the parties in order to maintain the integrity of its own process.[^16] A court cannot make orders that govern the litigation effectively unless it is aware of the specific adversarial orientation of the parties.

[44] The seriousness which courts have treated the obligation to disclose is demonstrated by the Court of Appeal’s decision in Aecon v. Stephenson Engineering Limited[^17] where the court stayed a claim for failure to make timely disclosure of an agreement even though the agreement was disclosed before the party affected was required to deliver its pleading. The Court of Appeal described the obligation to disclose as clear and unequivocal and noted that its breach constituted an abuse of process. Only by imposing a stay is the court able to control and enforce its own process to ensure that justice is done.[^18]

[45] The plaintiffs rely on Tribecca Finance Corp. v. Harrison[^19] for the proposition that the rule is not as absolute as my reading of Aecon suggests. In Tribecca, the plaintiff had extended a mortgage to, among others, the defendant Mrs. Downard. After default on the mortgage, Tribecca sued. In response, Mrs. Downard joined the principal of Tribecca as a third party based on an alleged representation that he had made to the effect that she would not be personally liable on the mortgage. She also joined her lawyer as another third party for failing to advise her that the mortgage documentation made her personally liable for any default. Mrs. Downard settled the action with Tribecca but continued the third party claim against her lawyer. Her lawyer had been advised of the settlement with Tribecca. Through inadvertence, the parties did not expressly include the principal of Tribecca within the settlement. Shortly before the third party lawyer’s discovery, this omission was noticed and the lawyer was advised that the claim had been settled against the principal of Tribecca as well. The third party lawyer moved to stay the action. The court rejected the request.

[46] Tribecca is distinguishable. In that case, the third party lawyer knew of the settlement between Tribecca and the defendants. The court noted that the failure to dismiss the claim against the third party principal was inadvertent. It would certainly be unusual for a defendant to settle a claim with a private corporation but continue the claim against its principal. That omission did not mislead the third party lawyer about the true state of affairs.

[47] The language Perell J. used to describe the situation before him in Poirier v. Logan[^20] is particularly apt here:

Mr. Friedberg was not a fringe player either as a party or as a potential witness to the events that are the source of Mr. Poirier’s action against him, Mr. Logan, Ms. Goldstein, and Buchli Goldstein LLP. His role was fundamental before the litigation and within the litigation. Mr. Friedberg’s co-operation and his delivery of an affidavit was not the same thing as being an innocent witness who provides a witness statement. He was a potentially culpable party who was being let out of the main action. Whether he was going to stand common cause with his co-defendants or to turn on them to divert or diffuse or escape blame in the crossclaims was not a small matter in the litigation landscape and the earth moved when he settled with the plaintiff while not settling with the crossclaiming co-defendants.

[48] Similarly here, the settling defendants were not fringe players or innocent witnesses providing witness statements. On their own evidence, they were the primarily culpable parties and were now being let out of the litigation. The settling defendants knew that they were entering into a scheme to deprive Morris of the benefit of the judgment. There is, at a minimum, an issue about whether Elko was aware of that.

[49] There is no doubt that the settlement here would have had a material impact on the litigation strategy employed by Elko going forward. At a minimum it might have considered a cross-claim against the settling defendants, sought the right to examine them for discovery and sought documentary production from them. While those rights might still be available to them, the failure to disclose information before Albert’s death has seriously impaired Elko’s ability to defend itself

[50] At a minimum, the fact of a conditional settlement should have been disclosed. That would have put Albert on alert and would have allowed him to take steps to protect himself including bringing cross-claims against the settling defendants, obtaining orders for preservation of documents and insisting on the right of discovery against the settling defendants then and there.

[51] Given that the risk to Elko was created entirely by the plaintiffs, they should bear the burden of that risk. As Perell J. recently noted in Poirier,[^21] it is better to be safe than sorry. The risks of intentionally or unintentionally keeping a settlement agreement secret are far too great. Had the plaintiffs disclosed the settlement and had Elko taken no steps in response, Elko would have been the author of its own misfortune and the risk would have been for it to bear.

