Court File and Parties

COURT FILE NO.: CV-2007-201

DATE: 2021-05-05

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 2089322 Ontario Corporation, Applicant

AND:

Luc W. Desroches, Nicole L. Desroches and Rezmart Gas and Tobacco, Respondents

BEFORE: The Honourable Madam Justice K.E. Cullin

COUNSEL: Nicholas Macos and Danielle Malone, for the Applicant

Christopher Sparling, for the Respondents

HEARD: April 19, 2021

ENDORSEMENT

Background

[1] This proceeding arises as a result of an alleged Joint Venture Agreement (“JVA”) between the Applicant and the Respondents, which was negotiated with a view to establishing a convenience store and gas bar on Wasauksing First Nation (“WFN”) near Parry Sound, Ontario. This application seeks to resolve a long-standing dispute between the parties about the terms and conditions of the alleged JVA.

[2] This application was commenced on July 27, 2007. During the course of motion proceedings in April 2018, it came to the attention of the parties that there were two different “versions” of the JVA, one in which the respondents made a significant addendum, and one in which part of the addendum was removed. This addendum, as well as the impact of the Indian Act, R.S.C. 1985, c.I-5 on the JVA have become the focal issues in the dispute between the parties.

Overview of the Litigation

[3] To rule on the issues currently before me, it is important to first review an abridged history of this litigation.

[4] The notice of application in this matter was issued on July 27, 2007. The Applicant sought a determination of the parties’ rights under a JVA, dated February 3, 2006, as well as an interim and permanent injunction pertaining to the possession, operation and control of the business operating as “RezMart Gas and Tobacco” (“RezMart”).

[5] The notice of application named Luc W. Desroches, Nicole L. Desroches and RezMart as Respondents (the “Respondents”). The claim against Nicole Desroches was dismissed pursuant to the Endorsement of Justice Koke, dated April 27, 2018, following an argued motion; this decision has not been appealed. RezMart is a sole proprietorship owned by Luc Desroches; as a result, he is effectively the only remaining Respondent.

[6] At the initial return date of the application on August 2, 2007, the Respondents sought an adjournment to retain counsel. The endorsement indicates that the Respondents were alleging defaults of the JVA by the Applicant, as well as concerns about process under the Indian Act. The adjournment was granted, and the Respondents were ordered to provide disclosure regarding the finances and operations of the business.

[7] The litigation went into hibernation due to internal issues within the Applicant corporation. On May 19, 2017, the Applicant filed a notice of change of lawyer and a supplementary application record.

[8] On June 19, 2017, the matter appeared before Justice Koke. The Respondents appeared in person. It was noted that they had not complied with the previous order for financial disclosure; a further disclosure order was made. The endorsement indicated that the parties were going to explore mediation.

[9] On March 12, 2018, the matter appeared before Justice Cornell for a hearing of the application. The Respondents served materials the day before the hearing; Nicole Desroches was represented by counsel, and Luc Desroches was self-represented. The hearing did not proceed. Justice Cornell made procedural and disclosure orders, and identified the following issues to be addressed at the next hearing date: whether Nicole Desroches was a party to the JVA; whether the JVA was enforceable against Luc Desroches; whether the Applicant was entitled to interim possession of the business; whether the business should be wound up; and, if pursued, whether Luc Desroches was in contempt of court.

[10] On April 20, 2018, the matter appeared before Justice Koke for a hearing. He found as follows: that the JVA was not enforceable against Nicole Desroches; that the JVA was enforceable against Luc Desroches and that he had breached it; that the Applicant would be granted interim possession of the business; and, that Luc Desroches was in contempt.

[11] During the hearing before Justice Koke, Luc Desroches argued that the JVA was unenforceable because it did not represent a final agreement between the parties. In the Affidavit of Luc Desroches, sworn March 12, 2018 and the Factum of Luc Desroches, filed on April 16, 2018, it was submitted that he did not agree to the terms of the JVA, that he signed the JVA “without prejudice”, and that the JVA was void pursuant to s.28 of the Indian Act; these arguments were not reflected in the endorsement of Justice Koke and it is not clear on the record before me whether they were pursued at the hearing.

[12] On May 25, 2018 the Respondent Luc Desroches (the “Respondent”), again self-represented, brought a motion seeking to stay the injunction order. This request was denied by Justice Koke, who instead granted relief with respect to the interim transition of the business to the Applicant.

