COURT FILE NO.: 2539/18
DATE: 20210122
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
620639 ONTARIO INC., c.o.b. as HERMAN’S BUILDING CENTRES
John K. Downing, Jack Masterman, for the Plaintiff
Plaintiff
- and -
CHRISTOPHER BELAOUSSOFF, VITTORIA FORTUNATO aka VICTORIA FORTUNATO and MARIA V. FORTUNATO and 8338868 CANADA INC.
Tajinder Kaur Sivia, for the Defendants
Defendants
HEARD: November 16, 2020 via teleconference
TRANQUILLI J.
Overview
[1] Our Rules of Civil Procedure are designed both to favour the disposition of legal disputes on their merits and also to ensure that cases are processed in an orderly, efficient and timely way. This motion requires the court to weigh these objectives when considering the appropriate remedy for a party’s non-compliance with the Rules.
[2] The plaintiff brings this motion for an order striking the statement of defence in this two-year old action. The plaintiff claims the defendants failed to produce a proper affidavit of documents, failed to attend for examinations for discovery and have not committed to remedying this non-compliance. The plaintiff submits that the defendants’ deliberate conduct demonstrates that they do not consider themselves to be bound by the Rules. Striking the defence is an appropriate and proportionate remedy in the circumstances.
[3] The defendants suggest that any non-compliance is insignificant and that the consequences of the COVID-19 pandemic also unavoidably contributed to the delay. The defendants submit they were ambushed and bombarded by the plaintiff’s litigation tactics and that they should be given a reasonable opportunity to remedy any deficiency in their discovery obligations.
[4] The striking of a pleading is not a remedy of last resort; however, it is extraordinary. The scope of the remedy for non-compliance is within the discretion of the court, to be determined in the context of the particular case.
[5] In balancing the competing goals within the Rules, in the circumstances of this case, I am satisfied these defendants lost their right to have this dispute decided on the merits. These are appropriate circumstances for the court to exercise its discretion to strike the statement of defence.
[6] The evidence demonstrates that the defendants’ non-compliance is material, deliberate and unequivocal. The defendants did not offer a reasonable explanation for the non-compliance and critically, failed either to remedy or to offer a credible commitment to remedy their non-compliance, despite ample opportunity to do so. Finally, striking the statement of defence is a proportionate remedy in an action for a construction debt of $32,731.23 plus interest that should have progressed beyond the discovery phase by the time that this motion was heard, notwithstanding the pandemic.
Issues
[7] The facts on this motion are somewhat complicated; however, the issues for determination are clear.
[8] The issues on this motion are:
Are the defendants in non-compliance with their discovery obligations under the Rules?
Should the court exercise its discretion to strike out the statement of defence?
Background Facts
[9] The plaintiff Herman’s Building Centres is a supplier and distributor of building materials for use in the construction and renovation industry. This proceeding is the second of two actions initiated by Herman’s regarding a construction debt, incurred by a corporation, Sync Net, in 2014. Herman’s alleges that the defendants in this action improperly received monies from Sync Net that were subject to a trust in favour of Herman’s pursuant to the Construction Act, RSO 1990, c C.30, as amended.
The First Action
[10] In October and November 2014, Herman’s sold construction product to Sync Net, with terms for payment in 30 days. This debt was not paid. In April 2015, Herman’s commenced an action on the debt against Sync Net, its parent corporation and the principals of each, Anil Ramnarine and Serge Dominique (“the First Action”). Only Mr. Ramnarine participated in the proceeding. The remaining defendants were noted in default. In August 2017 the plaintiff obtained default judgment against those defendants in the amount of $38,704.38 plus ongoing interest. Herman’s has been unsuccessful in collecting this judgment.