[52] The plaintiffs’ arguments really focus on parsing or slicing and dicing the Handley principle to avoid its overriding principle. I can understand why a party would do that. It presumably wishes to safeguard some strategic or tactical benefit for itself which the simple application of the Handley principle would not allow. The court’s concern is not, however, with safeguarding tactical benefits for litigants. Its concern is with procedural fairness, transparency and a level playing field. In cases of doubt, that would almost always tend towards disclosure.

[53] As Myers J noted recently in Tallman Truck Centre Limited v. K. S. P. Holdings Inc.,[^22]:

The rules really cannot be any clearer. Where an agreement involves a party switching sides from its pleaded position, it must be disclosed as soon as it is made.

II. Summary Judgment

[54] The plaintiffs move for summary judgment against Elko. The plaintiffs say that the participation of Elko in the scheme to divert business from IWS to WIS amounted to knowing receipt or knowing assistance.

[55] Although Elko did not bring a motion for summary judgment, it asks that summary judgment be granted in its favour. Elko points out that it can produce no further evidence because Albert has died. It also notes that the plaintiffs were obligated to put their best foot forward on the motion for summary judgment as a result of which the court is entitled to assume that no further evidence will be available at trial than is before the court now.

[56] In oral argument, Mr. Forrest, on behalf of the plaintiffs agreed that it was permissible for me to award summary judgment in favour of Elko if I were persuaded that there would not be sufficient evidence at trial to find Elko liable.

A. The Test for Summary Judgment

[57] The test for summary judgment is not in dispute. The rules provide that the court shall grant summary judgment if “the court is satisfied that there is no genuine issue” that requires a trial.[^23] Put another way, I must grant summary judgment unless a trial is required.

[58] There is no genuine issue that requires a trial if the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. “This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.”[^24]

[59] In determining whether a trial is required, rule 20.04(2.1) allows the court to weigh evidence, evaluate credibility and draw any reasonable inference from the evidence, unless it is “in the interest of justice for such power to be exercised only at a trial”. If these expanded fact-finding powers do not enable me to decide the matter, I may direct that a mini-trial be conducted if doing so will allow me to resolve the matter.[^25]

[60] It is well-established that on a motion for summary judgment: (a) each party must put its best foot forward; (b) the responding party “must lead trump or risk losing”; and (c) the motion judge is entitled to assume that all evidence that might be adduced by the respondent at trial has been adduced on the motion.[^26]

B. The Test for Knowing Receipt and Knowing Assistance

[61] A defendant is liable for knowing receipt where it receives property from a fiduciary that was obtained in breach of a fiduciary duty. Liability is based on the receipt of the property itself and at least constructive knowledge by the defendant that the property came from a breach of fiduciary duty.[^27] The defendant does not have to be a fiduciary itself and need not owe any duty to the beneficiaries. The knowledge requirement is satisfied if the defendant had knowledge of facts sufficient to put a reasonable person on notice or inquiry.[^28]

[62] A plea of knowing assistance allows a plaintiff to recover from a defendant who is not in a fiduciary relationship with the plaintiff if:

(a) There is a fiduciary relationship between the plaintiff and another.

(b) The fiduciary has breached that duty fraudulently or dishonestly.

(c) The stranger to the fiduciary relationship has actual knowledge of both the fiduciary relationship and the fiduciary's fraudulent or dishonest conduct. “Actual knowledge” includes wilful blindness and recklessness.[^29]

(d) The stranger has participated in or assisted the fiduciary's fraudulent or dishonest conduct.[^30]

[63] The real issue here is whether Elko had the degree of knowledge required for either knowing receipt or knowing assistance. Two types of knowledge arise: actual and inferred.

C. ACUTAL KNOWLEDGE

[64] Although the plaintiffs pleaded knowing receipt in their factum, in oral argument, Mr. Forrest stated that the case is primarily about knowing assistance. I therefore start my analysis with the element of actual knowledge.