[13] On October 1, 2018, the matter appeared before Justice Koke for a further hearing. By this time, the Respondent was represented by counsel. He argued that the injunction should be suspended pending a forensic examination of the JVA because the removal of the words “without prejudice” from the JVA had occurred fraudulently without his knowledge or consent. The Applicant opposed the Respondent’s motion and asked the court to grant an order permitting the disposition of the business either by winding up or sale. The Applicant also requested that the court impose a penalty in response to the Respondent’s contempt.

[14] Justice Koke found as follows: that the Respondent’s motion to suspend the injunction pending a forensic examination of the JVA was denied; that the JVA filed with the court was the original agreement and had not been fraudulently altered; that the Applicant was permitted to proceed with either the sale or the winding up of RezMart; and, that the Respondent be required to pay $6,000.00 into court as a penalty for his contempt.

[15] The Respondent appealed Justice Koke’s Order of October 1, 2018. On May 2, 2019, the Court of Appeal set aside Justice Koke’s order, except for the penalty for contempt and the costs of the motion. The Court of Appeal ordered that the Applicant would continue to have interim possession of the RezMart business, and that the Respondent would be permitted to challenge the authenticity and enforceability of the JVA, including its enforceability in light of s.28 of the Indian Act.

[16] On September 3, 2019, the matter appeared before Justice Koke. He directed the following: that the Respondent was to pay $15,000.00 into court as security for costs; that following the posting of costs, the Respondent’s expert could examine the original JVA document; that the Respondent’s request for interim possession of the business was dismissed, pending the forensic examination; that the balance of the Respondent’s motion, including the Respondent’s arguments with respect to the impact of the Indian Act, was adjourned pending the completion of the forensic examination.

Issues Presently Before the Court

[17] Since December 2019, this proceeding has been case managed by Regional Senior Justice Ellies; he has assigned it to me for the hearing of the application. Currently before me are pre-hearing motions seeking to address the following issues:

a. A request by the Respondent to bifurcate the hearing to address the issue of the addendum to the JVA separately from the issue regarding the impact of the Indian Act. The Respondent is seeking to address the Indian Act issue first, arguing that may dispose of the application in its entirety. The Applicant opposes this request.

b. A request by the Applicant to tender oral evidence at the hearing of the application. The Respondent opposes this request.

c. A request by the Respondent for interim possession of the RezMart business premises or, alternatively, for access to the business premises to conduct an inspection(s). The Applicant opposes this request.

d. A request by the Respondent for the return of the $15,000.00 paid into court by him pursuant to the Order of Justice Koke, dated September 3, 2019. The Applicant opposes this request.

Analysis

Should the hearing be bifurcated with the Indian Act issue being addressed first?

[18] The Respondent contends that the JVA is void as a result of the operation of s.28 of the Indian Act or, alternatively, that the JVA was fraudulently altered and is therefore unenforceable against him. It is his position that the Indian Act issue should be addressed first because it is strictly a legal issue and, if this finding were made by the court, it would effectively end the litigation. The Respondent argues that litigation costs and efficiency weigh in favour of a bifurcated proceeding.

[19] The Applicant contends that significant time and expense have been devoted to the issue of the JVA addendum, and that the addendum issue has raised the spectre of forgery and fraud either by or for the benefit of the Applicant. It is the Applicant’s position that these “odious allegations” must be put to rest, both for the benefit of the parties and to ultimately determine the issue of costs. The Applicant argues that both issues are ready for a hearing and that there is no benefit to bifurcating them.

[20] The rule under which this relief is being sought was not clearly specified by the Respondent in argument. The court’s jurisdiction to bifurcate issues in an application is addressed in Rules 6.1.01, 21.01 and 38.10(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. I will deal with each in turn.

[21] Rule. 6.1.01 provides that the court may order separate hearings on one or more issues in a proceeding, with the consent of the parties. Although most precedent arising from this rule pertains to the bifurcation of actions, the definition of “hearing” in Rule 1.03 includes applications. The Divisional Court in Bondy-Raphael v. Potrebic, 2015 ONSC 3655 (paras. 37-38) noted that where there is provision elsewhere in the Rules for the determination of an issue in advance of a hearing, Rule 6.1.01 may not be paramount. If Rule 6.1.01 applies, however, the current consensus of the law is that it usurps the inherent jurisdiction of the court; that is, absent consent, a hearing cannot be bifurcated.