[11] Mr. Ramnarine was examined for discovery in September 2018. He claimed he was the victim of a fraud perpetrated by the principals of the corporate defendants, including the defendants in this action, Christopher Belaoussoff and Vittoria Fortunato. He stated he was a director of Sync Net in name only and that Mr. Belaoussoff, Ms. Fortunato and Mr. Dominique actively managed the company. In particular, he provided information and accounting documents to show that the defendants Mr. Belaoussoff, Ms. Fortunato and 8338868 Canada Inc. received transfers of monies from Sync Net’s accounts in excess of $220,000, without apparent legitimate business reason.
[12] These details were of note to Herman’s, as any monies received by Sync Net in respect of the construction debt ought to have been maintained in a separate trust account to be paid to beneficiaries such as Herman’s, pursuant to the Construction Act.
The Second Action
[13] In December 2018, Herman’s therefore commenced this proceeding against Mr. Belaoussoff, Ms. Fortunato and 8338868 Canada Inc., seeking, among other grounds of relief, damages for breach of trust (the “Second Action”).
[14] On May 16, 2019, the defendants served their statement of defence denying all liability. On July 16, 2019, the parties agreed to schedule examinations for discovery of all parties on November 1 and November 4, 2019. The plaintiff thereafter served its notice of examination on the defendants.
[15] The plaintiff provided its sworn affidavit of documents on or about June 20, 2019. On August 28, 2019, defence counsel advised the plaintiff’s documents failed to disclose information that connected the defendants to Sync Net’s construction debt to the plaintiff or to substantiate the allegation that Sync Net paid the defendants monies in excess of $220,000. Defence counsel took the position that there was no merit to the claim, that the issues were res judicata due to the First Action, there was a limitation defence and that she had instructions to bring a summary judgment motion.
[16] On September 10, 2019, the defendants Belaousoff and Fortunato served affidavits of documents which claimed they had no relevant documents that would be captured by either schedule “A” or “C” of their affidavits.
[17] On September 17, 2019, plaintiff counsel responded that among other things, the plaintiff was in possession of relevant documents produced by Mr. Ramnarine in the First Action which were relevant to the Second Action. The plaintiff was in the process of confirming that it had Mr. Ramnarine’s consent for waiver of the deemed undertaking rule so that the plaintiff could disclose the documents in the Second Action in a supplementary affidavit of documents. Plaintiff counsel also noted its allegation that $220,000 had been improperly paid from Sync Net to the defendants, such that the defendants were in possession, power or control of relevant records, such banking and employment records, contrary to their affidavits of documents. Plaintiff counsel demanded a further and better affidavit of documents within the next few weeks so that the discovery dates could be preserved.
[18] Shortly thereafter, the plaintiff served its supplementary affidavit of documents, which included the documents produced by Mr. Ramnarine in the First Action.
[19] Almost three weeks later, on October 24, 2019, defendants’ counsel advised she had not yet reviewed the plaintiff’s supplementary affidavit of documents and that the defendant Fortunato was in “ill health”. Defendants’ counsel proposed that the parties postpone examinations to January 2020. The plaintiff immediately responded the examinations would proceed as originally scheduled.
[20] The defendants did not respond and did not attend for examinations for discovery on November 1, 2019. The plaintiff obtained certificates of non-attendance.
[21] On November 6, 2019, the plaintiff wrote to the defendants regarding their unexplained failure to attend for examinations for discovery. The plaintiff sought its costs thrown away and required that the discoveries be scheduled to occur on or before December 20, 2019 at the defendants’ expense. The plaintiff followed up on November 11, 2019, demanding a response. On November 13, 2019, defendants’ counsel advised she was waiting to hear from her clients. On November 27, 2019, the plaintiff again requested a response and warned the plaintiff would bring this motion to strike the statement of defence. In response of the same date, defendants’ counsel advised her instructions were to proceed “by way of motion” and proposed that both motions should be scheduled to be heard on a date in February 2020. It appears the defendants intended to bring a summary judgment motion, as indicated by subsequent correspondence and submissions.