[65] Throughout their factum, the plaintiffs make submissions to the effect that Albert was aware of the scheme to divert suppliers and customers from IWS to WIS. In many instances, the statement is not supported by an evidentiary reference. In others, where there is a pinpoint citation, the evidence cited does not establish that Albert knew that the reason behind the arrangement was to devalue IWS, divert business to WIS or otherwise amounted to a breach of fiduciary duty.

[66] Much of the information on which the plaintiffs rely in their factum actually deals with the knowledge of the settling defendants and Chester as opposed to the knowledge of Elko.

[67] There is no evidence that Albert actually knew that the settling defendants or Chester had diverted IWS suppliers to WIS or otherwise breached their fiduciary duties to IWS in their relationship with the WIS. During Albert’s examination for discovery, plaintiffs’ counsel put to him on several occasions that he knew about a scheme to divert suppliers from IWS to WIS. Albert consistently denied knowledge of such a scheme. Plaintiffs’ counsel did not explore the point further.

[68] None of the settling defendants say that Albert knew about a scheme to divert customers or suppliers from IWS to WIS. None of Warren, Sheldon or Aaron ever state specifically what Albert is alleged to have known or what specifically they told Albert.

[69] Although Sheldon’s affidavit makes many statements that suggest Albert’s involvement, a closer reading of the affidavit shows that Sheldon had no direct contact with Albert. His evidence is based on hearsay or assumptions.

[70] Aaron’s only evidence of having spoken with Albert is that he “had a couple of follow-up meetings with Albert to ensure he was comfortable with everything” relating to a loan Elko had extended to WIS to help it start its business. Nowhere does Aaron say that he discussed improper purposes behind WIS, supplier accounts or sources of materials with Albert.

[71] The closest the settling defendants come to imputing direct knowledge to Albert is in paragraph 28 of Warren’s affidavit where he says:

In order to facilitate WIS's business, I asked Albert to have Elko play the role of a paper intermediary on sales between WIS and IWS. WIS was now buying scrap from former IWS accounts, but needed a quick and guaranteed buyer of the scrap. We wanted IWS to buy this scrap to assist WIS, but also knew that there would be immediate problems if the Monitor and Morris found out about this. Accordingly, I arranged for Elko to act as the intermediary (on paper) so that it would appear to the Monitor that IWS was buying scrap from Elko, and the involvement of WIS would not be known.

[72] The paragraph should be analysed carefully. First, I note that it was drafted by the plaintiffs’ lawyers, as part of the settlement agreement, not by Warren’s lawyers. Second, on cross-examination, Warren denied the suggestion that Elko was a “paper intermediary” and described Elko’s role as that of a broker. Third, Warren does not say that he told Albert that the purpose of the scheme was to deprive Morris of the benefit of his judgment. Nor does Warren say that he told Albert to keep his involvement with IWS or WIS secret.

[73] Plaintiffs’ counsel obtained even less from Warren on cross-examination. The only passage I was taken to in support of the suggestion that Albert was aware of the scheme was the following question and answer:

Q. And Albert Samee obviously knew about the arrangement? A. Yes.

[74] The question-and-answer involved the plaintiffs’ lawyer cross-examining Warren on an affidavit that the plaintiffs’ lawyer drafted in an examination in which Warren was the witness of the plaintiffs’ lawyer. After all that, what specifically Albert knew or did not know about the arrangement was not explored.

[75] In oral argument I pushed Mr. Forrest for evidence of Albert’s knowledge about anything nefarious about the transactions. He was unable to point me to anything that demonstrated direct knowledge but said that this was also a case of wilful blindness and recklessness.

D. INFERRED KNOWLEDGE

[76] In the absence of evidence of specific knowledge by Elko, the next question to pose is whether Elko had constructive knowledge or was wilfully blind or reckless about the nature of the transactions. I refer to this collectively as inferred knowledge.