[22] Rule 21.01 provides that a party may move before a judge for the determination of a question of law raised by a pleading in an action in advance of trial. Although it is not specific to applications, it is conceivable that, in the right circumstances, such a motion could be brought in an application pursuant to Rule 1.04(2).

[23] It is impossible for me to determine on the record before me whether Rule 21.01 would apply to the issue raised by the Respondent. For such a motion to be granted, there can be no underlying facts in dispute (Law Society of Upper Canada v. Ernst & Young, 2003 CanLII 14187 (ON CA)). There is insufficient information before me to assess whether there are factual disputes that would need to be determined before ruling on the applicability of the Indian Act. I would note as well that Rule 21.02 requires that such motions be brought promptly, as they are intended to promote litigation efficiency and to reduce litigation costs. With respect, the Respondent’s motion, brought almost 14 years after the commencement of the litigation, can hardly be described as timely.

[24] Rule 38.10(1) speaks to the jurisdiction of the court to dismiss or adjourn an application, in whole or in part. Arguably, this extends to the authority to proceed on one issue in an application while adjourning another, but again I would note that the Respondent’s request does not fit neatly into this rule.

[25] The Applicant has commenced a notice of application seeking a determination of rights under the JVA. The Respondent has filed responding affidavits alleging that the JVA is void, including allegations that it is void as a result of the operation of the Indian Act. On September 3, 2019, the Respondent brought a motion seeking a determination regarding the impact of the Indian Act on the JVA; that motion was adjourned by Justice Koke, to be addressed once the forensic examination of the JVA was complete.

[26] Ideally, when he first responded to the application, the Respondent should have commenced a counter-application pursuant to Rule 38.03(4) seeking declaratory relief. This would have assisted the court in focusing the issues at an early stage and determining the most appropriate manner of proceeding. I appreciate from reviewing the court file that the Respondent alluded to the Indian Act issue from time to time but, prior to September 2019, he had never taken the appropriate steps to place it squarely before the court. Unfortunately for him, his informal efforts to address this issue were also eclipsed by the fallout from his failure to comply with the court’s other orders and directions in the proceeding.

[27] There may have been a point, early in the litigation, when it would have made sense to bifurcate and to make a preliminary ruling on the applicability of the Indian Act. That time has long since passed. This litigation is approaching its conclusion and there are no efficiencies to be achieved or costs to be saved through a bifurcated proceeding. The Applicant is correct in saying that the fraud issue requires a determination as it will impact costs. Even in the absence of the costs issue, I am of the view that it is such a serious allegation that the interests of justice require a ruling on it. Finally, it cannot be forgotten that there is no consent to bifurcate the issues.

[28] I am therefore denying the Respondent’s request to bifurcate the issues in this proceeding. All issues will proceed together in one hearing.

Should oral evidence be received at the hearing of the application?

[29] The Applicant has requested leave, pursuant to Rule 39.03(4), to call oral evidence at the hearing of this application. The Applicant is seeking to examine three witnesses namely, Marlene Monroe on behalf of the Applicant, and the parties’ proposed experts, Graham Ospreay and Marc Gaudreau.

[30] The Respondent opposes the Applicant’s request. The Respondent first argues that the motion is an attempt by the Applicant to file an additional affidavit regarding the merits of the application, in contravention of Rule 39.02. He further argues that the Applicant has not met the test to seek leave to call oral evidence. Finally, he argues that the motion is premature.

[31] Dealing first with the issue of the timing of the motion, I do not agree that the motion is premature. I will be the judge hearing the application. This motion is necessary and appropriate to address the way the hearing will be conducted.

[32] Dealing next with the issue of Rule 39.02, I note that the affidavit in issue (namely, the Affidavit of Marlene Monroe, sworn February 17, 2021) was filed only with respect to the motion to call oral evidence, and that no request has been made by the Applicant pursuant to Rule 39.02(2) for leave to use the affidavit at the hearing of the application.