[22] The plaintiff’s motion to strike was initially returnable January 17, 2020. By letter of January 15, 2020, defendants’ counsel stated there was no point in wasting time and money on examinations before the hearing of the defendants’ summary judgment motion.
[23] This motion was heard on November 16, 2020. In the meantime, the defendants had not brought the threatened summary judgment motion, had not provided a further and better affidavit of documents and had not proposed a new date for examinations for discovery.
Analysis
- Are the defendants in non-compliance with their discovery obligations under the Rules?
[24] There is no question that the defendants are in non-compliance with their discovery obligations with respect to documentary disclosure and examinations for discovery.
Documentary Disclosure
[25] The defendants’ affidavits of documents claimed there were no relevant, non-privileged documents in their current or former possession, power or control. The accuracy of this representation is questionable, given the plaintiff’s claim that Sync Net transferred sums of money in excess of $200,000 to the defendants without a legitimate business reason. The court agrees with the plaintiff that the defendants’ banking records, corporate and employment records are relevant and ought to have been disclosed in the defendants’ affidavits of documents.
[26] Moreover, the defendants’ representation that they had no relevant documents is questioned by the documents provided by Mr. Ramnarine to the plaintiff in the First Action. These suggest the defendants Belaoussoff and Fortunato were active principals of the involved corporations; however, no documents relating to their roles or the financial activities of the defendant corporations were identified.
[27] The court does not need to make a substantive finding in this regard for the purposes of this motion. The defendants’ own evidence in response to this motion confirms the deficiencies in their disclosure obligations. Defence counsel’s law clerk swore an affidavit in response to this motion which contained startling admissions, contrary to the defendants’ earlier affidavits of documents. The defendants admit that they received at least $52,800 from Sync Net. The affidavit implies there is nothing sinister about these payments, given Belaoussoff’s and Fortunato’s employment roles in Sync Net. They admit that Ms. Fortunato was Sync Net’s accountant with signing authority for the company and that Mr. Belaoussoff worked for Sync Net and was later a Sync Net director as of January 31, 2015. However, these defendants failed to produce a further and better affidavit of documents that includes either banking records or employment/corporate documents to reflect this situation. They also do not signal an intention to do so. They failed and continue to fail to provide a cogent explanation for this non-disclosure, which I shall address further in these reasons.
Examinations for Discovery
[28] The defendants admit their failure to attend the scheduled examinations for discovery in November 2019. Defence counsel acknowledged that she overlooked advising the plaintiff that the defendants would not be produced for examination on that date. The defendants never proposed new examination for discovery dates in the year following that non-attendance, nor did they propose a timetable either in response to the motion or at the hearing months later. The defendants deferred scheduling discovery in preference to their intended summary judgment motion. COVID-19 and the “ill health” of one of the defendants may justify some delay. However, I do not accept that the pandemic excuses or the unexplained ill health of one defendant justifies the complete lack of diligence or responsiveness in these circumstances, as I shall explain later in these reasons.
- Should the court exercise its discretion to strike out the statement of defence?
[29] The plaintiff contends that striking the statement of defence is the logical consequence of the defendants’ non-compliance. The defendants submit that they should be given an opportunity to comply. They note there have been no previous court orders addressing their discovery obligations.
[30] The Court of Appeal recently outlined number of principles the court should consider when determining whether to strike a party’s statement of defence for non-compliance with its disclosure obligations which the court will consider in the circumstances of this proceeding: (a) reasonable opportunity to cure non-compliance; (b) consideration of the “common sense” factors; (c) the merits of the claim or defence; and (d) is striking the defence is a proportional remedy: Falcon Lumber Limited v. 2480375 Ontario Inc., 2020 ONCA 310, paras. 50-53.
(a) Reasonable opportunity to cure non-compliance?