[77] Elko asks me to infer constructive knowledge or infer wilful blindness or recklessness from the following assertions:

(a) Albert was a long-time friend of Warren’s.

(b) Elko was a long time supplier and customer of IWS.

(c) Warren and Chester asked Albert lend Aaron $175,000 to start his business. Chester assured Albert that he was informally guaranteeing the loan.

(d) In July 2005 Albert signed a document evidencing the loan but the document was dated to November 2004 rather than to July 2004 when the loan was actually advanced.

(e) Warren asked Albert to have Elko play the role of “paper intermediary” on sales between WIS and IWS.

[78] Before examining any of these specific allegations, a few words about the nature of Elko’s business are helpful to set the appropriate context in which to assess the allegations.

[79] It appears that Elko was a very “old-school” business. It acted as a scrap metal broker. The business relied heavily upon Albert’s relationships with others. It was run with little or no formality and was based on trust. Albert did not keep a calendar, kept no notes and tended not to document scrap transactions. He had no email address. Elko never had a scale in its scrap yard, despite operating a business that measured more or less all of its supply and product by weight. Albert trusted his buyers and their scale tickets. Where necessary, Elko used an independent weigh station.

[80] As a scrap metal broker, Elko was by definition an intermediary between parties. It would therefore not strike Albert as unusual to be asked to act as an intermediary between parties.

[81] I turn then to the specific allegations from which the plaintiffs ask me to infer knowledge, wilful blindness or recklessness sufficient to amount to knowing receipt or knowing assistance.

[82] By way of overview, in each case, the evidence the plaintiffs point to as a basis for inferring knowledge of wrongdoing is also capable of other inferences excusing culpability that are equally or more plausible for someone in Albert’s position.

[83] I turn first to the request by Chester to lend Aaron money to start a business.

[84] Albert viewed his business as one based on long-term relationships. As a result, doing favours for one party would be good for business because it generated goodwill towards him. During his discovery Albert testified that he had also lent money to other industry participants in the past. During his cross-examination, Aaron described what he understood as Albert’s motivation to lend him money to start a new business:

I think that Mr. Samee generally saw opportunity in the -- saw opportunity given the circumstances that the Waxman family enterprise, whatever, IWS now Waxman Industrial -- because it's in some level of disarray, he saw, or he believed he saw an opportunity to make money and that he could play a growing role and do more and more business with my family. So in general to the extent that that meant Waxman Industrial and to the extent that that meant me, I think that he believed that by being close with me personally and helping me personally, it would allow his business with Waxman Industrial to grow.

[85] Those motivations are as or more plausible grounds for lending Aaron money, especially when no one has testified that they told Albert what the object of the scheme was.

[86] With respect to the loan document, the plaintiffs argue that it was dated to November 2004 rather than to July 2004 when the loan actually occurred because Aaron was still an employee of IWS in July 2004. For Aaron to start a competing business while he was an employee of IWS could tend towards involving Albert in a breach of fiduciary duty.

[87] The plaintiffs did not, however, take me to any evidence to demonstrate that Albert was aware of the dating of the document or of Aaron’s role within IWS at various times. During his examination for discovery, Albert testified that the loan document was prepared by one of Aaron’s employees and was sent to him to sign after the fact. Albert says he reviewed the document “vaguely” and signed as Aaron requested. Those circumstances amount to a thin basis for judgement against Elko. It is not at all unexpected for business people operating as informally as Albert did not to focus on the date of the document but to focus on is more essential business terms. In the absence of specific evidence to the effect that Albert was aware of the date and its significance, I am not prepared to infer constructive knowledge, wilful blindness or recklessness with respect to a breach of fiduciary duty by Chester and/or Aaron based on that evidence.

[88] There is nothing about Elko’s business dealings with WIS that would have revealed to Albert that suppliers had been deliberately diverted from IWS to WIS. IWS lost a number of supplier and customer accounts after the Court of Appeal upheld Morris’s judgment against IWS. IWS was clearly challenged both because of the loss of business after the Court of Appeal judgment and because of the long-standing family conflict. In that context, it is not unusual that Aaron would want to start his own business in the area as opposed to being involved with IWS which was confronted with familial, legal and financial baggage.