[33] The purpose of the affidavit is to support the Applicant’s motion to call oral evidence. It is my view that the affidavit cannot be relied upon at the hearing of the application in the absence of a further motion for leave pursuant to Rule 39.02(2). If the request to call oral evidence were granted, the affidavit would not be necessary as the evidence could be elicited through the Applicant’s witnesses. If the request to call oral evidence were denied, I expect that a motion pursuant to Rule 39.02(2) would follow in short order.

[34] The test to call oral evidence pursuant to Rule 39.03(4) was delineated by Godin, J. of the New Brunswick Queen’s Bench in Jeffrey v. Université de Moncton, 1985 CanLII 4119 (N.B. Q.B.) a decision that was subsequently adopted by McCartney, J. in Nordlander v Nordlander Estate, 1998 CarswellOnt 5023 (Gen. Div). In assessing a request for leave, the court must consider the following:

a. The element of surprise in examining witnesses where no notice is given;

b. The relevance of the evidence; and,

c. Whether the evidence of the proposed witnesses could be presented by affidavit.

[35] In my view, this is a case in which it is both necessary and appropriate to call oral evidence at the hearing of the application. The witnesses that the Applicant is proposing to call have all provided either affidavits or reports, thereby eliminating any element of “surprise” to the Respondent in cross-examining the witnesses. The evidence touches directly upon the issues in dispute and is therefore clearly relevant to the proceedings. Finally, and most importantly, the issues of credibility as between the Applicant and the Respondent, as well as the assessment of the opinions of the expert witnesses, is best resolved through the presentation of oral evidence.

[36] I am mindful of the fact that the affidavit of Ms. Monroe discloses that her oral testimony will consist, in part, of evidence that the Respondent did not have either when he was preparing his affidavit evidence or in advance of his cross-examination. While the Respondent will have an opportunity to cross-examine Ms. Monroe on any discrepancies between her affidavit evidence and her oral evidence, it is my view that fairness dictates that he also be permitted to call oral evidence in response. I will therefore be asking the trial co-ordinator to schedule a trial management conference to discuss the oral evidence, if any, that the Respondent proposes to call at the hearing of the application.

[37] I would note that I considered whether it was necessary to order that the whole application proceed to trial, thereby converting it to an action pursuant to Rule 38.10(2); I determined that it was not. The issue in dispute requiring oral evidence namely, the circumstances of the removal of the words “without prejudice” from the JVA, is narrow. The remaining issues in dispute can be determined by way of affidavit evidence and oral argument. Litigation efficiency and litigation costs favour a hybrid hearing.

Should the Respondent be granted interim possession of the business premises or, alternatively, should the Respondent be granted access to conduct an inspection(s)?

[38] The Respondent seeks an order granting him interim possession of RezMart or, alternatively, authorization to conduct an inspection of RezMart. He argues that he has demonstrated a strong prima facie case that the interim relief granted to the Applicant is not appropriate. He further argues that the Applicant abandoned the RezMart premises in September 2018 and that the buildings have been vacant since that time.

[39] The Applicant opposes the Respondent’s request. It argues that there has been no material change in facts which would support the relief sought by the Respondent.

[40] The Applicant currently has possession of RezMart pursuant to an interim injunction that was granted by Justice Koke on April 27, 2018. In deciding whether to vacate an interim injunction, the court must be satisfied either that the basis on which the injunction was granted was inappropriate, or that there has been a material change in circumstances such that the continuation of the injunction no longer satisfies the test in RJR-MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 S.C.R. 311.

[41] In granting the injunction, Justice Koke accepted the JVA as authentic on its face. In its decision, the Court of Appeal agreed that Justice Koke appropriately did so as a basis for granting interim injunctive relief.

[42] The Respondent argues that his expert report provides strong prima facie evidence challenging the authenticity of the JVA, making it an inappropriate foundation for the interim injunction. What the Respondent fails to reconcile is that the Applicant’s expert has provided strong prima facie evidence supporting the JVA’s authenticity. One cannot choose one over the other without making findings of fact and credibility that go to the issues at the heart of this litigation.

[43] I concur with Justice Koke’s decision to accept the JVA as authentic on its face for the purpose of granting interim relief. To do otherwise would require the court to accept the allegations of fraud and forgery regarding the execution of the JVA; in my view it would be wholly inappropriate to accept such controversial allegations in the absence of a full hearing.

[44] With respect to a material change in circumstances, while it is of concern to the court that the business has been dormant since September 2018, the consequences of that dormancy to the Respondent can eventually be addressed by way of damages and set-off if he is successful in advancing his position with respect to the JVA.