[31] The court will usually want to ensure that a party has a reasonable opportunity to cure its non-compliance before striking out its pleading. Striking out a pleading is not restricted to “last resort” situations where it must be preceded by a party breaching a series of earlier order: Falcon Lumber, supra, at para 50.
[32] The defendants’ affidavit claimed that the plaintiff bombarded the defendants with demands and that the discovery scheduling, and this motion were the culmination of litigation tactics. This argument has little place in an affidavit. In any event, the defendants had ample opportunity to cure their non-compliance in the year since the disclosure and examination for discovery issues arose. The plaintiff warned of its intention to bring this motion to strike. The defendants took no steps to cure non-compliance in the year since the issue arose or since the motion was served. They had ample opportunity to do so.
[33] There is no rational explanation for the defendants to await the court’s intervention before complying with the Rules. Discovery obligations under the Rules should be performed automatically by a party, without the need for court intervention: Falcon Lumber, supra, at para. 43. Otherwise, the message is that the Court is always willing to give parties who have refused to comply with the Rules or court orders another chance: Kohlsmith v. Sterling Mutuals Inc. 2014 ONSC 4696 at para 55.
(b) The “common sense” factors
[34] The court should consider several “common sense” factors when considering whether to strike out a pleading: Falcon Lumber, supra at para. 51. The court considers each of these factors in the circumstances of this case:
(i) whether the party’s failure is deliberate or inadvertent
[35] The defendants’ own evidence on this motion leads the court to conclude that their non-compliance is deliberate. At best, the explanations properly in evidence only partially address the reasons non-compliance.
[36] In October 2019, Defence counsel suggested that the examinations for discovery set for November 2019 needed to be postponed as she needed more time to review the plaintiff’s productions and because the defendant Ms. Fortunato was in “ill health”. However, this does not address the defendants’ failure to confirm with the plaintiff that they would not attend on the long-scheduled date. They simply did not attend despite the plaintiff’s clear position that it intended to proceed with the date as scheduled.
[37] Defence counsel’s eventual response to the plaintiff’s inquiries about the non-attendance was that she had instructions to proceed by way of motion and that there was “no point” to having examinations for discovery before the defendant’s threatened summary judgment motion. This is also seen as a deliberate refusal to comply with their discovery obligations.
[38] The defendants have never explained the circumstances of the defendant Fortunato’s “ill health” at the time of the scheduled examination for discovery, how this would affect document production or the involvement of the other defendant, Mr. Belaoussoff. It was also suggested by counsel in argument at the motion that Ms. Fortunato continued to be in “ill health”; however, there were no particulars of this unexplained illness properly in evidence, despite an ample opportunity to do so.
[39] The court also does not accept the impact of the COVID-19 pandemic as an explanation for the non-compliance. The non-compliance first arose before the pandemic. While the pandemic has had consequences on the efficacy of the justice system, it cannot be disputed that the courts have continued to operate and that parties have continued to access the system to advance their claims, albeit through different platforms, as evidenced through the hearing of this motion. Beyond simply relying on the existence of the COVID-19 pandemic, defence counsel did not provide any proper evidence as to how that situation impeded these defendants from complying with their discovery obligations in the past year.
[40] Similarly, the defendants continue to have produced no documents whatsoever, despite their own affidavit evidence on this motion confirming the existence of such relevant information. Notwithstanding this evidence, defendants’ counsel made a mystifying suggestion that it was “quite possible” that the defendants could not produce documents that they did not have. This equivocation in contrast to the affidavit evidence is troubling and leads to court to the only conclusion that the non-compliance has been deliberate.
(ii) Whether the party’s failure is clear and unequivocal;
[41] This non-compliance is not a difference of opinion about the adequacy of disclosure or scope of relevance or whether proper questions on examination were refused. The parties have not been able to progress to that stage since the defendants have not attended for examination for discovery and claim there are no relevant documents in their possession.
[42] The defendants’ failure to discharge their basic discovery obligations is clear and unequivocal. They did not attend for examinations for discovery. They have not produced any relevant documents and previously claimed there were none.