[89] Once Elko started doing business with WIS, there was also nothing to indicate to Albert that he was part of a scheme to undermine Morris’ judgment. Although some of the customers of WIS were former customers of IWS, other former customers of IWS migrated to other competitors. WIS also had its own suppliers and customers who had no historical relationship with IWS. The circumstances would appear to make WIS a perfectly legitimate business.

[90] With respect to the allegation that Warren referred to Elko as a paper intermediary on transactions between IWS and WIS; as already noted, that was the language of plaintiffs’ counsel not of Warren. On his cross-examination, Warren declined to adopt that characterization and referred to Elko as a broker.

[91] The plaintiffs also note that, in many instances, Elko purchased from WIS and sold onward to another party without the inventory ever making its way to Elko’s scrapyard. That did not make Elko a “paper intermediary” as the plaintiffs submit. That made Elko an effective broker. Albert testified during discovery that it was common for him to buy from one party and sell to another without the material ever coming to Elko’s property. Instead, Elko would arrange for delivery directly from the supplier to the end customer. If anything, that is evidence of an effective brokerage business. Brokers make money by putting buyers and sellers together. If Elko could do so more quickly and reduce overhead costs of storage or real estate, so much the better.

[92] Albert also had a legitimate business explanation for his role as a broker between WIS and IWS. First, he noted that for one broker to act as a broker between two other brokers is not unusual and is often a function of the financial strength of the respective players. By way of example, if either customer or Broker A had material that IWS wanted, Broker A might not want to sell to IWS if IWS did not have the means to pay quickly. This would be even more acute if Broker A were not well-capitalized and needed quick payment terms. Elko was well-capitalized. Elko could therefore purchase from Broker A and pay quickly but also sell to IWS and receive payment from IWS more slowly. In those circumstances, Elko could obtain a lower price from Broker A because of its ability to pay quickly and could obtain a higher price from IWS because of its willingness to, in effect, provide financing.

[93] After the judgment against Chester and IWS, it appears that many suppliers refused to sell to IWS because of a concern about its financial well-being. Albert viewed Aaron’s business as at least in part, an effort to recapture some of those customers. By paying WIS quickly he gave the fledgling business more credibility in the marketplace and by selling to IWS he was helping an old friend.

[94] There was also no evidence from the plaintiffs to suggest that the purchases between WIS and Elko or between Elko and IWS were conducted on the basis of anything other than market prices.

[95] The plaintiffs further rely on those statements in Warren’s affidavit to the effect that Elko would often not be aware of the specific transaction until after it had taken place. Warren would set the price first between the customer and WIS; then between WIS and Elko; and finally, between Elko to IWS. Recall that this was the affidavit that the plaintiffs’ lawyers prepared for Warren as part of the settlement and on which Warren was cross-examined as part of the settlement. Elko did not receive a copy of the affidavit and did not become aware of the cross-examination until long after Albert died.

[96] Had Elko been given a copy of the affidavit at the time it was prepared, Albert would have had an opportunity to respond and his lawyer would have had the opportunity to cross-examine Warren on the basis of information from Albert.

[97] Albert’s discovery transcript does, however, disclose information that puts Warren’s statement about arranging pricing into a somewhat different light. First, Albert stated expressly that pricing between Elko and WIS was agreed to between Albert and Aaron and that pricing between Elko and IWS was agreed to between Albert and either Chester or Warren. No contrary information was put to Albert to undermine that evidence. The only other way counsel tried to undermine the evidence on Albert’s discovery was by suggesting that it was implausible that in each of the transactions involving WIS and IWS, Elko made a profit. The suggestion that a business has made a profit on transactions it conducts is hardly unusual nor does it suggest that Elko is part of a scheme to deprive Morris of the benefit of his judgment.