[45] The same cannot be said for the interests of the Applicant. The pre-injunction status quo saw the business being operated completely to the exclusion and financial detriment of the Applicant. Its brief post-injunction period of operating the business resulted in additional incurred expenses. While the Respondent suggests that, if possession of the business were returned to him, he would take steps to protect the interests of the Applicant pending the outcome of the application, I have concerns about the bona fides of this assertion. Given the past conduct of the Respondent, there is a reasonable concern that, if the business were returned to him prior to the resolution of the application, he would have little incentive, short of litigation at the Applicant’s expense, to provide a proper accounting or to co-operate in advancing the matter to a hearing.

[46] As noted by the Supreme Court of Canada in Google Inc. v. Equustek Solutions Inc., 2017 SCC 34, [2017] 1 SCR 824 (para. 24):

Interlocutory injunctions seek to ensure that the subject matter of the litigation will be “preserved” so that effective relief will be available when the case is ultimately heard on the merits (Jeffrey Berryman, The Law of Equitable Remedies (2nd ed. 2013), at pp. 24-25). Their character as “interlocutory” is not dependent on their duration pending trial.

[47] It is my view that equity and fairness dictate that the status quo remain in place pending a determination of the issues in dispute between the parties. I am therefore denying the Respondent’s request to vacate the interim injunction and return possession of the RezMart business to him.

[48] With respect to the request that the Respondent be permitted to inspect the RezMart business premises, there is no evidence before me justifying the need for such an inspection at this time. The proper determination of the issues currently before the court do not require an inspection. Under ordinary circumstances, I might have considered the lack of prejudice in permitting an inspection, but given the current provincial lockdowns and stay-at-home orders, it is my view that it is not appropriate to place people in the position of having to be away from their residences and in contact with one another, as would be necessary to conduct an inspection, absent a compelling reason. I therefore deny the Respondent’s request to inspect the RezMart business premises.

Should the $15,000.00 paid into court be returned to the Respondents?

[49] The Respondent was ordered to pay $15,000.00 into court pursuant to the Endorsement of Justice Koke, dated September 3, 2019.

[50] This order was not made in response to a motion by the Applicant, but rather was a discretionary order made pursuant to Rule 56.09. In his endorsement, Justice Koke specified that the order was made as a condition of granting the Respondent’s motion to release the original JVA to his expert for inspection.

[51] The court has no inherent jurisdiction to order security for costs; such an order may only be made in the circumstances enumerated in the Rules (Toronto-Dominion Bank v. Szilagyi Farms Ltd., 1988 CanLII 4745 (ON CA)).

[52] Had I granted the relief sought by the Respondent in these motions, then it would have been appropriate to exercise my discretion pursuant to Rule 56.09. As I have ordered no relief in favour of the Respondent, I have no jurisdiction to make such an order. There is no jurisdiction pursuant to Rule 56 or elsewhere in the Rules to order security for costs against the Respondent simply because he has elected to defend this application or because he owes a potentially uncollectible debt to the Applicant.

[53] I therefore grant the Respondent’s request for the return of the $15,000.00 paid into court by him pursuant to the Order of Justice Koke, dated September 3, 2019.

Disposition

[54] For the reasons given above, I hereby make the following Orders:

a. That the Respondent’s request to bifurcate the issues in this proceeding is denied, and that all issues in this application will proceed together in one hearing.

b. That the Applicant and the Respondent are granted leave to call oral evidence at the hearing of the application, with the identities of the witnesses and the order of presentation to be determined at a trial management conference.

c. That the Respondent’s motion to vacate the interlocutory injunction ordered by Justice Koke on April 27, 2018 is denied.

d. That the Respondent’s motion requesting an opportunity to inspect the business premises of RezMart is denied.

e. That the sum of $15,000.00 paid into court by the Respondent, Luc Desroches, pursuant to the Order of Justice Koke, dated September 3, 2019, shall be released and returned to the Respondent, Luc Desroches.

f. That this matter is otherwise adjourned to the trial co-ordinator to schedule dates for a trial management conference, to be conducted by Zoom videoconference.

g. That the costs of these motions are reserved to the hearing of the application.

K.E. Cullin, J.

Date: May 5, 2021