[43] The essentially blank affidavits of documents are belied by the affidavit evidence on this motion, which confirms the existence of documents within the defendants’ possession, power or control, although their counsel submitted at the same time it was “quite possible” no relevant documents existed.
(iii) Whether the defaulting party can provide a reasonable explanation for its default, coupled with a credible commitment to cure this default quickly;
[44] The defendants have not provided a reasonable explanation for the defaults that withstands scrutiny. The defendants made no effort to reschedule the examinations or to serve a further and better affidavit of documents. They have also made no commitment to cure this default quickly, despite having a year before this motion was heard in which to do so.
[45] The court may have considered the representation as to one defendant’s “ill health” as a reason for the non-attendance; however, at that time in November 2019, counsel did not confirm the non-attendance, explain how the ill health of one party obviated the obligations of the other defendant to attend and did not take any steps to reschedule examinations for discovery, even when invited by the plaintiff to do so. The defendant Fortunato’s ongoing and current health since then was not in evidence in the defendants’ materials, although generally represented in argument as an ongoing reason for the defendants being unable to proceed. The court would expect some supporting evidence in that regard.
[46] The defendants rebuffed the plaintiff’s efforts to reschedule examinations for discovery with the representation that it intended to bring a summary judgment motion and that discovery would be a waste of time and money. The defendants’ intention to bring a summary judgment motion does not negate their discovery obligations. In fact, the court would expect that discharging one’s discovery obligations would be part of putting one’s best foot forward on such a motion. In any event, there is no compelling evidence that the defendants taken any steps or are close to bringing a summary judgment motion seeking dismissal of the action. The evidence on the motion shows that such a motion was continually promised but never served or addressed in the months since the non-attendance and service of the plaintiff’s motion.
[47] There was no cogent explanation for this omission properly in evidence, but for general assertions as to COVID-19 and Ms. Fortunato’s continued ill health, which I have previously addressed. The court might have been willing to entertain general representations as to the impact of COVID-19 and the health of one of the defendants on its efforts to cure these defaults. However, the defendants did not make any proposal to cure these defaults in the 11 months after the motion was served. Even at the hearing of the motion, the defendants had no specific plan to comply. The most that defendant counsel could advise in response to the court’s direct question was that they were “possibly” willing to schedule examinations for discoveries and that it was “quite possible” there were no documents to produce. These are alarming responses that lead the court to conclude that there is no credible commitment by the defendants to comply with their discovery obligations.
(iv) Whether the substance of the default is material or minimal;
[48] These are complete failures by the defendants to adhere to their discovery obligations under the Rules. Disclosure of relevant documents is fundamental to the Rules. Parties in every action must comply with their document disclosure and production obligations without the need for the court to intervene to compel their adherence: Falcon Lumber, supra at paras. 41-43.
(v) The extent to which the party remains in default at the time of the request to strike out its pleading;
[49] The defendants have completely failed to bring themselves into compliance with the Rules. As previously noted, the defendants have not produced relevant documents and appear to be unprepared to acknowledge the existence of such information, despite affidavit evidence to the contrary. They have made no effort to reschedule examinations for discovery in the year since their non-attendance and offered no concrete commitment to do so.
(vi) The impact of the default on the ability of the Court to do justice in the particular case;
[50] These are not minor defaults. The defendant’s defaults deprive the plaintiff of the ability to test the merits of its allegations, to advance the proceeding and deprives the Court of its ability to do justice on the merits of the claim.
[51] In summary, none of these common sense factors militate the court’s analysis away from considering striking the statement of defence at this stage of the analysis.
(c) The merits of the claim or defence
[52] This factor may play only a limited role where breaches of production obligations are alleged, as one would reasonably expect a party with a strong claim or defence to comply promptly with its disclosure and production obligations: Falcon Lumber, supra at para. 52.