[98] Second, Albert indicated that in many cases involving frequent purchases and sales, prices are set on a monthly basis. This was not the case only with IWS and WIS but also with other customers and brokers with whom Elko dealt. In that context, Warren’s evidence that a WIS employee, Jody Patey, would often fill out bills of lading with pricing for both the WIS – Elko side and the Elko – IWS side is, if true, more understandable. If example, one agreed to buy a certain volume of product in a given month at a certain price, individual transactions to make up that volume are more administrative in nature and would not have to be agreed separately on each occasion.

[99] Albert also described other situations in which Elko acted as a broker between IWS and an unrelated company or broker. By way of example, Atlas Steel bought from Elko knowing full well that the product it was buying came from IWS. Chester had, however refused to deal directly with Atlas because of rumours about its poor financial health. Albert had a good relationship with both Atlas and IWS which he was able to leverage into acting as a broker for a significant supply of material.

[100] Similar situations arose where parties did not like or trust each other. Albert was able to act as a peace making broker to the advantage of all.

[101] Elko’s profit from the impugned transactions with IWS is approximately $300,000 based on a maximum margin of $10 per tonne multiplied by the number of tonnes sold. Given that not all of Elko’s sales to IWS during the relevant period involved WIS, the profit may well be less than that. Turning that into a $5,000,000 judgment against Elko based on the quality of the evidence tendered seems highly speculative.

[102] I am not prepared to find constructive knowledge, wilful blindness or recklessness on the record before me. I note here that the plaintiffs’ underlying claim was based on the fact that Chester hoodwinked Morris into selling him his shares. If Chester could hoodwink Morris into giving up millions of dollars worth of assets, it is not implausible to believe that he could hoodwink Albert into engaging in brokerage transactions that benefited Albert without disclosing the more nefarious purposes behind those transactions.

[103] Albert provided plausible alternative explanations for the role he played. In my view, this is far more likely a situation where Albert saw the disarray within IWS and viewed it as an opportunity to grow his business by deepening his relationship with a number of parties than one in which Albert knew or ought to have known that he was participating in a breach of fiduciary duty that was designed to deprive Morris of the value of his judgment or that Albert was wilfully blind or reckless with respect to that purpose.

[104] I have considerable sympathy for Morris who was forced to wage a decades long battle only to die before seeing any of its fruits. I also have considerable sympathy for his estate and heirs who have been deprived of what would otherwise have been their rightful inheritance. I cannot, however, let the fact that they have been treated unjustly allow them to commit an injustice against another party. The responsibility here was ultimately not Albert’s but that of the Chester and the parties with whom the plaintiffs settled.

III. Disposition and Costs

[105] For the reasons set out above, I dismiss the plaintiffs’ motion for summary judgement and grant summary judgment in favour Elko. The plaintiffs have not suggested that they would have any better evidence at trial than they presented on their summary judgment motion. The record does not demonstrate that Elko had the requisite state of knowledge required for either knowing receipt or knowing assistance. In those circumstances, I am satisfied that it is appropriate to award summary judgment in favour of Elko.

[106] To the extent there is any contest in the evidence, such as with respect to whether Albert negotiated prices with IWS and WIS separately as he stated on discovery or whether prices are set by WIS or Warren as Warren suggested in his affidavit, the plaintiffs have rendered Albert incapable of responding because of their failure to disclose the settlement, the affidavits and the cross examinations in a timely manner.

[107] In the alternative to summary judgment dismissing the claim against Elko, I would permanently stay the claim for failure to make timely disclosure of agreements that changed the adversarial landscape of the litigation.

[108] Elko seeks costs of $510,444.50 on a substantial indemnity basis comprised of:

(a) Costs of $104,877.40 for the stay motion;

(b) Costs of $155,767.31 for the summary judgment motion; and

(c) Costs of $249,799.79 for the balance of the action.

[109] The plaintiffs submit that costs should be awarded on a partial indemnity scale. They point out that in both Handley, Aecon and Moore costs were awarded on a partial indemnity basis.

[110] Given the awards of other courts, costs on a partial indemnity scale would appear to be more appropriate. In addition, this was not an action without any foundation. Given the lengthy, tortured history of the underlying dispute, it was understandable that the plaintiffs felt they needed to pursue all avenues open to them.

[111] Elko seeks partial indemnity costs for the stay motion of $71,310.88 including HST and disbursements. The plaintiffs note that their own partial indemnity costs on the stay motion were just over $32,000. The plaintiffs note that Elko changed counsel shortly before the stay motion. It would understandably take new counsel more time than earlier counsel to get up to speed with the matter. To take this into account, I would retain the disbursements as claimed at $2,210.48 but reduce the cost component of the request by 20% to $55,280.32 for a total cost award on account of the stay motion of $57,409.80.

[112] With respect to Elko’s claim for costs on the summary judgment motion, I also find that a partial indemnity scale is appropriate for the same reasons as set out in paragraph 110 above. Elko claims partial indemnity costs of $104,581.70 including HST and disbursements. The plaintiffs’ fees for the summary judgment motion on a partial indemnity basis are approximately $55,000.

[113] The plaintiffs note that a portion of Elko’s costs claim relates to drafting a notice of motion, drafting supporting affidavits and preparing a motion record; none of which were ever served. The costs outline does not allow me to ascertain the amount attributable to those items with precision. I will nevertheless address the issue in the interests of proportionality and finality. Those items appear in an overall description that includes corresponding with opposing counsel, reviewing examination transcripts and communicating with the court all for a total of $34,831.50. It strikes me that a reduction of the fee by $15,000 plus HST will be roughly appropriate. When HST is added to that, it would take partial indemnity fees and disbursements down to down to $87,631.

[114] Although that is still materially higher than what the plaintiffs charged, the task of Elko on the summary judgment motion required considerably more detail orientation than that of the plaintiffs. The plaintiffs, in effect, relied on the affidavits that Sheldon and Warren swore as part of the settlement. Elko was required to dig much deeper and review the entire record including the cross examinations conducted in association with the settlement and the discovery transcripts. Both their factum and their oral submissions readily demonstrated that Elko’s lawyers had prepared conscientiously and effectively for the motion. Responsible counsel should not be penalized for preparing in a manner that assists the court.

[115] In addition to the foregoing, Elko seeks costs of the action which, on a partial indemnity scale, they ask me to fix at $168,440.98 including HST and disbursements. The supporting bill of costs of Elko’s previous counsel is not particularly helpful. It merely provides a figure for the fees incurred by each lawyer in each year without indicating what those costs are for. The plaintiffs note that they are unable to make meaningful cost submissions in response without a full bill of costs including all dockets.

[116] One can expect that Elko would be entitled to some costs for the work its earlier lawyers performed. I tend to agree with the plaintiffs that I am unable to do that in any precise manner given the bill of costs that has been delivered. Again, in the interests of proportionality and finality I would propose to set the remaining costs of the action at $100,000 including HST and disbursements. If either party declines that proposal, Elko’s previous counsel will have leave to deliver a more fulsome bill of costs with the plaintiffs having the opportunity to respond. I will then fix costs for the proceeding. I would ask the parties to work out a schedule for that process and advise me when and to what schedule they have agreed.

[117] In extending this offer, however, I will keep the $100,000 figure in mind when assessing costs of any further work required for the process of fixing costs. If a party does not do materially better than the $100,000 figure I have suggested, they can expect to pay the opposing side’s costs of this added process on a substantial or full indemnity scale.

Koehnen J.

Released: March 23, 2021

ONTARIO

SUPERIOR COURT OF JUSTICE

(Commercial List)

BETWEEN:

MORRIS WAXMAN AS ASSIGNEE OF THE ESTATE OF I. WAXMAN & SONS LIMITED, MORRIS WAXMAN and SOLID WASTE RECLAMATION INC.