[53] The defendants insist the plaintiff’s claim is frivolous and vexatious. In answer to the plaintiff’s efforts to advance this proceeding, the defendants denied the existence of any relevant documents and continually promised to bring a summary judgment motion to dismiss the action. That summary judgment motion has never materialized, for no explanation that the court accepts. The defendants promised it as early as October 2019 and have no compelling reasons in evidence for it not having been filed by now.
[54] The plaintiff has put forth a fulsome prosecution of its claim. The defendants have raised issues of res judicata and a limitation defence. Without substantively determining the merits of those defences, the court notes the plaintiff has replied to those positions and set out the evidence in support of its reply.
[55] Most importantly, the court is satisfied on this preliminary review that the plaintiff is not making a spurious claim. The Second Action is the consequence of its efforts in the First Action to pursue satisfaction of the construction debt. Its motion materials carefully and methodically set out its efforts to collect on the debt and what it learned from the First Action. The plaintiff produced the records from the First Action and explained how this information applies to this action. The defendants have yet to respond in any substantive fashion in the year (plus months) that passed since the plaintiff produced those records (which were already ostensibly in the defendants’ possession, power or control).
[56] If the defendants had any confidence in its representations that there was no merit to the claim and that the defendants had no relevant documents in their possession, it is the court’s expectation, as supported by the Rules that the defendants would have put its best foot forward to refute the claims by now, through satisfaction of their discovery obligations and bringing the promised summary judgment motion. Instead, there is no summary judgment motion and there is neither a cogent explanation for non-compliance nor a credible plan to remedy their inaction.
(d) Does striking out the defence constitute a proportionate remedy in the circumstances;
[57] This claim is a construction trade debt for a modest amount of money. Claims of this nature should spend less time in the court system and impose lower legal costs than more complex ones: Falcon Lumber, supra at para. 56. The defendants’ ongoing non-compliance has increased the plaintiff’s costs of litigating the action. Considering the defendants’ failure to comply with their discovery obligations to this point, their lack of diligence in the face of this motion for the last several months and the lack of a credible commitment to comply, the court has no confidence the defendants would take any proactive step to cure the defaults and advance the proceeding short of further court intervention.
Conclusion
[58] There has been deliberate and ongoing non-compliance by the defendants with their discovery obligations. There is no realistic prospect of the action advancing through discovery on its merits in the foreseeable future. The court has been given no credible commitment that the defendants will comply with their obligations. The court is satisfied that striking the statement of defence is a proportionate remedy in the circumstances, with costs thrown away, as supported by the plaintiff’s bill of costs submitted on the motion, and costs of this motion to the plaintiff.
Orders
The statement of defence of the defendants Christopher Belaoussoff, Vittoria Fortunato aka Victoria Fortunato and Maria V. Fortunato and 8338868 Canada Inc. is struck;
The plaintiff is entitled to its costs thrown away for the defendants’ non-attendance at the examination for discovery, fixed in the amount of $6,806.56.
The plaintiff is entitled to its costs of this motion.
If the parties are unable to agree on costs, the plaintiff may provide the court with written submissions by February 8, 2021 and the defendants by February 16, 2021. The submissions shall be no longer than three pages, excluding the bill of costs. In the absence of any communication from the parties by February 19, 2021, costs of this motion are deemed settled.
”Justice K. Tranquilli”
Justice K.Tranquilli
Released: January 22, 2021
COURT FILE NO.: 2539/18
DATE: 20210122
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
620639 ONTARIO INC., c.o.b. as HERMAN’S BUILDING CENTRES
Plaintiffs
- and -
CHRISTOPHER BELAOUSSOFF, VITTORIA FORTUNATO aka VICTORIA FORTUNATO and MARIA V. FORTUNATO and 8338868 CANADA INC.
Defendants
REASONS FOR JUDGMENT
Justice K.A. Tranquilli
Released: January 22, 2021