Plaintiffs

– and –

CHESTER WAXMAN, WARREN WAXMAN, SHELDON KUMER, DYNAMIC METAL TRADING INC., WAYNE LINTON, AARON WAXMAN, WAXMAN INDUSTRIAL SERVICES CORP., WAXMAN REALTY COMPANY INC., SCRAPCARES CORPORATION, c.o.b. as SCRAP CARES, ELKO INDUSTRIAL TRADING CORP. and AHMED (ALBERT) SAMEE

Defendants

REASONS FOR JUDGMENT

Koehnen J.

Released: March 23, 2021

[^1]: Handley Estate v. DTE Industries Limited, 2018 ONCA 324 at paras. 39, 45. [^2]: Handley 2018 ONCA 324. [^3]: Handley at para. 39, 45(i). [^4]: Handley at para 45 (ii). [^5]: Handley at para. 45 (iii). [^6]: Handley at para. 45 (iv). [^7]: Handley at para. 47. [^8]: Moore v. Betruzzi 2012 ONSC 597, 2012 ON SC 597 at para. 65. [^9]: Turney v. Zhilka, [1959] SCR 578 at p. 583 [^10]: Handley ONSC 4349 at para. 41. [^11]: Tallman Truck Centre Limited v. K. S. P. Holdings Inc. 2021 ONSC 984 at para. 24. [^12]: Tallman at para. 26. [^13]: Tallman at para. 50. [^14]: Noonan v. Alpha-Vico 2010 ONSC 2720 at para. 51; Moore v. Betruzzi 2012 ONSC 597, 2012 ON SC 597 at para. 66. [^15]: Petey v. Avis Car Inc. (1993), 13 0R 725 (Gen. Div.). [^16]: Moore v. Bertuzzi 2012 ONSC 597 at para. 67. [^17]: Aecon v. Stephenson Engineering Limited, 2010 ONCA 898, 2010 ON CA 898 at para. 12. [^18]: Aecon 2010 ONCA 898 at para. 16. [^19]: Tribecca Finance Corp. v. Harrison 2019 ONSC 1926. [^20]: Poirier v. Logan, 2021 ONSC 1633 at para. 71 [^21]: Poirier 2021 ONSC 1633 at para. 61. [^22]: Tallman Truck Centre Limited v. K. S. P. Holdings Inc. 2021 ONSC 984 at para. 46. [^23]: Rules of Civil Procedure, R.R.O., Reg. 194, Rule 20. [^24]: Hryniak v. Mauldin, 2014 SCC 7 at para.49. [^25]: Hryniak, at paras. 44-45. [^26]: Northern Industrial Services Group Inc. v. Duguay, 2016 ONCA 539, at paras. 16-17; Queen Street Holdings Inc. v. Z-Teca Inc., 2017 ONSC 5890, at paras. 8-10; Tim Ludwig Professional Corp. v. BDO Canada LLP, 2017 ONCA 292, at para. 54; Chernet v. Galaites, 2017 ONCA 337, at para. 12; Auciello v. 3877337 Canada Inc. (c.o.b. HLC Home Loans Canada), 2017 ONSC 2360, at paras. 33 and 39, aff’d 2018 ONCA 377. [^27]: Citadel General Assurance Co. v. Lloyds Bank Canada, [1997] 3 S.C.R. 805 at para. 48; Boal v. International Capital Management Inc., 2018 ONSC 2275, at para. 71. [^28]: Citadel, at para. 48. [^29]: Enbridge, at para. 23. [^30]: Air Canada v M & L Travel Ltd., [1993] 3 SCR 787, at para 38; Gold v Rosenberg, [1997] 3 SCR 767, at para 34; Enbridge Gas Distribution Inc v Marinaccio, 2012 ONCA 650 at para 23; Harris v Leiken Group Inc., 2011 ONCA 790, at para 8; DBDC Spadina Ltd. v. Walton, 2018 ONCA 60 at paras. 211 and 216 (per van Rensburg J.A., dissenting). The reasons of van Rensburg J.A. were adopted by the Supreme Court of Canada, 2019 SCC 30.